Chap010 - Chapter 10 Analysis of Governmental Financial Performance CHAPTER 10 ANALYSIS OF GOVERNMENTAL FINANCIAL PERFORMANCE OUTLINE Number Topic

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Unformatted text preview: Chapter 10 - Analysis of Governmental Financial Performance CHAPTER 10: ANALYSIS OF GOVERNMENTAL FINANCIAL PERFORMANCE OUTLINE Number Topic Type/Task Status (re: 14/e) Explain Compare Same 10-2 revised Describe Describe Describe Compare, explain New 10-4 revised Same Same Explain Explain Identify, explain 10-8 New Same 10-10 Causes of municipal financial crises Financial position, financial condition, economic condition Financial condition Financial Trend Monitoring System and citizens Solvency and government-wide statements Unrestricted net assets and unreserved fund balance Organizational factors in the FTMS Pension plan funding Financial indicators and short-term financial position. Credit or bond analysts Identify New Cases: 10-1 10-2 10-3 10-4 NASRA and GASAC Municipal credit analysts and bond ratings Financial trends Analysis of overall performance Research Internet Internet Calculate, analyze New 10-2 revised 10-3 revised 10-4 revised Examine Multiple Choice Matching Calculate, analyze Assess Write memo Analyze Analyze Same 10-2 revised 10-3 revised Same 10-5 revised 10-6 revised 10-7 revised Case 10-1 Questions: 10-1 10-2 10-3 10-4 10-5 10-6 10-7 10-8 10-9 Exercises/Problems: 10-1 Examine the CAFR 10-2 Various 10-3 Financial condition 10-4 Benchmarks 10-5 Financial Trend Monitoring System 10-6 Factors affecting financial condition 10-7 Government-wide financial analysis 10-8 City of Arborland financial ratios 10-1 Chapter 10 - Analysis of Governmental Financial Performance CHAPTER 10: EVALUATION OF GOVERNMENTAL FINANCIAL PERFORMANCE Answers to Questions 10-1. The primary cause of municipal financial crises is the failure of management to revise management practices appropriately in response to adverse environmental factors (see Illustration 10-1). Although adverse environmental factors, such as a declining economy, a natural disaster, or politicians who are unwilling to make politically unpopular decisions, may be major contributing factors, such factors do not have to lead to a financial crisis if management makes sound decisions in response to such factors. On the other hand, environmental factors are sometimes so severe that a financial crisis is unavoidable. In such cases, sound financial management can at least reduce the severity of the crisis and establish a long-term plan for financial recovery. An effective system for monitoring its financial condition will permit management to identify unfavorable financial trends in sufficient time to take preventive action to avoid financial distress. A monitoring system, such as the Financial Trends Monitoring System (FTMS), developed by the ICMA draws management’s attention to the factors and indicators that provide information about the financial condition of a government. Armed with this information, government managers can be proactive in addressing negative trends before they become crises. 10-2. Economic condition is the term the GASB uses to represent “… a composite of a government’s financial health and its ability and willingness to meet its financial obligations and its commitments to provide services.” This concept is broad enough to include financial position (a measure of liquidity or the relationship between current financial resources and obligations to be paid from those resources) and fiscal capacity and service capacity. Financial condition, as used by the ICMA, is broader than financial position and includes various measures of long-term solvency and the ability to sustain services indefinitely into the future. 10-3. The four types of solvency the ICMA describes are 1) cash solvency, 2) budgetary solvency, 3) long-run solvency, and 4) service-level solvency. If a government does not have cash solvency it will not have enough cash over a 30- or 60- day period to pay its current liabilities. A government that does not have budget solvency cannot generate enough revenue over its normal budgetary period to meet its expenditures. Long-run solvency is important because the government must be able to pay all the costs of doing business—those that are due in the current year and beyond. If service-level solvency does not exist, then the government is unable to provide public services at the level and quality that its citizens demand and expect. 10-4. Citizens can only use this tool if the government managers have made reports available to the public describing how it is doing with respect to the financial indicators in the FTMS compared to prior time periods or to similar governments. However, if a city routinely disseminates this information, then a citizen can review a graphic of an indicator (see 10-2 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Answers, (Cont’d) Illustration 10-2 that reports on Indicator 35, Rate of Employment for the City of Columbia, MO), as well as a description of a warning trend (i.e., is an increase or decrease in the trend preferred?). Usually a table of the data that underlies the graph, and a description and analysis of what the data indicates about the government’s financial condition is provided. 