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About

California Government Code section 8546.10 authorizes the State Auditor to establish a high-risk local government agency audit program (local high-risk program) to identify local government agencies that are at high risk for the potential of waste, fraud, abuse, or mismanagement, or that have major challenges associated with their economy, efficiency, or effectiveness. We are currently focusing our efforts on evaluating the risks facing California cities.

The local high-risk program consists of two elements:

• Interactive Dashboard: Each year we collect and analyze key financial data about California cities and use it to develop an interactive dashboard that identifies those cities that could be facing fiscal challenges. Through this transparent interface, California residents, state and local policymakers, and interested parties have a data driven view of each city's fiscal health.
• Audits: After establishing our list of cities facing fiscal challenges, we conduct initial assessments to further evaluate the risks those cities face. These initial assessments inform whether we will seek approval from the Joint Legislative Audit Committee to conduct an audit of the city. If a city is designated as high risk as a result of a completed audit, it must submit a corrective action plan and provide updates every six months regarding its progress in implementing the corrective action plan. We will remove the high risk designation when our professional judgment leads us to conclude that the city has taken satisfactory corrective action.

See the Audits We've Completed See Our Work in Progress

Regulations that define high risk and describe the workings of the local high-risk program became effective July 1, 2015.

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Dashboard

Overview

In October 2019, the California State Auditor launched a new tool—an online dashboard—that ranks more than 470 California cities based on detailed information about their fiscal health. The ranking is part of our process for determining whether a city is at risk of fiscal distress.

We used various financial indicators to assess the fiscal health of cities as summarized in Figure 1. The dashboard allows users to view individual city rankings and ratings, which are scored using a stop-light indicator rating system. This system rates cities based on their risk of experiencing fiscal distress with red being high risk, yellow being moderate risk, and green being low risk. We review the indicators and scoring methodology each year to evaluate their relevance in this determination.

Figure 1

To ensure the development of the list included third-party municipal fiscal health expert input, we established and consulted with an advisory panel made up of experts in municipal fiscal health including representatives from the Public Policy Institute of California, the California Public Employees' Retirement System (CalPERS), California Policy Center, S&P Global Rating Services as well as an advisor to the California Society of Municipal Finance Officers and the League of California Cities, and a professor at the Daniel J. Evans School of Public Policy and Governance at the University of Washington.

Go to the Dashboard Get the Raw Data Here

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Detailed Methodology by Financial Indicator

Overall Risk

To identify cities that may be at risk for fiscal distress, we analyzed financial information for over 470 California cities. We assessed risk by performing various financial comparisons and calculations that we refer to as financial indicators, as discussed in more detail below. We analyzed the finances related to each city's governmental and business-type activities, including the general fund—the main operating fund.

Our analysis relied on information from audited financial statements prepared in accordance with generally accepted accounting principles (GAAP) that we obtained through various sources such as the Federal Audit Clearinghouse, the Electronic Municipal Market Access website, the California State Controller's Office (State Controller), and cities themselves. We also analyzed unaudited pension related information from CalPERS.

Financial Indicators

We selected a set of 10 indicators that enabled us to assess each city's ability to pay its bills in both the short and long term. Specifically, the indicators measure each city's financial reserves, debt burden, cash position or liquidity, revenue trends, and ability to pay for employee retirement benefits. In most instances, the financial indicators rely on information for fiscal years 2014–15 through 2020-21.

Each year, we create and use a points-based system to rank and categorize cities as either high, moderate, or low risk for fiscal distress. We weight the results of the indicators by assigning varying numbers of points to each indicator based on our professional judgment of each indicator's relative importance. Table 1 shows the maximum points assigned to each indicator.

Table 1: Points Possible By Financial Indicators

FINANCIAL INDICATORS	POINTS POSSIBLE
1. General Fund Reserves	30
2. Debt Burden	15
3. Liquidity	10
4. Revenue Trends	5
5. Pension Obligations	10
6. Pension Funding	5
7. Pension Costs	5
8. Future Pension Costs	5
9. OPEB Obligations	10
10. OPEB Funding	5
Maximum Score Possible	100

We assigned points to cities based on the calculated result of each indicator, and then ranked cities based upon their cumulative scores. Cities could score anywhere from zero points up to the maximum available points for each indicator. A perfect score across all indicators would equal 100 points with lower scores representing higher degrees of fiscal risk.

