☆ SJ and SCC both earned “D” grades for fiscal health. Here's why—and how they can turn things around
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In October, California Policy Center announced its Local Fiscal Health Dashboard, which grades school districts/cities/counties on key financial metrics. But San Jose and Santa Clara County might need to redo some homework assignments (with overall fiscal health scores of 57/100 and 59/100)—especially when it comes to unfunded pension debt, general fund reserves, and liquidity. CPC's Sheridan Karras interprets the data for us in this Opp Now exclusive.
Opportunity Now: Some of our readers were a bit concerned when they saw that both San Jose and Santa Clara County earned a “D” on CPC's Fiscal Health Dashboard—defined as a “moderate risk of financial distress.”
Can you break down which metrics contributed to this grade? Let's start with SJ.
Sheridan Karras, California Policy Center research manager: The City of San Jose received an overall fiscal health score of 57 out of 100, earning a letter grade of D. This score is based on ten key metrics that the dashboard considers. The city's general fund, liquidity, and revenue trend appear sufficient, indicating that the city has adequate access to liquid assets to address surprise expenses.
However, the city has an overall negative unrestricted net position, which on its own can serve as a general indicator of financial condition. When San Jose's negative value for "government unrestricted net assets" is compared to the city's total revenue to yield a net worth metric score, the result is quite concerning. San Jose earns less than 2 points out of a possible 15 for net worth because the city has a negative net worth ratio. The OPEB liabilities are not as severe, but the city should be working to address both obligations.
ON: And we hate to say it, but smart watchdogs have been calling out SJ's pension woes for a while now. No one should be surprised it's snowballed into this big of a problem.
Can you speak to why Santa Clara County scored a “D” on the Fiscal Health Dashboard?
SK: The County of Santa Clara earns an overall score of 59 out of 100 (also a D). Unlike San Jose, the County of Santa Clara is struggling with general fund reserves and liquidity. Poor performance in these two metrics means the entity is at higher financial risk if unexpected/emergency expenditures arise. However, the county still has a positive revenue trend. The County should prioritize funding its unfunded pension obligations and OPEB obligations.
ON: So the money may be flowin' in, but until gov't proves they know how to use it well—is it even helpful to boost revenue?
SK: For the fiscal year that ended 2023, according to their audits, San Jose had a government-wide total revenue of over $3.3 billion, and the County of Santa Clara had a government-wide total revenue of over $8.7 billion. These revenues came from property taxes, sales taxes, grants from state and federal sources, and more. And yet, both San Jose and Santa Clara County grappled with shortfalls during their most recent budget processes. I agree with you that San Jose and Santa Clara County should prioritize sound budgeting practices over increasing their income.
ON: Last question: is there anything else readers should know about interpreting this grading system?
SK: Keep in mind that the dashboard provides a snapshot for the year of the most recent Annual Comprehensive Financial Report (2023). Significant changes in revenue or expenditures could drastically change an entity's financial health between the time of the audit and now.
I would say summer 2025 is a good projection for when 2024 data will be released on our dashboard, since we have to wait for local governments to complete their audits and then we analyze them.
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