10-5. Illustration 10-4 in the chapter provides a list of 18 performance measures that use information from the basic financial statements (primarily from the government-wide statements) of the CAFR. These measures are classified by those that address financial position, financial performance, and financial capability. If the reader is most interested in long-term solvency, then the financial performance ratios that relate to change in net assets, interperiod equity, self-sufficiency of the business-type activities and debt service coverage will be of most interest in assessing the ability of the government to remain a viable going concern. 10-6. Unrestricted net assets is the residual equity account on the statement of net assets, one of the government-wide statements. This number reflects the aggregate amount by which revenues exceeded expenses for the governmental and business-type activities of the primary government. Unrestricted net assets is a cumulative figure, covering the government’s entire existence. These net assets are neither restricted nor invested in capital assets. Generally, this number, like unappropriated retained earnings for a business, allows readers to quickly gauge whether the entity has resources available to cover obligations of the future. Because unrestricted net assets results from the accrual basis of accounting with a focus on total economic resources of the government, readers can be confident that the total cost of government services has been considered in this number. On the other hand, unrestricted fund balances appear on the fund financial statements. The fund balances most likely to be discussed are those of the governmental funds. Because these funds use the modified accrual basis of accounting and focus on current financial resources, this number does not capture the net cost of government services and economic resources earned to pay for it. Unreserved fund balances primarily reflect the accumulation of the difference between revenues and expenditures that is available to be appropriated (or spent) in future years. 10-7. Organizational factors, such as management practices and legislative policies, play a crucial role in determining fiscal policy. If sound management policies are in place, then the financial problems that might arise from economic downturns or natural disasters can be minimized. Sound financial policies that plan for adverse environmental events and focus on long-term strategies for meeting government goals are critical determinants of strong financial condition. 10-8. Yes, citizens should consider a decrease in the ratio of fair value of pension plan assets to the actuarial accrued liability from year to year to be a warning sign. Generally accepted 10-3 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Answers, (Cont’d) accounting principles only require display and disclosure of pension information, not funding levels, so a decrease in the pension plan funding measure over time is not a violation of GAAP. The fair value of plan assets may fluctuate with changes in the value of investments of the plan, so the ratio does not reveal direct information about contributions that have been made to the plan. However, citizens, particularly those who are employees of the government, will want to view a decreasing ratio of pension assets to pension liabilities as a trigger to look for more information (usually in the notes to the financial statements) about the funding status of the pension plan. In recent years, a criticism levied was that required GAAP disclosures by managers of the City of San Diego did not provide adequate information to its citizens to inform them of the severe underfunding of the pension plan. 10-9. Financial indicators or ratios that measure relationships among balance sheet accounts are most likely to provide information useful in assessing whether the government has enough current resources to meet its current obligations. Current and quick ratios (quick ratios do not consider inventory in the numerator) are commonly used to indicate how many times current assets can cover, or pay for, current liabilities. Balances in unrestricted net assets and fund balance also provide information about the near-term ability of the government to weather a “rainy day.” These ratios are not as useful in assessing long-term financial or economic condition because they do not consider longterm assets and long-term liabilities (and the related depreciation and interest expense on these balance sheet elements. Illustration 10-4 provides a set of measures for financial position, with a description and the computation for each. 10-10. Disagree. Credit or bond analysts use all available information to assess the following factors: the economy, debt structure, financial condition, demographic factors, and management practices of the governing body and administration in determining bond