Anaheim’s leaders cannot afford to ignore their city’s fiscal problems: John Moorlach

John Moorlach  |  August 2, 2022

"When I was growing up in Orange County, there was an annual GLASS Conference that had a night for attenders and guests at Disneyland. As a teenager in the early 1970s, spending that evening with friends at “the happiest place on Earth” was a big deal, even for us locals.

I bring it up as later, during my accounting practice days, I would find myself presenting a course on teaching children how to manage money at the GLASS Conference in Pasadena.

A few months later, my secretary called me and said the UPS man was in the lobby and wanted to see me. He had attended the conference and recognized my name on the outside wall of my firm’s office.

“My wife just ran up $4,000 in credit card debt after purchasing expensive Christmas gifts for our relatives . . . what do I do?” he asked. And this was in the late 1980s.

This experience, and many similar ones, would find me on the board of a credit counseling nonprofit.

When mired in debt, there are many obvious steps to take. After preparing a monthly and annual budget, one must review their options. First, what can they do to raise additional funds? Is it overtime or a second job? Second, what expenses can they cut or eliminate? Third, what debts can be refinanced at a lower interest rate? And fourth, what assets can be sold, converting them to cash, to pay down debts more aggressively?

Along with these exercises comes “plastic surgery,” cutting credit cards in half, to stop creating new debt.

Which brings us back to Disneyland and the city of Anaheim where it is is located. Out of Orange County’s 34 cities, the city of Anaheim has the second worst balance sheet per capita, missing being in last place because the city of Costa Mesa is in even poorer shape.

Anaheim was already in poor fiscal shape before 2020, but the coronavirus lockdown by Gov. Gavin Newsom has been devastating on Anaheim’s venues. Disneyland, the Convention Center, the Angels, the Ducks, the hotels, the restaurants, the retailers and the myriad of ancillary businesses supporting visiting tourists suffered significant financial setbacks.

The June 30, 2021 annual audit for the city showed an increase in the unrestricted net deficit of $86 million, rising nearly 14% in one year. It also experienced a 14% increase of its liabilities, $216 million, in one year, which should be very worrisome.

Truth in Accounting, a fiscal watchdog group out of Chicago, has shared similar concerns. Its most recent report, “Financial State of the Cities 2022,” reviewed the assets and liabilities of the 75 largest cities in the nation and ranked Anaheim in 48th place.

It’s a little embarrassing for the supposed “leader of the club” to be in the bottom third. Truth in Accounting also gave Anaheim a disappointing grade: “Bottom line: Anaheim would need $6,600 from each of its taxpayers to pay all of its bills, so it has received a ‘D’ for its finances (page 121).”

What can Anaheim do to raise additional funds? The customary first move for a California city facing financial difficulties has been to ask its residents to vote for a sales tax increase. But Anaheim’s City Council would be disingenuous to go this route. This city’s voters are fully cognizant of the real elephant in the room and will no longer subsidize the Disney Resort, so a sales tax increase should be off the table.

For a historical perspective, after the County of Orange filed for Chapter 9 bankruptcy protection, it put a 10-year sales tax increase measure on the ballot. Measure R failed because the county’s voters believed they were not codependent and would not enable those who mismanaged and lost their hard-earned tax dollars to continue and possibly do it again.

What is the city of Anaheim to do? Since it seems the easiest route to take, last week it considered a proposal to tax the tourists who use the city’s roads and infrastructure. It would require voter approval to add a gate tax of 2% to the price of tickets to Disneyland and Angels and Ducks games.

Councilman Jose Moreno proposed this solution and the City Council summarily killed it. The councilman proposed something that no one likes, raising taxes. But this would not be a tax on the city’s residents, except for those who can already afford to attend these venues multiple times in a year.

Moreno made two honest and reasonable mistakes. The first is he was too early. The council is too beholden to these venues and the pain of their fiscal plight has not sunk in. Being early is not a sin. In the case of the stock market, selling too early is better than selling too late.

Secondly, Moreno should have restricted the use of these new revenues to pay down these debts and inserted a sunset clause when this goal was achieved. Eliminating debts translates into financial freedom and removal of debilitating interest costs. And then, over time, the city would have the necessary funds for the programs he proposed the additional funding would be for.

With inflation in full gear, asking for a sales tax increase, where it hits every resident’s pocketbook, would have been a big mistake. Doing nothing, with a recession on the horizon, is asking for the proverbial fiscal train wreck. With so much debt and more to follow, due to recent poor investment returns earned by the California Public Employees’ Retirement System, Anaheim will soon be caught in a difficult vice grip.

I’m not one to recommend tax increases. But, in Anaheim’s case, I can understand why it was discussed. This city, like the others at the bottom of the rankings, has had an imbalance of power thanks to a cabal. And now there is a price to pay. Denying the financial stress exists is difficult to watch.

At least the public conversation has begun. It will be interesting to see the strategic financial planning that will be pursued by Anaheim’s council and its influencers in the days ahead. Turning around this celebrated city by $86 million per year would give it something marvelous to celebrate in 2030 besides Disneyland’s 75th anniversary, it would enjoy a healthy balance sheet where assets exceed liabilities."

Read the full article on: The Orange County Register

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