State auditor ranks Modesto low, which is not good, in fiscal health assessment

The state auditor’s office has released an online tool that ranks the fiscal health of 471 cities across California, listing them from high to low risk for fiscal distress.

While Modesto is not among the 18 cities in the high-risk category, its ranking is nothing to brag about. The auditor’s office ranked it No. 42. And this is not a list cities want to be ranked low on, because the lower the ranking, the worse a city’s fiscal health.

Atwater in neighboring Merced County was ranked No. 2 among the 471 cities.

This is the first time the auditor’s office has ranked cities’ fiscal health, and the new tool — called an online dashboard — provides the public with valuable insight.

“For the first time Californians will be able to go online and see a fiscal health ranking for more than 470 cities based across the state,” State Auditor Elaine Howle said in a Thursday news release. “This new transparent interface ... is intended to identify cities that could be facing significant fiscal challenges.”

The auditor’s office looked at 10 indicators — including financial reserves, revenue trends and debt burden — that assess a city’s ability to pay its bills in the short and long term, according to a news release, and graded the cities on those indicators from zero to 100 points.

The cutoff for the high-risk category is 41.76 points. The auditor’s office gave Modesto a score of 48.43.

Modesto spokesman Thomas Reeves emailed this statement: “The city also received this report just today and will take some time to analyze the scoring methodology.

“There is no doubt this city, like many others, continues to feel financial pressure and challenging budgetary hardships, and we welcome any opportunity to review and look for ways of improving these scores.”

Reeves also noted that the state auditor’s analysis is based on financial numbers from the 2016-17 budget year and Modesto “has made significant improvements since then.” He said those improvements include increasing general fund reserves as well as improvements to the city’s pension obligations and retiree health care costs.

Stanislaus County’s other cities fared better in the rankings.

Ceres is ranked No. 99, Turlock is No. 127, Patterson is No. 211, Oakdale is No. 249, Riverbank is No. 324, Waterford is No. 328, Hughson is No. 329 and Newman is No. 345.

But there may be reason to use caution when comparing Modesto to these cities, including that some contract for services, such as law enforcement, while Modesto provides those services and bears all of their costs.

A better comparison might be to look at how Modesto stacks up with other large, inland California cities. For instance, the state auditor’s office ranked Stockton No. 153, Fresno No. 142, Bakersfield No. 111, Sacramento No. 51 and San Bernardino No. 43.

Besides the 18 high-risk cities, the auditor’s office identified 217 low-risk cities and 236 moderate-risk cities. Riverbank, Waterford, Newman and Hughson are among the low-risk cities. All other Stanislaus cities, including Modesto, are in the moderate-risk category.

Among the 10 indicators, the state auditor’s office ranked Modesto as a low risk for not being able to pay its bills in the coming year and as a moderate risk for its general fund reserves, general fund revenue trends and pension obligations. But the office ranked Modesto as a high risk for its future pension costs and its debt burden.

The auditor’s office said it worked with a seven-member advisory panel “made up of experts in municipal fiscal health” in coming up with its fiscal risk assessment. One of those experts said the assessment is a critical first step.

“These indicators raise important questions about the financial sustainability of a city,” said Michael Coleman, a consultant with the League of California Cities, in a statement. “However, cities vary substantially as to financial risk. There may be important mitigating factors that will show a city to be in much better financial condition than these indicators suggest.

“Before drawing any conclusions from this data that a city is financially distressed, we need more information. We need to allow knowledgeable local officials to respond and explain. I appreciate that the State Auditor will be doing that follow up.”

Kevin Valine: 209-578-2316, @kevinvaline

This story was originally published October 24, 2019 4:40 PM.

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