Fiscal Risk Designations

We assigned risk designations to cities based on their cumulative score for all 10 indicators as shown in Table 2.

Table 2: Methodology for Determining Which Cities Are High Risk

RISK DESIGNATION	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	0 to 41.76	This designation means that a city has significant risk of experiencing fiscal distress.
Moderate Risk	41.77 to 71.23	This designation means that a city has some risk of experiencing fiscal distress.
Low Risk	71.24 to 100	This designation indicates that a city has low risk of experiencing fiscal distress.

Our dashboard ranks cities from highest to lowest risk for fiscal distress based on indicators that rely primarily on audited financial statements and other financial information for fiscal years ending June 2018 through June 2021, which were available as of August 19, 2022, and therefore may not represent cities' current financial status. Additionally, our dashboard presents historical results for fiscal year 2016-17 that were last updated in November 2020.

These rankings do not reflect environmental factors such as population trends, unemployment rates, or levels of household income. Consequently, a high fiscal risk designation does not indicate that a city will default on its debt or file for bankruptcy. Similarly, a low-risk designation does not mean that a city is free of financial risk.

We excluded certain cities from our dashboard, generally because they did not publish audited financial statements that were prepared in accordance with GAAP.

See Which Cities Did Not Publish Financial Reports

City of Compton

We ranked the city of Compton as having high fiscal risk for fiscal years 2016-17, 2017-18 and 2020-21, because it has not yet published complete audited financial statements for those years and has a history of not preparing audited financial statements and therefore lacks transparency over its finances. Federal regulations require cities that spend $750,000 or more in federal awards in a fiscal year to have an audit performed. In accordance with state law, cities subject to this requirement must submit this information to the State Controller or notify the State Controller of their exempt status. The State Controller did not report the city of Compton as exempt from this reporting requirement.

City of Lincoln

As requested by the Joint Legislative Audit Committee, we issued a report on March 21, 2019, pertaining to the city of Lincoln and its administration of public funds and assets. That report concluded that Lincoln's mismanagement of public funds, insufficient accountability, and inadequate oversight threatens its financial stability. Read our report titled City of Lincoln: Financial Mismanagement, Insufficient Accountability, and Lax Oversight Threaten the City's Stability here.

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General Fund Reserves

This indicator evaluates whether a city has sufficient financial reserves to cover its expenditures during times of declining revenues or increasing costs. A city with insufficient reserves may have difficulty responding to revenue shortfalls or expenditure overruns while maintaining service levels. Essentially, this indicator measures the extent to which a city's unrestricted reserves could be used in times of fiscal distress.

Methodology

We calculated the general fund reserves indicator using information on general fund unrestricted fund balances (committed, assigned, and unassigned fund balances), as well as expenditures and transfers out (transfers from the general fund to another city fund) from a city's audited financial statements. We then determined whether the unrestricted fund balances were trending in a positive or negative direction using historical financial statements.

We calculated the indicator as follows:

General fund unrestricted fund balances divided by general fund expenditures and transfers out

Correlated with the average annual change in general fund unrestricted fund balances during the past three fiscal years

This indicator reflects a city's general fund unrestricted fund balances as a percentage of its general fund expenditures and transfers out, and whether a city's unrestricted fund balances are trending in a positive or negative direction. Cities that do not have enough reserves to pay for at least two months of expenditures may have trouble maintaining service levels in times of declining revenues or increasing costs. Similarly, even cities with sufficient reserves to cover several months of expenditures could have a difficult time responding to future revenue shortfalls or expenditure overruns if their reserves are declining.

We calculated the average annual change in unrestricted fund balances over a three-year period. For a few cities, we were only able to obtain audited financial statements for two years, and we therefore calculated the change based on those two years. We were unable to calculate these changes for cities when audited financial statements were only available for one year, and therefore for scoring purposes, we assumed that these cities had no growth in their unrestricted fund balances.