ratings. It is true they are primarily concerned with whether the government can pay the interest and principal on debt when due. However, analysts (including those from investment firms and insurance firms) compare a wide set of information to institutional benchmarks in determining the credit risk of municipal bonds. Solutions to Cases 10-1. The GASB’s Web site has a page with information about and for the Government Accounting Standards Advisory Council (GASAC). A list of all the current members is readily accessible and includes National Association of State Retirement Administrators among the members (at the time this edition went to print two of the 29 associations did not have a representative listed and there is one member-at-large). a. From the NASRA’s Web site at www.nasra.org one can see that this is a nonprofit association of directors of the nation’s state and territorial public retirement systems whose entities hold more than $2.3 trillion of pension fund assets. The mission of NASRA is to provide assistance, networking opportunities, a legislative presence in Washington DC, and to maintain data (such as a survey of key characteristics of 10-4 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, Case 10-1, (Cont’d) retirement systems) that will help its members. The NASRA was added to the GASAC in 1992 (note: the GASB and GASAC were started in 1984) so they could participate in discussions about accounting and reporting standards that affect retirement plans. b. The GASAC’s by-laws require at least 20 members but does not have an upper limit. There are currently 29 member associations and a member-at-large. Although all member associations “use” government financial reports, it is sometimes helpful to categorize members by the primary nature of how or why they use financial reports. One classification scheme representing members’ perspectives is presented below, however, organizations themselves may see their primary role much differently. Students should be encouraged to stay open-minded on this question and review the missions of member associations to better understand their interest in high quality government financial reporting standards. It would be useful for all GASAC representatives to have a general understanding of the perspective that each person brings to the discussions. Attestors (or auditors): AICPA Preparers: CSG, APPA, AGA, ASBOI, GFOA, HFMA, ICMA, NACUBO, NACo, NASACT, NASBO, NASRA, NLC, NAFOA Users (or analysts or oversight bodies): AFGI, Bond Raters, GAO, Insurance Industry Investors, NABL, NCSL, NFMA,NGA, SIFMA, U.S. Census Bureau, U.S. Conference of Mayors, Member at Large Others: AAA, ABFM, GRA c. A member organization might expect that high profile examples of financial reporting failures in governments would be relevant in discussions at GASAC meetings on improving accounting principles and increasing the quality of governmental financial reporting. Although representatives of professional associations should be confidential with respect to their members’ financial and legal issues, the City of San Diego’s failure to disclose serious underfunding of pension fund liabilities has been in the news since 2003, with continuing update reports. A general familiarity with the issues will help NARSA’s representative participate in relevant discussions on pension accounting and reporting. Students can use the electronic databases available through most university library Web sites to search for stories on this topic in journals and newspapers. In short, city managers in San Diego failed to disclose to citizens and investors (of $260 million in five municipal bond offerings between 2002 and 2003) that its 10-5 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, Case 10-1, (Cont’d) unfunded liability to the pension plan was going to increase from $284 million in 2002 to $2 billion in 2009. KPMG was brought in to audit the city’s 2003 financial statements and concluded that a lack of controls and ineffective oversight resulted in the city’s pension problems (“KPMG Releases Report on San Diego Controls,” Web CPA at www.webspa.com , April 23, 2007).The city settled with the SEC on claims that city officials had committed fraud. The SEC brought (and settled) civil fraud charges against the public accounting firm that audited the city and assisted in the bond offering process saying the firm was either negligent or reckless in seeing that San Diego disclosed both the positive and negative information about its pension plan obligations. (Alan Rappeport, “SEC Settles Fraud Charges with San Diego’s Auditor,” CFO.com, December 11, 2007). Not all GASAC representatives will find that accounting for pensions is an issue of interest to their membership. However, San Diego’s pension crisis does provide the context for questioning whether GAAP display and disclosure requirements for pension funding were adequate in providing users with financial information about the pension plan. 10-2. Students may refer to the FY 07 CAFR for the City and County of Denver or the most recent year available. Answers may differ somewhat