Porterville stays afloat while other cities drown in debt
While the City of Porterville does have some bond debt, City Manager John Lollis says that the city’s finances are looking good, especially in comparison to the state of other cities.
Stockton last week filed for bankruptcy, a situation that Lollis feels has been building in that city for a while.
“The situation in Stockton is certainly much different than Porterville,” Lollis said. “With the elevated property values increasing property taxes, and the drop in property values decreasing that tax, that has kind of led to where they are at today. As well as a decrease in sales tax.”
Lollis also noted that Porterville’s bond debt is not nearly as high as Stockton’s.
Of the debts that Porterville does have, a sewer bond debt in the amount of approximately $20 million, a 1998 certificates of participation for streets and bridges debt that is also about $20 million, and a redevelopment agency bond debt of approximately $1 million, Lollis says that steps have been taken to work on the reduction of these debts.
“We had two bonds that we refinanced to take advantage of the favorable market for [interest] rates,” Lollis said of the sewer bonds, which were refinanced last year. Lollis added that this money will be going toward the large sewer expansion project the city plans to enact over the next few years.
The city is also in the process of refinancing the certificates of participation.
“We’re bringing that conversation to the City Council, probably in October.”
Lollis says that Porterville’s finances are bolstered by “adequate reserves”, a budget strategy that has become necessary in recent years.
“We’re continuing to be able to operate with a structured balance,” Lollis said. “I’m doing a memorandum right now on the state budget, which has left a lot of unanswered questions. The state is creating issues for local budgetary controls by figuring out which revenue it’s going to keep for itself.”
The City of Lindsay, on the other hand, has faced some recent problems in terms of its budget. The city’s website’s financial page has audit reports which cover the fiscal years of 2006-07 to its last audit, done in 2010. At that time, the interim Finance Director Tamara Laken, with the help of Brown Armstrong, a certified public accountancy agency in Bakersfield, performed a full audit and found that there were a number of problems in the way city officials before that time had been managing the city’s finances. In the report, it was stated that the “City does not keep track of its budget”, it failed to “spend its bond proceeds on authorized expenditures and it is also out of compliance with several bond agreements.”
At the time the audit was done, the completion of audits for the fiscal years of 2008 and 2009 were still delayed, and that while the city was able to meet its obligations without defaulting, “it was determined that if the fiscal irresponsibility of the previous management, who were not providing full disclosure to the governing body of the financial state of the City or its component unit, the Lindsay Redevelopment Agency, had continued unchecked, the city would possibly have been facing insolvency.”
Insolvency is a great concern when it comes to municipalities and so the state has enacted a law to try to help cities avoid filing for bankruptcy.
According to a June 28 Associated Press story, Stockton filed for bankruptcy after trying to restructure its debt under this law, which has set up a three-month period in which a city and its creditors must attempt to settle the debt before bankruptcy proceedings can begin. When an agreement could not be met, Stockton filed for Chapter 9, making it the largest city in the U.S. to ever have done so. Vallejo is the only other city in California that has filed for Chapter 9.
Stockton’s “budget-in-bankruptcy” for 2012-13 will suspend debt payments, reduce retiree medical benefit payments, and increase the city’s revenues through citations. City officials will continue to handle daily management of the city, but the judge presiding over the bankruptcy case will make decisions as to which creditors will be paid and in what order.
Laken was unable to comment on Lindsay’s financial state as her office is currently working on reconciling the 2011-12 fiscal year.
When it comes to borrowing money, Lollis explained, municipal entities, like individuals, have a credit rating, called a bond rating. That is based on audits performed on a city’s finances which look at a city’s ability to pay off its debts.
“They look at the entire city’s financial state,” Lollis said, adding that when other cities declare bankruptcy, this can have a ripple affect on all city ratings. “That’s always a question when you have cities like Stockton essentially saying they are not going to pay their debt. We are under additional scrutiny. Still, we received the highest rating possible, an AA rating, on that last issuance for the sewer bonds.”
Porterville was given this rating in January of 2011.
“At that time they had looked at the city overall, and they found us to be able to meet our obligations,” Lollis said.