We awarded points for this indicator using a two-part scoring system. First, we assigned a range of possible points by comparing a city's unrestricted fund balance in its general fund (fund balance reserve) to its annual expenditures, including transfers out. We assigned cities with higher reserves compared to their expenditures a higher range of possible points than cities with relatively lower reserves. For example, if a city's fund balance reserve was large enough to pay expenditures for eight months, then the range of points it could earn was higher. However, if a city's fund balance reserve was only large enough to pay expenditures for one month, then the range of possible points was much lower.

Second, we determined whether a city's fund balance reserve increased or declined on an annual basis during the past three years. We awarded relatively more points to cities with increasing fund balances and fewer points to cities with declining fund balances. Specifically, if a city's fund balance on average grew by more than 20 percent annually, that city scored at the top of the range of available points. If a city's fund balance on average declined by 20 percent or more annually, that city scored at the bottom of the range. Fund balance trends in between these two boundaries were scored based upon a linear scale.

Because we used a two-part scoring system, a city could have a larger fund balance reserve relative to its expenditures, but it could receive fewer points than another city if its fund balance was declining significantly. For example, a city with a fund balance reserve large enough to cover expenditures for six months but whose reserves declined on average by 20 percent annually would earn 15.78 points. However, a city with a fund balance reserve that was only large enough to pay expenditures for five months, but whose reserves grew on average by 21 percent annually would earn 16.58 points. We assigned points and corresponding risk designations for this indicator based on the calculated percentages, as shown in Table 3 and Table 4.

Table 3: Methodology for Calculating General Fund Reserve Indicator Points

NUMBER OF MONTHS THAT RESERVES COULD BE USED TO PAY EXPENDITURES (CALCULATION RESULT)	RANGE OF POINTS ASSIGNED
0 months (less than or equal to 0%)	0.00
> 0 to 1 months (greater than 0% but less than or equal to 8%)	0.31–3.16
> 1 to 2 months (greater than 8% but less than or equal to 17%)	2.84–6.71
> 2 to 3 months (greater than 17% but less than or equal to 25%)	5.68–9.87
> 3 to 4 months (greater than 25% but less than or equal to 33%)	8.21–13.03
> 4 to 5 months (greater than 33% but less than or equal to 42%)	10.74–16.58
> 5 to 6 months (greater than 42% but less than or equal to 50%)	13.58–19.73
> 6 to 7 months (greater than 50% but less than or equal to 58%)	16.1–22.89
> 7 to 8 months (greater than 58% but less than or equal to 67%)	18.63–26.44
> 8 to 9 months (greater than 67% but less than or equal to 75%)	21.47–29.60
> More than 9 months (greater than 75%)	30.00

Table 4: Methodology for Measuring Risks Related to General Fund Reserves.

RISK DESIGNATION	DESCRIPTION
High Risk	The high risk designation has a range of possible points from 0.00 to 6.50 and indicates that a city's general fund has insufficient reserves to cover its expenditures in the event of a fiscal emergency.
Moderate Risk	The moderate risk designation has a range of possible points from 6.51 to 16.00 and indicates that a city's general fund may have sufficient reserves to cover its expenditures in the event of a fiscal emergency.
Low Risk	The low risk designation has a range of possible points from 16.01 to 30.00 and indicates that a city's general fund has substantial reserves to cover its expenditures in the event of a fiscal emergency.

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Debt Burden

This indicator measures the extent to which a city is burdened by debt by comparing its long-term obligations (excluding retirement obligations) to the revenues the city collects. High amounts of debt can strain a city's ability to provide essential services to its residents, especially if its revenues decline.

Methodology

We calculated the debt burden indicator using information on long-term obligations such as bonds, notes payable, and leases, as well as revenues, from a city's audited financial statements. We calculated the indicator as follows:

Long-term obligations (excluding retirement obligations) divided by governmentwide revenue

This indicator reflects a city's long-term obligations (excluding retirement obligations) as a percentage of its governmentwide revenue. A result greater than or equal to 100 percent indicates that a city may have excessive debt, which can strain its ability to pay its long-term obligations. We assigned points and corresponding risk designations for this indicator based on the calculated percentages, as shown in Table 5.

