Citizens' audit panel warns rising pension and debt costs have eroded City of Orange reserves

A volunteer audit advisory committee presented a 17‑year financial review to the City of Orange council, telling members the city’s long‑term liabilities have climbed sharply and that pension‑related costs now materially constrain budget flexibility.

"All told, between the revenues used to cover the city's operation and the State of California clawbacks, the city lost $19,000,000 during these years," Audit Advisory Committee Chair Carolyn Kevenchi said as she reviewed recession‑era impacts and subsequent trends. The committee used audited Annual Financial Reports (AFRS) and compared them against council‑approved budgets.

The committee’s analysis grouped years into recession (2008–2013), post‑recession (2014–2019), COVID (2020–2023) and the present. Presenting audited numbers, Vice Chair Brian Wiltering and staff tracked rising pension liabilities and other long‑term obligations. The committee noted that total fund balance at June 30, 2024, was approximately $91,546,228 — roughly the same level reported in mid‑2008 despite an approximate $50 million increase in the city’s annual budget over the 17‑year span.

Committee members singled out pension costs and the effect of pension obligation bonds issued in 2021. The presentation noted annual debt service on the pension obligation bond averages about $15,600,000. "The pension contribution along with the pension benefit obligation has gone up, makes up 20.5% of total expenses of the general fund," the committee reported.

Council members pressed the panel on whether there was evidence of malfeasance. Kevenchi said the committee found the audited financial statements did not deviate from the council‑approved budgets and did not identify nefarious or malicious activity: "When we looked at the APRs, which are the yearly audited, did not deviate from the council approved budgets." The committee also traced policy decisions, noting the general fund reserve policy was changed (from 25% to 16.6% for the general fund reserve), a shift members said affected available contingency.

Council members and staff discussed the pension obligation bond decision, CalPERS performance, and whether the bond issuance smoothed or increased long‑term risk. Several council members asked for the committee report to be placed prominently on the city’s finance/budget webpages; staff told the council a contracted consultant, Grant Thornton, will deliver a staff budget analysis and long‑range options at the end of July.

The committee recommended that the council set clearer targets for internal service fund reserves, adopt explicit fiscal policy thresholds, and consider both short‑term and long‑term remedies to address the growing share of the budget taken by debt and pension payments. Council thanked the volunteers and directed staff to publish the report and bring the Grant Thornton findings back to the council for deliberation.