depending on the year. a. The Long-Term Debt note to the FY 07 comprehensive annual financial report indicates on page 77 that Standard and Poor’s assigned the City and County a rating of A+, Fitch assigned a rating of A+, and Moody’s assigned a rating of A-. The CAFR is available at www.denvergov.org , then search for CAFR, or go to the Finance Department Web pages. Students will see that there are other references to bond ratings of other entities with which the City and County is associated related to interest-rate swaps and other hedging arrangements. b. Organizations’ Web sites are continually changing and evolving; however, at the time of the printing of this edition of the text, the bond rating organizations could be found at these sites: www.standardandpoors.com for Standard and Poor’s www.moodys.com for Moody’s Investor Services www.fitchratings.com for Fitch Investors, Inc. Each of the services does provide information about its rating scale and the process of evaluating municipal bonds, although students will have to search around the “About Us” and “Public Finance” areas to find the ratings, and they may be asked to register before gaining access to the site. They will find that the ratings assigned (A+ or A-) indicate low credit risk, although they are not the highest ratings (AA, and AAA would be higher or better). 10-6 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, Case 10-2, (Cont’d) c. Bond raters, as described in this chapter, will review all the information in the CAFR (MD&A, basic financial statements, notes, and supplementary information) in order to assess current financial condition and long-term solvency of the government. In particular the factors they consider important are (1) debt, (2) finances, (3) the debt’s legal security, (4) economy and demographics, and (5) management strategies. Any additional public information that is available to assess the environmental factors shown in Illustration 10-1 will be important to bond analysts. Finally, analysts will develop networks of communication with people in a position to understand how management’s practices and legislative policies affect the government’s ability to manage the environmental factors leading to strong financial health. 10-3. a. The solution to this case will depend on which year’s Financial Trends report each student obtains. In the October 2007 report, the following indicators are labeled as “negative” rather than “positive” or “neutral”: ENVIRONMENTAL FACTORS: Inflation FINANCIAL FACTORS: Intergovernmental revenues Operating expenditures—service area Fringe benefits Net direct debt per capita Pension benefit obligation Just as a comparison (students would not be expected to have access to prior trends reports), in the October 2004 report, Fringe Benefits and Pension Benefit Obligations were also listed as negative trends. b. Students will, of course, formulate different questions; however, you should expect them to address the negative trends identified in part a. For example: Are intergovernmental revenues going down because we are receiving less federal, state, or county funds? Is the cost of operating expenditures in the service area going up because of labor costs (perhaps union negotiated wages) or supplies and material costs? Is the cost of fringe benefits increasing because of escalating health care costs? Do we have an unfunded pension obligation that is as serious as the one faced by San Diego, California in 2003? Encourage students to go beyond a simple question, such as “Why is this ratio negative?” to one that suggests a cause for the negative trend that helps frame the response of the financial manager at a public meeting where time is always a constraint. 10-7 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, Cont’d 10-4. a. Unrestricted net assets as a percentage of annual revenue Percentage of assets funded with outstanding debt (debt to assets) Change in net assets Interperiod equity Totals Maximum score possible Reading (Total score/maximum)*10 Computation Rating Weight 32% 6 3 Score 18 40% 6 1 6 14% 129% 10 10 3 2 9 30 20 74 90 8.22 b. This city is in above average financial health compared to other cities in the sample that are used to establish weights in the Crawford Performeter® and, overall, in good shape. That is, 8.22 is greater than the mid-point of 5 on a scale of 1 to 10 with 10 indicating the best possible reading. The percentage of assets funded with outstanding debt (i.e., debt to assets) is the indicator with the lowest score and, as such, the city should analyze why this is so and take steps to improve this measure. Unrestricted net assets as a percentage of annual revenue is the other indicator that is just above average (with a rating of 6) and, if improved, would significantly increase the city’s overall reading. If the analysis is done separately for the categories of factors, it becomes clear that the city is strongest in the area of financial performance (a perfect 10) and not as strong (but still above average) in the category of financial position. Not enough information was provided