Table 5: Methodology for Measuring Risks Related to Debt Burden

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	greater than or equal to 100%	0 to 8.33	This designation indicates that a city's revenues are substantially burdened by debt, and it may have difficulty paying those debts without lowering other expenses.
Moderate Risk	less than 100%, but greater than or equal to 40%	8.34 to 13.33	This designation indicates that a city likely has sufficient revenues to pay its debts.
Low Risk	less than 40%	13.34 to 15	This designation indicates that a city has substantial capacity to pay its debts and greater flexibility to respond to economic changes.

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Liquidity

This indicator measures a city's ability to pay its bills in the coming fiscal year by comparing the amount of cash and investments at year-end in the general fund to the fund's obligations (or liabilities). A city with insufficient cash and investments may have difficulty paying the costs of providing services to residents.

Methodology

We calculated the liquidity indicator using information on general fund cash and investments and general fund liabilities from a city's audited financial statements. We calculated the indicator as follows:

General fund cash and investments divided by general fund liabilities

This indicator reflects a city's general fund cash and investments as a percentage of its general fund liabilities. A result of less than 100 percent indicates a city's cash and investments may not be sufficient to cover its short-term obligations. We assigned points and corresponding risk designations for this indicator based on the calculated percentages, as shown in Table 6.

Table 6: Methodology for Measuring Risks Related to Liquidity

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	less than 100%	0 to 4.99	This designation indicates that a city's general fund may not have sufficient cash and investments at fiscal year-end to pay its short-term liabilities.
Moderate Risk	100% or greater, but less than 150%	5.00 to 7.49	This designation indicates that a city's general fund likely has sufficient cash and investments at fiscal year-end to pay its short-term liabilities.
Low Risk	150% or greater	7.50 to 10	This designation indicates that a city's general fund has cash and investments at fiscal year-end in an amount that substantially exceeds its short-term liabilities.

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Revenue Trends

This indicator measures the extent to which a city's general fund revenues are increasing or declining over time. A city with relatively flat or declining revenues may have difficulty maintaining service levels, especially in times of rising costs.

Methodology

We calculated the revenue trends indicator using information on general fund revenues from a city's audited financial statements. We calculated the indicator as follows:

Average annual change in general fund revenues during the past three fiscal years

The revenue trends indicator measures the extent to which a city's general fund revenues increased or declined over a three-year period. A city with relatively flat or declining revenues may have difficulty paying for rising costs, such as rising pension costs, while also maintaining service levels. For a few cities, we were only able to obtain audited financial statements for two years, and therefore we calculated the trend based on those two years. We were unable to calculate trends for those cities when audited financial statements were only available for one year, and therefore such cities received a score of 0 points for this indicator. We assigned points and corresponding risk designations for the revenue trends indicator based on the calculated percentages, as shown in Table 7.

Table 7: Methodology for Measuring Risks Related to Revenue Trends

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	less than or equal to 0%	0 to 2.50	This designation indicates that a city's general fund revenues are flat or declining, which could strain its ability to maintain service levels, especially in times of rising costs.
Moderate Risk	greater than 0%, but less than or equal to 10%	2.51 to 3.75	This designation indicates that a city's general fund revenues are increasing modestly and may be sufficient to pay rising costs without reducing service levels.
Low Risk	greater than 10%	3.76 to 5	This designation indicates that a city's general fund revenues are increasing substantially.

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Pension Obligations

This indicator assesses the magnitude of a city's pension obligations by comparing its unfunded pension liability and any other pension-related debt to the revenues the city collects. A city with large unfunded pension obligations will have to pay higher pension contributions over time, which may strain its ability to provide services to its residents, especially if its revenues decline.

Methodology

We calculated the pension obligations indicator using amounts on the net pension liability, pension-related debt outstanding, and revenues from a city's audited financial statements. We calculated the indicator as follows:

Sum of net pension liability and pension-related debt outstanding divided by governmentwide revenues

The pension obligations indicator assesses the magnitude of a city's pension obligations by comparing its unfunded pension liability (net pension liability) and other outstanding pension-related debt to its governmentwide revenues. Some cities elect to issue pension obligation bonds and use the proceeds to fund their unfunded pension obligations, or to pay the annual required contribution(s) to the pension plan, on the assumption that the interest paid on the bonds will be lower than the earnings from investments in the pension fund.

