City of San Fernando Responds to CPC Study

Editor’s Note:  As stated in our recently released study “California’s Most Financially Stressed Cities and Counties, we used the most recent information that was readily available. It was beyond the scope of this study to contact every city individually – there are nearly 500 cities in California. We have confidence in the accuracy of our report and the methods used to develop the rankings. On the other hand, the goal of our studies is to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians. Our goal is to help foster constructive progress towards more equitable and sustainable management of California’s public institutions. In that spirit we are happy to provide officials representing cities highlighted in the study an opportunity to respond. Needless to say, we also stand ready to retract any of our findings that are demonstrated to be factually incorrect. One problem which could not be avoided is that we had to use financial data from financial statements through the fiscal year ended 6-30-2013. In a few cases we actually had to rely on financials dated 6-30-2012. But this was the most recent readily available data we could find. Perhaps when GASB requires public entities to publish their financials within 45 days after their fiscal years end – the time allotted public companies by FASB – this problem will be avoided. Meanwhile, here is a response from the Mayor of the City of San Fernando, where progress has indeed been made over the past year to address their financial challenges. 

The City of San Fernando has had a chance to review the report issued by the California Policy Center, titled California’s Most Financially Stressed Cities, which ranked San Fernando as number 11 on their list of “Unlucky 13.”

The City has a number of concerns with regard to the conclusions drawn in the report. Most notably, the authors’ reliance on 18 month old financial data to make inferences about the current state of the City’s finances. Based on the somewhat arbitrary metrics developed by the authors to calculate their measure of “Default Probability”, the only conclusion that can be responsibly drawn from the report is that the City of San Fernando had a 1 in 134 chance of filing bankruptcy on June 30, 2013. Beyond that, no other conclusions or inferences are valid. A more thorough, unbiased evaluation would have looked at the City’s finances over a number of years, including both historical and forward looking data, rather than a brief snapshot in time before making a very serious statement about the City’s actual “Default Probability.”

It is well documented that the City of San Fernando was experiencing extreme financial trouble in fiscal year 2012-2013. The authors cite the large operating deficit in the aquatics center, loss of revenue from Rydell Motors and JC Penny’s, a local unemployment rate of 12%, and political turmoil to support their assertion that San Fernando has a relatively high Default Probability.

Unfortunately, the authors did not contact the City to get more up to date data or a comment on the City’s current financial situation prior to publishing their results. If the authors had contacted the City, they would have found out that many of the items cited to support the report’s findings have since been addressed. These include the following actions:

• The City transferred financial and operational responsibility of the aquatics center to Los Angeles County;
• A re-branded Rydell Motors re-opened in October 2013, and has performed remarkably well since its opening;
• Locally, unemployment has decreased to 8%;
• In 2013, voters approved a ½ cent sales tax measure to address the City’s fund balance issues and establish fund reserves; and
• In 2013, voters conducted a recall election that has given rise to new City leadership.

It is clear that the authors were aware of many of these developments as the Measure A: ½ Cent Transaction & Use Tax report presented to City Council in September 2014 and an article on the City’s plan to lease the Aquatic Center to Los Angeles County in October 2014 were both cited as sources in the report. However, for reasons unbeknownst to the City, no mention of those positive financial developments was included in the narrative.

Ultimately, the report relies on outdated financial and qualitative data to its support findings and does not recognize the positive actions taken by the City in recent months. Although it is unfortunate San Fernando is branded as one of the “Unlucky 13” in this particular report, the fact that the City has addressed almost every item cited in support of the findings should serve as reinforcement to the community that the City is moving in the right direction.

Sincerely,

Sylvia Ballin

Mayor, City of San Fernando