in the problem to calculate financial capability ratios. Computation Rating Weight FINANCIAL POSITION RATIOS Unrestricted net assets as a percentage of annual revenue Percentage of assets funded with outstanding debt (debt to assets) Totals Maximum score possible Reading (Total score/maximum)*10 FINANCIAL PERFORMANCE RATIOS Change in net assets Interperiod equity Totals Maximum score possible Reading (Total score/maximum)*10 10-8 Score 32% 6 3 18 40% 6 1 6 4 24 40 6.0 3 2 5 30 20 50 50 10.0 14% 129% 10 10 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, Case 10-4, (Cont’d) c. There are 14 other performance measures listed in Illustration 10-7 that can be calculated from the city’s basic financial statements. This information, along with other required and other supplementary information in the city’s comprehensive annual financial report (CAFR) would be helpful in analyzing the city’s overall financial health and performance for the year. Any benchmarks for comparable cities (based on size, geographic location, range of services provided, etc.) would also be useful in an analysis of performance. Solutions to Exercises and Problems 10-1. The specific solution to this exercise will depend on which city's CAFR is evaluated. Generally, the analysis for each ratio should follow the approach shown in Illustrations 10-3 and 10-4, and summarized in Illustrations 10-5 and 10-6 for the City of Columbia, and Illustration 10-7 using the Crawford Performeter®. Each student should present a well organized and well written paper, detailing his or her analysis and conclusions. We recommend grading on the basis of both the quality of the written presentation and the quality and depth of the analysis, with the balance between these factors to be determined by each instructor. Regarding the analysis, the authors suggest placing some importance on the amount and quality of the graphical or tabular data support the student provides for his or her conclusions. Students should be encouraged to be judicious in selecting data to portray and should be discouraged from simply photocopying exhibits from the CAFR. 10-2. 1. 2. 3. 4. 5. c. d. a. d. b. 6. 7. 8. 9. 10. c. b. a. a. d. 10-3. a. b. c. d. e. + + f. + or NE (Note a) g. h. i. + j. - k. l. + m. + n. NE (Note b) o. NE Note a: Generally an older working population is a positive indicator of financial condition; however, a municipality that was comprised of retired citizens on fixed incomes might be negatively associated with strong financial condition. Note b: The effect of population growth on financial condition is indeterminate. Although population growth normally leads to growth in the municipality's tax base, it also leads to growing demands for capital expenditures and social services. 10-9 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, (Cont’d) 10-4. a. Here is a graphical presentation of the Town of Oakdale compared to three reference groups, other Aaa rated municipalities in the same state, 11 other comparable municipalities in a reference group (RG) in the state, and the state median for two financial measures: total revenue and revenue per capita. 10-10 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, 10-4, (Cont’d) b. Oakdale has a much higher amount of total revenue for FY 2008 than its reference groups, most notably larger than the state median. Oakdale’s revenue per capita, however, is slightly higher than each of the benchmark groups. Based on this financial measure alone, Oakdale appears to be performing well in terms of sources available to finance government services. c. Students should refer to Illustrations 10-3 and 10-4 in the text for examples of other measures that would add valuable information to an assessment of overall financial condition of the city. This problem is based on the Town of Brookline, Massachusetts for the FY 2002. The town continues to prepare its Financial Trend Monitoring Report; however, it did not benchmark indicators to the state or other comparison groups after FY 2002. If students obtained a CAFR for a governmental entity to use for the “Examine the CAFR” exercise in each of the preceding chapters, they should investigate whether the government uses the Financial Trend Monitoring System and, if so, whether it makes public how the government compares to other governments. 10-5. a. Scottsdale, Arizona presents its Reserve Policies which is one of four categories of Operating Position—a component of Financial Factors shown on the right of Illustration 10-1. The report explains that, together with policies on Operating Management, Capital Management, Debt Management, and Financial Reporting, these policies establish the framework for overall fiscal planning and management. b. Scottsdale’s reserve policies note is a comprehensive list of policies that address funding levels of eight reserves (e.g., General Fund stabilization, debt service, water and sewer, solid waste management, aviation fund, self-insurance, fleet management, and contingency), as well as sources of funding for these reserves. The first policy (#37) states that these reserves will be evaluated annually for adequacy. This note appears to be more than adequate to address the needs of financial report users. 