When a city issues pension-related debt, its financial statements must immediately report this debt within long-term obligations. Furthermore, due to the rules outlined in GAAP, there may be a delay in reporting a corresponding reduction to the city's pension liability. As a result, in the year of debt issuance, cities will score lower in this indicator. However, a city's pension liability may be reduced in the following year by an amount that corresponds to the debt, thus increasing the city's score.

We assigned points and corresponding risk designations for the pension obligations indicator based on the calculated percentages, as shown in Table 8.

Table 8: Methodology for Measuring Risks Related to Pension Obligations

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	greater than or equal to 100%	0 to 4.00	This designation indicates that a city's unfunded pension obligations exceed its annual revenues; therefore, making required contributions to the plan(s) will likely strain the city's financial resources.
Moderate Risk	less than 100% but greater than or equal to 50%	4.01 to 8.00	This designation indicates that a city's unfunded pension obligations represent a substantial portion of its annual revenues; therefore, making required contributions to the plan(s) may strain the city's financial resources.
Low Risk	less than 50%	8.01 to 10.00	This designation indicates that a city's unfunded pension obligations represent a relatively smaller portion of its annual revenues; therefore, making required contributions to the plan(s) may not strain the city's financial resources. This designation was also used for cities that do not offer defined benefit pension plans.
	No Defined Benefit Pension Plan Reported*	10

* Defined benefit pension plans provide income or other benefits to employees at or after separation from employment as defined by the benefit terms. These pension benefits may be expressed as a specific dollar amount or an amount that is based on one or more factors such as an employee's age, years of service, and compensation.

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Pension Funding

This indicator measures the extent to which a city has set aside assets to pay for the pension benefits earned by its employees. Specifically, it assesses the soundness of a city's pension plan by comparing the amount of accumulated pension plan assets to pension liabilities. A city with a pension plan that does not have sufficient assets will likely have to make higher contributions to its plan in the future, potentially supplanting other spending priorities.

Methodology

We calculated the pension funding indicator for those cities participating in CalPERS using unaudited information provided by CalPERS on the value of pension plan assets and accrued pension liabilities from actuarial valuations. An actuarial valuation is a type of appraisal of a pension fund's assets versus liabilities, that uses investment, economic, and demographic assumptions to determine the funded status of a pension plan. For pension plans outside of CalPERS, we obtained similar information from cities' audited financial statements. For cities with both CalPERS plans and plans outside of CalPERS, we combined both data sets to calculate the pension funding indicator.

We calculated the pension funding indicator as follows:

Value of pension assets divided by accrued pension liabilities

We determined that a funding ratio of 70 percent or less indicates that a city's pension plan(s) does not have sufficient assets to fund a substantial portion of the cost of pension benefits already earned by its employees. We assigned points and corresponding risk designations for the pension funding indicator based on the calculated percentages, as shown in Table 9.

Table 9: Methodology for Measuring Risks Related to Pension Funding

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	less than or equal to 70%	0 to 3.50	This designation indicates that a city's pension plan(s) does not have sufficient assets to fund a substantial portion of the pension benefits earned by its employees.
Moderate Risk	greater than 70%, but less than or equal to 80%	3.51 to 4.00	This designation indicates that a city's pension plan(s) is not fully funded but has enough assets to fund a moderate portion of the pension benefits earned by its employees.
Low Risk	greater than 80%	4.01 to 5.00	This designation indicates that a city's pension plan(s) has enough assets to fund all or a substantial portion of the pension benefits earned by its employees. This designation was also used for cities that do not offer defined benefit pension plans.
	No Defined Benefit Pension Plan Reported*	5.00

* Defined benefit pension plans provide income or other benefits to employees at or after separation from employment as defined by the benefit terms. These pension benefits may be expressed as a specific dollar amount or an amount that is based on one or more factors such as an employee's age, years of service, and compensation.

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Pension Costs

This indicator measures the current financial burden of a city's pension costs by comparing its actuarially determined contributions to its pension plan(s) to its annual revenue. High pension costs can supplant other spending priorities and even cause cities to curtail critical services when facing revenue shortfalls or expenditure overruns.

