Figure 1
West Covina Reduced Its General Fund Reserve Balance by More Than Half From the End of Fiscal Year 2014–15 to the End of Fiscal Year 2018–19

Figure 1 is a line chart depicting West Covina’s declining general fund reserve balance from the end of fiscal year 2014-15 to the end of fiscal year 2018-19. The x-axis shows the fiscal year end and the y-axis shows the reserve balance in millions of dollars. The city’s reserve balance was $20.5 million at the end of fiscal year 2014-15, $15.0 million at the end of fiscal year 2015-16, $14.1 million at the end of fiscal year 2016-17, $12.0 million at the end of fiscal year 2017-18, and $9.9 million at the end of fiscal year 2018-19, for an overall reduction of more than half. The source for the chart is West Covina’s audited comprehensive annual financial reports for fiscal years 2014-15 through 2018-19.

Figure 2
A City’s Declaration of Bankruptcy Requires Negotiation With Stakeholders and Approval From the Bankruptcy Court

Figure 2 is a flowchart showing the process by which a city declares bankruptcy and the requirements a city must satisfy. The first section describes requirements under California state law. To be eligible to declare bankruptcy, a city must pursue one of two options. One option is to engage a neutral evaluator to perform three tasks: act as a mediator in negotiations between the city and its stakeholders, review documentation to assist in addressing the city’s obligations, and assist parties to reach a satisfactory resolution of disputes resulting from the bankruptcy. The other option is to declare a fiscal emergency if it is unable to pay its obligations within 60 days.

The second section describes requirements under federal bankruptcy law. First, a city files for bankruptcy with the U.S. Bankruptcy Court (bankruptcy court) and receives an automatic stay, which provides temporary relief from its creditors’ claims. Next, the bankruptcy court determines whether the city is eligible to receive bankruptcy protection and debt relief based on it meeting all of the following three conditions. The first condition is that the city has become insolvent because it is unable to pay its obligations for the current fiscal year. The second condition is that the city has negotiated with its creditors in good faith but has exhausted all possible alternatives to achieve solvency. Such efforts could include the following: eliminating or outsourcing services, renegotiating employee salaries and benefits, increasing taxes and fees, or restructuring its debt. The third condition is that the city has demonstrated a willingness to commit to a recovery plan to adjust its debts. After the bankruptcy court verifies its eligibility, the city must develop a recovery plan to restructure or reduce its debts and regain financial stability. Finally, the city must submit its recovery plan to the bankruptcy court for approval. The bankruptcy court then formalizes the terms of the plan. The source for the flowchart is an analysis of federal and state law, and Legislative Analyst’s Office’s and League of California Cities reports.

Figure 3
Before 2011 West Covina Offered Generous Pension Plans That Increased Its Pension Liability

Figure 3 is an illustration showing the calculation of retirement benefits using pre-2011 pension plan retirement benefit formulas for an example public safety employee and an example miscellaneous employee at West Covina. The left side of the figure shows a set of facts for the example public safety employee hired before 2011. This public safety employee started working for the city at age 25, retired from the city at age 50, received retirement benefits based on a highest-earned salary of $100,000, and qualified for a retirement formula of 3 percent at age 50. The employee’s 25 years of service multiplied by 3 percent of salary per year equals 75 percent. That percentage is multiplied by $100,000 to arrive at a $75,000 retirement benefit per year for life

The right side of the figure shows a set of facts for the example miscellaneous employee hired before 2011. This miscellaneous employee started working for the city at age 25, retired from the city at age 55, received retirement benefits based on a highest-earned salary of $100,000, and qualified for a retirement formula of 2.5 percent at age 55. The employee’s 30 years of service multiplied by 2.5 percent of salary per year equals 75 percent. That percentage is multiplied by $100,000 to arrive at a $75,000 retirement benefit per year for life.

The bottom of the figure identifies the number of pre-2011 pension plan participants as of June 2019. A footnote explains that data from CalPERS valuation reports do not provide specific detail to determine the exact number of employees and retirees who enrolled in pension plans before 2011. The figure shows that there are at least 96 of 151 active public safety employees, up to 211 retired public safety employees, at least 60 of 126 active miscellaneous employees, and up to 359 retired miscellaneous employees who are participants in pre-2011 pension plans. The source for the figure is an analysis of CalPERS annual valuation reports as of June 2019 and a city benefits schedule.

Figure 4
West Covina’s City Council Approved Amendments That Significantly Extended the Length of Its Waste Collection Contract

Figure 4 is a graphic illustrating that West Covina’s city council approved amendments that significantly extended the length of its waste collection contract. The graphic is presented as four horizontal parallel roads, each containing an identical background of buildings, landscaping, and trash containers. Each road is highlighted by a side view of a garbage collection truck traveling from left to right. The distance of each truck from the starting left-hand side of the graphic corresponds to the number of years that West Covina’s waste collection company serves as the city’s exclusive service provider based on the contract terms at the time.

The first truck represents the original contract approved in March 1992 for an evergreen period of eight years. The second truck is positioned further to the right in comparison to the first truck and represents Amendment 1 authorized in March 2001. This amendment extended the contract to a 12-year evergreen period. The third truck represents Amendment 9 approved in October 2012 extending the evergreen period to 25 years. The fourth truck, positioned near the right-hand side of the graphic, represents Amendment 11, approved in October 2018. This amendment authorized a five-year non-termination clause, thereby extending the contract to 30 years at that time. As of October 2020, the soonest that West Covina can cease its contractual obligations with its waste collection company is October 2048.

The source of the figure is an analysis of West Covina’s waste collection contract and amendments. The figure also notes that West Covina approved other amendments to its waste collection contract that pertained to rate adjustments but did not modify the length of the contract.