10-6. a. The excerpt from the CFO’s transmittal letter to the mayor and city council of Detroit presented in this problem address several of the factors affecting financial condition shown in Illustration 10-1. From the Environmental Factors list, addressed are community needs and resources (e.g., population), intragovernmental constraints (e.g., restrictions on revenue and shifts in federal funding), and external economic conditions (e.g., national economy including the cost of war, price of gasoline, and federal deficits). The rising costs of health care and pensions that are quantified and listed in the transmittal can be viewed as financial factors specific to Detroit, as well as external economic conditions to the extent they represent national trends in increasing costs in these areas. 10-11 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, 10-6, (Cont’d) b. DATE: TO: FROM: RE: xx Chief Financial Office, City of Detroit Citizen Watchdog Agency FY 2004 Performance Measures Our group has long been involved in assessing the financial performance of the elected and appointed officers of our city. Your transmittal letter to the mayor and city council alerted us to several areas about which we would like to have more information. We are aware that other cities report to the citizens annually using available tools to monitor trends over time and compare the government’s performance to benchmarks. As we do not see this information readily available on the city’s Web site, will you kindly provide the following ratios for this year and last year so we have a better idea of how to assess the financial condition and performance of the city? We have briefly described why we think each of the following ratios will provide valuable insight for us. [In this section, students should select relevant performance measures from Illustration 10-3 and 10-4 and explain why they would find this information useful. Measures of per capita income, revenue dispersion, and unfunded pension obligation should be among those students identify]. We appreciate your assistance and are happy you have always welcomed our involvement in working towards strengthening our great city. c. Student should look on the city’s Web site at www.ci.detroit.mi.us and review the most current version of the CAFR posted there. If they review the FY2006 report, they will notice that the Letter of Transmittal is significantly different, shorter with no section on Economic Considerations. One reason for this difference may be that the city is downplaying the economic difficulties or that they were reporting in a way more consistent with other governments that save that analysis for the MD&A. However, in the FY2006 MD&A there is little discussion of the type of economic difficulties facing the city reported on in the FY04 Letter of Transmittal. Students may observe that these are management’s representations and subject to a different level of review by external auditors than the general purpose financial statements. 10-7. a. The government-wide statement of net assets shows that total assets for governmental activities for the Commonwealth increased from 2006 to 2007 by more than the increase in total liabilities, consequently, net assets increased from 2006 to 2007. For business-type activities, net assets increased from 2006 to 2007 because the increase in total assets was larger than the increase in total liabilities. Note: students should also examine each element on the statement of net assets to further explain the difference between the two years. 10-12 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, 10-7, (Cont’d) The government-wide statement of activities shows that for governmental activities there is again an excess of revenues over expenses and transfers, with the increase in net assets slightly larger in FA 2007. For business-type activities although there is a positive change in net assets, the amount by which net assets increased is smaller than the prior year. b. DATE: TO: FROM: RE: xx State legislator, Commonwealth of Pennsylvania Staff assistant Financial trends between FY 2007 and FY 2006 [Students will focus on different elements of the statements, although they should examine the “change” column and address the relatively largest or most significant variances. One area that students should address is presented here as an example.] An examination of the Commonwealth’s two government-wide statements for FY 2007 and FY 2006 reveals that business-type activities (BTA) should be analyzed in more detail to determine the causes for the negative trend in the change in net assets. Although net assets are $300 million or 9% higher in FY 2007 than they were in the previous year, the increase is less than half of what it was last year. The fact that all net assets for BTA are restricted suggests we should examine the notes to the financial statements and other available information in order to understand the nature of the restrictions