Methodology

We calculated the pension costs indicator using information on actuarially determined contributions and governmentwide revenue from a city's audited financial statements. The actuarially determined contribution is the amount an employer must contribute to adequately fund its pension plan. This indicator evaluates the current financial burden of each city's pension costs by comparing actuarially determined pension contributions to governmentwide revenue. We calculated the indicator as follows:

Actuarially determined pension contributions divided by governmentwide revenue

We assigned points and corresponding risk designations for the pension costs indicator based on the calculated percentages, as shown in Table 10.

Table 10: Methodology for Measuring Risks Related to Pension Costs

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	greater than or equal to 10%	0 to 2.22	This designation indicates that a city's actuarially determined pension contributions constitute a significant portion of its revenues and will likely strain its financial resources.
Moderate Risk	less than 10%, but greater than or equal to 6%	2.23 to 3.33	This designation indicates that a city's actuarially determined pension contributions constitute a moderate portion of its revenues and may strain its financial resources.
Low Risk	less than 6%	3.34 to 5.00	This designation indicates that a city's actuarially determined pension contributions constitute a relatively small portion of its revenues. This designation is also used for cities that do not offer defined benefit pension plans and, thus, are not required to make pension contributions.
	No Defined Benefit Pension Plan Reported*	5.00

* Defined benefit pension plans provide income or other benefits to employees at or after separation from employment as defined by the benefit terms. These pension benefits may be expressed as a specific dollar amount or an amount that is based on one or more factors such as an employee's age, years of service, and compensation.

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Future Pension Costs

This indicator measures the future financial burden of a city's pension costs by comparing its projected actuarially determined contributions to its pension plan(s) to its present level of annual revenue. The actuarially determined contribution is the amount an employer needs to contribute to adequately fund its pension plan. Increasing pension costs may supplant a city's other spending priorities and potentially cause it to curtail critical services, unless it is able to generate additional revenues to offset these increasing costs.

Methodology

We calculated the future pension costs indicator for cities participating in CalPERS using unaudited information provided by CalPERS on projected required contributions and governmentwide revenue from a city's audited financial statements. According to CalPERS, projected required contributions were based on its most recent actuarial valuation reports as of June 30, 2021. These projected contributions were increased by CalPERS to reflect the estimated impact of the negative 7.5 percent investment return experienced by the fund during the fiscal year ending June 30, 2022. The estimation approach used for this purpose may overstate projected contributions for plans that were in excess of 100 percent funded as of June 30, 2021. An actuarial valuation is a type of appraisal of a pension fund's assets versus liabilities that uses investment, economic, and demographic assumptions to determine the funded status of a pension plan.

For cities that only have plans outside of CalPERS we allocated the same proportional share of points to this indicator as those cities earned for the pension obligations indicator. For example, if a city earned half of the available points for the pension obligations indicator, then that city also earned half of the available points for the future pension costs indicator.

For cities with both CalPERS and non-CalPERS plans, we determined which of the plans was larger. If the non-CalPERS plan was larger, we allocated the same proportional share of points to this indicator as those cities earned for the pension obligations indicator. If the CalPERS plan was larger, we used the same approach as if it was the city's only plan. Therefore, we calculated the indicator for those cities participating in CalPERS or whose CalPERS plan was larger than an outside plan, as follows:

• Fiscal Year 2016–17: Projected required pension contributions for fiscal year 2024–25 divided by governmentwide revenue
• Fiscal Year 2017–18: Projected required pension contributions for fiscal year 2025–26 divided by governmentwide revenue
• Fiscal Year 2018–19: Projected required pension contributions for fiscal year 2026–27 divided by governmentwide revenue
• Fiscal Year 2019-20: Projected required pension contributions for fiscal year 2027-28 divided by governmentwide revenue
• Fiscal Year 2020-21: Projected required pension contributions for fiscal year 2028-29 divided by governmentwide revenue

We assigned points and corresponding risk designations for the future pension costs indicator based on the calculated percentages, as shown in the Table 11.

