City of Richmond Faces Pension Stress

Pick a city in California. Pick a county in California. Odds are, they could be the topic of this analysis instead of Richmond. But Richmond is the focus of a recent analysis published in Reason entitled “Richmond, California’s Finances Remain Shaky,” and that work provides solid data from which to take a deeper look at what’s truly driving their financial challenges: compensation and pensions.

To summarize the Reason analysis, their most recent financial statements include the following excerpt from the auditor’s comments: “If deficit spending continues in the funds that continue to borrow from the General Fund and other funds, it reduces the likelihood that the City will be able to continue as a going concern.”

In plain English, what the auditor is saying is that the City of Richmond is spending more than they’re taking in, and they’re at risk of running out of cash. Reason’s senior policy analyst and the author of the report, Marc Joffe, writes: “Richmond’s unrestricted general fund balance of $18 million is small relative to general fund expenditures of $157 million. The ratio of 9% compares unfavorably to the 17% level recommended by the Government Finance Officers’ Association.”

Where is the money going? Compensation and pensions. Using raw data readily available from the California Office of the State Controller, in 2018 Richmond paid $121 million in base pay, overtime, other wages, health benefits and pension fund contributions. This represents 77 percent of their general fund expenditures.

When that percentage of a […] Read More