placed on the use of these assets by providers. The statement of activities suggests that one of the primary causes may be the $300 million or 11% increase in state lottery expenses between FY 2006 and FY 2007. The $200 million increase in workers’ compensation and tuition payment expenses may be more controllable costs. I will report back to you after my examination of the state lottery. Thank you. 10-8. a. The performance measures shown in Illustration 10-4 use data from the basic financial statements, which includes the government-wide financial statements as well as the fund financial statements. The measures that can be calculated using the governmentwide financial statements presented in this case are: (1) unrestricted net assets (3) capital asset condition (5) debt to assets (6) current ratio (7) quick ratio (8) change in net assets (9) interperiod equity (11) business-type activities self-sufficiency (13) revenue dispersion 10-13 Chapter 10 - Analysis of Governmental Financial Performance Ch. 10, Solutions, 10-8, (Cont’d) Measures (15) bonded debt per capita and (16) available legal debt limit, and (17) property taxes per capita can be calculated using the additional data on population and debt limit presented in this case. Measure (18) sales tax rate could perhaps be calculated from information in the CAFR if tax revenue was sufficiently detailed to show the portion from sales and tax revenue. Measures (2) General Fund budgetary fund balance, (12) debt service coverage, and (14) debt service load require fund financial statements. Measure (4) pension plan funding requires information that would be in required supplementary information, such as the notes to the financial statements. b. City of Arborland Government-wide Financial Performance Measures 1. 3. 5. 6. 2011 Calculations (see Ill. 10-4 for definition of ratios) Ending Governmental activities: unrestricted net 4,597 assets as a % of 20,302+3,860+1,886+495 annual revenue Business-type activities: 3,546 5,218+7 Capital asset Governmental activities: condition (% of 15,039 useful life left in (37,183+37,600)/2* depreciable Business-type activities: capital assets) 3,681 (17,775+14,455)/2* Debt to assets Governmental activities: (total liabilities as 19,266 a % of total 34,040 assets) Business-type activities: 7,167 14,740 Current ratio Governmental activities: 9,299 3,366 Business-type activities: 3,966 667 10-14 2011 2010 2009 $ or % or number of times 17% 14% 13% 68% 51% 85% 40% 44% 50% 23% 40% 50% 57% 61% 68% 49% 61% 57% 2.76 times 4.49 times 2.03 times 5.95 times 6.19 times 6.86 times Chapter 10 - Analysis of Governmental Financial Performance 7. Quick ratio 8. Change in net assets from the prior year (governmental and business-type activities total) 9. Interperiod equity (number of times revenue exceeds expenses) 11. BTA selfsufficiency 13. Revenue dispersion (% of own-source revenue) 15. Bonded debt per capita 16. Available legal debt limit (remaining % of debt limit available) 17. Property taxes per capita Governmental activities: 9,299-253-26 3,366 Business-type activities: 3,966-8-58 667 22,347 – 17,447 2.68 times 4.31 times 1.92 times 5.85 times 6.10 times 6.75 times $4,900 $3,220 $3,867 (change in total net assets from 2009 statement of activities) Governmental activities: 20,302+3,860+1,886 +495-100 1.10 1.16 23,973 times times for BTA see next ratio 5,218 1.80 1.00 2,895 times times Governmental activities: 3,860+1,886+495+2,190+716 34.6% 37.7% 20,302+3,860+1,886+495100 Note: business-type activities revenue is almost 100% charges for services for each year. Governmental activities: 15,900,000 $522.68 $597.36 30,420 Governmental activities: 15,900,000 20,000,000 Governmental activities: 17,296,000** 30,420 10-15 79.5% 1.15 times 1.41 times 35.2% $602.87 15.5% 20.5% $568.57 $481.39 $496.70 Chapter 10 - Analysis of Governmental Financial Performance * Insufficient information is available (i.e., the beginning of the year balance of depreciable assets) to calculate average depreciable assets for the year 2009. Thus, for 2009, the end of year balance was used in the denominator of the ratio. ** Actual property tax levy information was not provided. Used property tax revenues instead. Ch. 10, Solutions, 10-8, (Cont’d) c. The City of Arborland appears to be in strong financial condition based on the following interpretations of the ratios calculated for part b: Unrestricted net assets have increased each of the three years in both governmental and businesstype activities; capital assets still have at least half of their useful lives to go; the current and quick ratio indicate that the government is liquid and can pay its current liabilities; there is still capacity to issue more debt if needed. Some indicators that should be watched include the relatively high amount of debt as a percent of total assets. 10-16 ...
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This note was uploaded on 05/20/2010 for the course ACCOUNTING 580 taught by Professor Waymire during the Spring '10 term at Northern Virginia.

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