Table 11: Methodology for Measuring Risks Related to Future Pension Costs

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	greater than or equal to 10%	0 to 2.22	This designation indicates that a city's future projected pension costs constitute a significant portion of its current revenues, and will likely strain its financial resources.
Moderate Risk	less than 10%, but greater than or equal to 6%	2.23 to 3.33	This designation indicates that a city's future projected pension costs constitute a moderate portion of its current revenues and may strain its financial resources.
Low Risk	less than 6%	3.34 to 5.00	This designation indicates that a city's future projected pension costs constitute a relatively small portion of its current revenues. This designation is also used for cities that do not offer defined benefit pension plans and, thus, are not required to make pension contributions.
	No Defined Benefit Pension Plan Reported*	5.00

* Defined benefit pension plans provide income or other benefits to employees at or after separation from employment as defined by the benefit terms. These pension benefits may be expressed as a specific dollar amount or an amount that is based on one or more factors such as an employee's age, years of service, and compensation.

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OPEB Obligations

This indicator assesses the magnitude of a city's other post-employment benefits (OPEB), such as health and dental benefits, obligations by comparing its unfunded OPEB liability to the revenues the city collects. Specifically, this indicator assesses a city's OPEB burden by comparing its unfunded OPEB obligations to its revenues. A city with significant unfunded OPEB obligations will have to make larger payments in the future to fund these obligations, which may strain its ability to provide services to its residents, especially if its revenues decline.

Methodology

We calculated the OPEB obligations indicator using information on the OPEB unfunded liability and governmentwide revenue from a city's audited financial statements. We calculated the indicator as follows:

Net OPEB liability (or OPEB unfunded actuarial accrued liability) divided by governmentwide revenue

We assigned points and corresponding risk designations for the OPEB obligations indicator based on the calculated percentages, as shown in Table 12.

Table 12: Methodology for Measuring Risks Related to OPEB Obligations

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	greater than or equal to 100%	0 to 4.00	This designation indicates that a city's unfunded OPEB obligations exceed its annual revenues; therefore, making contributions to the plan(s) will likely strain the city's financial resources.
Moderate Risk	less than 100%, but greater than or equal to 50%	4.01 to 8.00	This designation indicates that a city's unfunded OPEB obligations represent a substantial portion of its annual revenues; therefore, making contributions to the plan(s) may strain the city's financial resources.
Low Risk	less than 50%	8.01 to 10.00	This designation indicates that a city's unfunded OPEB obligations represent a relatively smaller portion of its annual revenues; therefore making contributions to the plan(s) may not strain the city's financial resources. This designation is also used for cities that do not offer defined benefit OPEB plan(s).
	No Defined Benefit OPEB Plan Reported*	10

* Defined benefit OPEB plans provide benefits to employees at or after separation from employment as defined by the benefit terms. These OPEB benefits may be expressed as a specific dollar amount; an amount that is based on one or more factors such as an employee's age, years of service, and compensation; or a type or level of coverage such as prescription drug coverage or a percentage of the cost of health insurance premiums.

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OPEB Funding

This indicator measures the extent to which a city has set aside assets to pay for OPEB, such as health and dental benefits, earned by its employees. Specifically, this indicator assesses the soundness of a city's OPEB plan(s) by comparing the amount of accumulated plan assets to related obligations. A city with OPEB plans that do not have sufficient assets will likely have to make higher contributions to those plans in the future, thus potentially supplanting other spending priorities. Funding levels for OPEB plans are generally much lower than for pension plans.

Methodology

We derived the OPEB Funding indicator for cities offering these benefits to employees by using each city's audited financial statements. The OPEB funded ratio is calculated as follows:

Fiduciary net position divided by total OPEB liability (post-GASB Statement No. 75)

Actuarial value of assets divided by the actuarial accrued liability (pre-GASB Statement No. 75)

A funding ratio of 70 percent or less indicates that a city's OPEB plan(s) does not have sufficient assets to fund a substantial portion of the cost of the post-employment benefits already earned by employees. We assigned points and corresponding risk designations for the OPEB funding indicator based on the calculated percentages, as shown in Table 13.

Table 13: Methodology for Measuring Risks Related to OPEB Funding

RISK DESIGNATION	CALCULATION RESULT	RANGE OF POINTS ASSIGNED	DESCRIPTION
High Risk	less than or equal to 70%	0 to 3.50	This designation indicates that a city's OPEB plan(s) does not have sufficient assets to fund a substantial portion of the other post-employment benefits, such as health and dental benefits, earned by its employees.
Moderate Risk	greater than 70%, but less than or equal to 80%	3.51 to 4.00	This designation indicates that a city's OPEB plan(s) is not fully funded but has enough assets to fund a moderate portion of the other post-employment benefits, such as health and dental benefits, earned by its employees.
Low Risk	greater than 80%	4.01 to 5	This designation indicates that a city's OPEB plan(s) is fully funded or has enough assets to fund a substantial portion of the cost of the other post-employment benefits, such as health and dental benefits, earned by its employees. This designation is also used for cities that do not offer defined benefit OPEB plans.
	No Defined Benefit OPEB Plan Reported*	5

* Defined benefit OPEB plans provide benefits to employees at or after separation from employment as defined by the benefit terms. These OPEB benefits may be expressed as a specific dollar amount; an amount that is based on one or more factors such as an employee's age, years of service, and compensation; or a type or level of coverage such as prescription drug coverage or a percentage of the cost of health insurance premiums.

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Cities That Are Excluded From Our Interactive Dashboard

We excluded the following cities from our interactive dashboard, generally because they did not publish audited financial statements that were prepared in accordance with generally accepted accounting principles (GAAP).

FISCAL YEAR
2017–18	2018–19	2019–20	2020-21*****
Albany*** Amador** Compton Fort Jones*** Holtville* Ripon* Westmorland**	Amador** Artesia** Fort Jones** Holtville* Ripon* Westmorland*	Adelanto Amador** Artesia Avenal Calipatria Fort Jones** Gridley** Holtville* Huntington Park Imperial*** Ione Novato Portola Valley Ripon* Sonoma** Taft** Westmorland Willits	Adelanto Amador Arcata Artesia Avenal Baldwin Park Bradbury California City Calipatria Ceres Clearlake Compton Davis Dorris Dos Palos El Segundo**** Etna Fairfax Fort Jones Fowler Greenfield Gridley Hollister Holtville* Huntington Park Huron Imperial Ione Isleton Livingston Loyalton Manteca McFarland Mill Valley Nevada City Novato Orange Cove Placerville Portola Valley Ripon* Riverbank Santa Maria Shafter Shasta Lake Sonoma Taft Turlock Union City Westmorland Willits Windsor Woodland

* These cities issued audited financial statements prepared on a basis other than GAAP. We do not believe these financial statements are comparable to statements prepared in accordance with GAAP, so we excluded these cities from our analysis.

** These cities did not issue audited financial statements and are not included in our analysis. The State Controller reports that these cities were exempt from federal reporting requirements (as described above).

*** These cities' auditors disclaimed opinions on the cities' financial statements, citing issues that would affect our analysis. Therefore, we excluded these cities from our analysis. The State Controller also reported that these cities were exempt from federal reporting requirements.

**** For fiscal year 2020-21, El Segundo changed the end of its fiscal year from September 30 to June 30, resulting in the financial statements for that year consisting of only nine months of financial activity instead of 12 months. Because this shorter period results in this city's financial statements not being comparable to those of other cities, or to its own prior year financial statements, we excluded this city from the 2020-21 analysis.

***** These cities did not issue their audited financial statements by August 19, 2022, the deadline for being included in this year's dashboard. Also, for fiscal year 2020-21, the federal government extended the deadline for submitting audited financial statements to September 30, 2022.

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Audits

Overview

After completing the dashboard, we perform an independent, data-driven analysis to determine which cities to send audit teams into to obtain local officials' perspective regarding the areas of concern. If the assessment determines it would be beneficial to conduct an official audit of the respective city to determine the extent of the fiscal challenges and to recommend corrective actions, the State Auditor will request approval to do so from the Joint Legislative Audit Committee.

If a city is designated as high risk as a result of a completed audit, it must submit a corrective action plan and provide updates every six months regarding its progress in implementing the corrective action plan. Corrective action plans must outline the specific actions the city will take to address the conditions causing us to designate it as high risk, and the proposed timing for undertaking those actions. We will remove the high risk designation when, in our professional judgment, we determine that the city has taken satisfactory corrective action.

See the Audits We've Completed See Our Work in Progress

Process

Figure 2 outlines the process for identifying and seeking approval to audit high-risk cities as well as information about our local high-risk audit process.

Figure 2: High-Risk Local Government Audit Process

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