6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ILLUSTRATION 10­2 Indicator 35—Rate of Employment https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 Page 413 1/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 2/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 414 Disaster Risk The need to consider and plan for natural disasters is incumbent on all top governmental officials. As the past few years have shown, no place is immune from such events, although some locations are more vulnerable than others. The question that should be asked is: What would happen if a major earthquake or hurricane were to strike or a terrorist attack were to occur? Related questions that need to be asked are these: (1) Does the city have sufficient insurance and reserves to cover possible losses? (2) Does the government have sufficient resources (and a plan) for evacuation, protection against looting, and cleanup? In addition to natural disasters, it can be equally difficult to prepare and budget for man­made disasters, for example, oil or chemical spills from industry. Political Culture This perhaps is the most difficult of all factors to measure but is certainly critically important to determining how the administration will react to the other environmental factors in shaping the government's fiscal policy. Political culture includes such factors as form of government (e.g., mayor­council—weak or strong, council­ manager, commission) and the entity's economic, political, and social history. The entity's history may reveal underlying community philosophies regarding willingness to support higher taxes, issuances of long­term debt, and increased social services. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 3/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 415 External Economic Conditions No local or state government operates independently of the regional and national economy. Regional economic activity affects local business activity, employment, and income by influencing the demand for manufactured, agricultural, and service products as well as the levels of wholesale and retail sales. Similarly, inflation at the national level influences regional and local prices, including wages and the cost of debt financing. A good example of the impact of national events is the national subprime mortgage crisis, which negatively affected the prices and number of home sales. Recently, the local housing markets in most areas have seen significant improvements in both the price and number of home sales as the national economy overcomes the effect of the mortgage crisis. Although consideration of external economic conditions is essential to assessing the local economy, the linkages can be difficult to pinpoint and quantify. Organizational Factors As indicated by their pivotal location in Illustration 10­1, management practices and legislative policies play a crucial role in determining fiscal policy in response to the environmental factors just discussed. Sound financial management and the political will to resist easy solutions can minimize financial problems that might otherwise result from factors such as economic downturns, plant closings, or natural disasters. Financial crises often build over a number of years during economic recessions. Politicians may be either unwilling or unable to curtail expenditures for services in response to revenue shortfalls. Results of past policies, such as heavy reliance on debt or an excessive labor force, may make it difficult or infeasible to reduce expenditures sufficiently in the short run. Short­run solutions, such as deferring needed maintenance, curtailing capital expenditures, or underfunding pensions, may lead to even more serious problems in the future. Thus, sound financial management means planning for adverse environmental conditions or events and devising long­run solutions when problems do occur. Although management practices and legislative policies are critical determinants of financial condition, they are among the most difficult factors to measure. Evidence of mismanagement or management practices that sustain an operating deficit include using existing fund balances, short­term borrowing, internal borrowing, sale of assets, or one­time accounting changes to balance the budget. Other signs of deficient fiscal policies include deferring pension liabilities, deferring maintenance expenditures, failing to fund employee benefits, and ignoring full­life costs of capital assets.13 Financial Factors Examples of governmental fund financial ratios typically used in assessing financial condition are shown in Illustration 10­3. Although the ratios contained in Illustration 10­3 represent what the authors consider key ratios, they are not intended to represent all ratios that might be useful in evaluating financial condition. In fact, the ICMA handbook provides for a total of 27 financial indicators across the six financial factors shown on the right­hand side of Illustration 10­1. For those interested, the handbook provides worksheets and an electronic spreadsheet that guides the user in defining the terms used in the ratios. The data to calculate the financial ratios shown in Illustration 10­3 are readily obtainable from most CAFRs. Except for population, which is usually disclosed in the statistical section, data for most of the ratios can be obtained from the statement of revenues, expenditures, and changes in fund balances—governmental funds (see Illustration A2­5) and the balance sheet—governmental funds (see Illustration A2­3). Data for the remaining ratios usually can be found in the notes to the financial statements. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 4/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ILLUSTRATION 10­3 Selected Financial Ratios Based On CAFR Governmental Funds Page 416 Information https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 5/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 6/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 417 The ratios displayed on Illustration 10­3 indicate whether all governmental funds or only the General Fund should be used in the calculation. However, analysts differ on preferences with some preferring to utilize General Fund data only, whereas others utilize combined data for all governmental fund types. This decision depends, in part, on how large the General Fund is relative to all governmental fund types. In calculating operating revenues, capital project fund revenues should be excluded since the capital project fund is not an operating fund. For purposes of calculating revenues and expenditures in these ratios, other financing sources are often added to revenues and other financing uses are often added to expenditures; although by definition other financing sources and uses are not considered revenues and expenditures. The government­wide financial statements offer additional opportunities for analysis of financial factors relating to the governmental entity as a whole and are discussed next. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 7/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ANALYZING GOVERNMENT­WIDE FINANCIAL STATEMENTS Page 418 The CAFR provides information about the government as a whole that should assist citizens, bond analysts, governing boards, and other financial statement users to answer questions that are not easily answered with disaggregated fund financial statements. The management's discussion and analysis and two accrual­based government­wide financial statements that focus on the flow of total economic resources in and out of the government offer a level of analysis about the real cost of government services, the means of financing them, and the financial condition of the government as a whole. One firm that has developed a method to describe and report ratios designed to take advantage of aggregated information is Crawford & Associates, P.C., a public accounting firm that developed a financial analysis and rating tool to use in measuring a government's financial health and success. The firm suggests a number of performance indicators that measure financial position, financial performance, and financial capability from basic financial statements. A brief description of the questions best answered by some of these ratios is presented here, along with Crawford & Associates’ “plain English” statement of the questions to be addressed by the performance measure.14 Financial Position Ratios: 1. Unrestricted Net Position (Assets). How do our rainy day funds look? 2. Capital Asset Condition. How much useful life do we have left in our capital assets? 3. Debt to Assets. Who really owns the government entity? 4. Current Ratio. Will our employees and vendors be pleased with our ability to pay them on time? 5. Quick Ratio. How is our short­term cash position? Financial Performance Ratios: 6. Change in Net Position (Assets). Did our overall financial condition improve, decline, or remain steady over the past year? 7. Interperiod Equity. Who paid for the cost of operating the city—current, past, or future tax and rate payers? 8. Sales Tax Growth. What is the state of our local economy? 9. BTA Self­Sufficiency. Did current year business­type activities (BTA), such as utilities, pay for themselves? Financial Capability Ratios: 10. Revenue Dispersion. How much of our revenue is beyond our direct control? 11. Bonded Debt per Capita. What is our long­term general obligation debt burden on our taxpayers? 12. Available Legal Debt Limit. Will we be able to issue more long­term general bonded debt, if needed? 13. Property Taxes per Capita. What is our property tax burden on our taxpayers? 14. Sales Tax Rate. Will our citizens be likely to approve an increase in sales tax rates, if needed? Illustration 10­4 provides additional descriptions of the above ratios, along with formulas for calculating them. Other ratios that capture these dimensions are change in overall financial position, reported as a percentage of total net position, and levels of reserves or deficits, employing expenses as a denominator instead of revenues. Chaney, Mead, and Schermann suggest these ratios, as well as general revenues minus transfers as a percentage of expenses, to measure financial performance. They also recommend change in net position plus interest expense as a percentage of interest expense as an additional solvency measure.15 https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 8/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ILLUSTRATION 10­4 Financial Indicators Using the CAFR https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 Page 419 9/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 10/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Despite the complexity of evaluating government­wide financial condition, there are recognizable signals of fiscal stress. These include (1) a decline or inadequate growth in revenues Page 420 relative to expenses, (2) a decline in property values, (3) a decline in economic activity (such as increasing unemployment, declining retail sales, and declining building activity), (4) erosion of capital plant, particularly infrastructure, (5) increased levels of unfunded pension and other postemployment obligations, and (6) inadequate capital expenditures. Warning signals such as these, particularly if several exist simultaneously, may indicate a potential fiscal crisis unless the government takes action to increase revenues or decrease spending. USE OF BENCHMARKS TO AID INTERPRETATION Regardless of how the ratios are calculated, the more difficult task is how to interpret the ratios to make an informed judgment about a government's financial condition. Checking each ratio in Illustration 10­3 and 10–4 against a target or acceptable range is a critical step in the process of analyzing financial performance. Benchmarking is a very useful tool in the continual process of monitoring performance of “the plan,” allowing for identification of needed improvements in the delivery of government services. A benchmark, broadly defined, is any target, range, or “red flag” that provides an analyst with a basis for comparison in order to draw conclusions about whether performance indicators suggest good or bad news. Appropriate benchmarks for comparisons can be found inside or outside of the government. Internal monitoring of trends over time within an organization is the most common method of assessing whether the government has performed better or worse than prior years. According to the Government Finance Officers’ Association (GFOA), a government's past performance is usually the most relevant context for analyzing current­year financial data16 and, at a minimum, five years of data should be compared. The ICMA's Financial Management Trend System is a good example of a tool that has been used by many governments as a way to compare current­period ratios to those of prior years for a variety of performance indicators. Illustration 10­5 shows the use of time­series trend monitoring by the City of Columbia, Missouri, for one indicator of financial condition —Excess of Revenues over Expenditures for the General Fund over a 10­year period. A narrative description of the ratio is provided as well as the mathematical formulation of the ratio. Graphical display of the trend in addition to data tables assists the analyst in drawing conclusions about the government's performance. Providing a “warning trend” helps the reader understand whether increasing or decreasing trends are positive or negative signals. Illustration 10­5 also presents benchmark information from outside the government. A section called “Credit Industry Benchmarks” provides metrics and ranges that reflect credit analysts’ assessment of what is appropriate for a government of this type. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 11/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ILLUSTRATION 10­5 Indicator 16—Excess of Revenues over Expenditures: General Fund https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 Page 421 12/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 13/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 422 Illustration 10­6 presents a comprehensive look at all the financial and economic indicators the City of Columbia, Missouri, tracks over time with a rating of whether the indicator has improved, declined, or remained the same from the prior year. Additionally, an indication is provided as to whether the trend is stable/improving, in need of close attention, or poorly performing (warning). A caveat to keep in mind in using external benchmarks is that comparison groups may not always be appropriate. A good example is that in a few states, local school districts are legally part of the government of the city in which they are located, whereas in most states school districts are independent governments. In some governments population may be the best denominator for a per capita ratio and in others households are more appropriate. In addition to analyzing ratios, one should evaluate the stability, flexibility, and diversity of revenue sources; budgetary control over revenues and expenditures; adequacy of insurance protection; level of overlapping debt; and growth of unfunded employee­related benefits. Socioeconomic and demographic trends should also be analyzed, including trends in employment, real estate values, retail sales, building permits, population, personal income, and welfare. Much of this information is contained in the statistical section of the CAFR; the remainder can be obtained from the U.S. Bureau of the Census publications available from its Web site, www.census.gov. Sources of Governmental Financial Data Currently, there are no comprehensive benchmark values based on up­to­date financial data available for easy­ to­use comparisons. Raw data, such as that compiled by the GFOA in its Financial Indicators Database from CAFRs submitted to the Certificate of Achievement for Excellence in Financial Reporting program, must be converted to useful geographic and population strata benchmarks. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 14/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ILLUSTRATION 10­6 FY 2013 Columbia Financial Trend Monitoring System—At a Glance Page 423 Electronic Municipal Market Access In 2009 a new source of municipal financial information was provided to the public. Through the Municipal Securities Rulemaking Board (MSRB), the Electronic Municipal Market Access, or EMMA, was established. EMMA is an online service that investors and others interested in the municipal securities market can access to obtain information about state and local governments who have issued debt. The MSRB indicates that EMMA serves as a resource to users who want to learn more about the municipal securities market; evaluate the features and risks of a specific municipal bond; and/or monitor municipal securities investment. EMMA provides a wealth of information about individual securities. In addition to the official statement, which is issued when a new bond or other debt offering is made to the public, other types of information provided include: the type of debt, initial offer price, the interest rate, the size of the debt issue, and the credit rating for the debt. After a government issues https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 15/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. debt, it is required to provide continuing disclosures to the market. Among the required continuing disclosures is the CAFR. The best way to understand EMMA is to access it through its Web site at http://emma.msrb.org. Page 424 Credit Analyst Models As discussed earlier in this chapter, credit analysts are concerned with assessing a government's ability to pay interest and principal when due. Credit analysts typically examine the same kinds of information that internal managers use in evaluating financial condition. Of course, internal managers have access to all information generated by the government for as far back as data have been retained, whereas credit analysts have access only to what management provides or what they require from management. Thus, internal managers have an informational advantage with respect to their own government. Credit analysts with the major bond rating agencies (FitchRatings, Moody's Investors Service, and Standard & Poor's) or with companies that insure bonds against default may have an informational advantage with respect to benchmark information, in that they have data from thousands of entities whose bonds are rated or insured. Moreover, these analysts develop extensive multiple­year libraries, including budgets and CAFRs, for the entities whose bonds are rated or insured, and they often visit the entity for discussions with management. Analysts with investment firms (underwriters and brokers) tend to collect and process much less information than do bond rating and insurer organizations. Rather, these analysts rely in part on agency ratings to help them properly determine the credit risk of municipal bonds. The rating agencies are recognized as one of the primary groups of users of governmental financial reports, particularly, comprehensive annual financial reports (CAFR). They use financial measures discussed earlier in the chapter built on audited numbers in the government­wide and fund financial statements, management's discussion and analysis, notes to the financial statements, and statistical information in the last section of the CAFR. Rating agencies have recently revised their rating criteria for general obligation municipal debt issues. In part the rating criteria adjustments have been made in response to concerns that rating agencies tended to underrate governments’ overall credit quality when considered relative to nongovernment entities.17 The three major ratings agencies (FitchRatings, Moody's Investor Service, and Standard & Poor's) focus on similar criteria in conducting their rating analyses; however, the weight given to qualitative and quantitative data varies among the agencies. In making adjustments to their processes, rating agencies have focused on the development of more quantitative tools, such as scorecards, for assessing credit risk. The development of quantitative tools has the benefit of making the rating process more transparent to investors and issuers. However, the ability to assess credit risk still relies heavily on the ability to use forward­looking and qualitative factors in the ratings assignment process. FitchRatings uses four factors when conducting its ratings assessment—economy, debt and other long­term liabilities, finances, and management. Since FitchRatings considers the factors interactive, it uses a dynamic weighting process in its assessment.18 In January 2014, Moody's Investor Service issued revised rating criteria for assessing credit risk related to local government general obligation debt. The scorecard developed by Moody's includes four rating factors that are assigned a factor https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 16/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. weighting. The broad factors and their weights are economy/tax base (30 percent), finances (30 percent), management (20 percent), and debt/pensions (20 percent). Each of the broadly Page 425 identified rating factors has several subfactors that are considered in the rating process.19 Standard & Poor's identifies seven factors it considers in assessing credit risk. These factors and their associated weights are: economy (30 points), management (20 points), budgetary flexibility (10 points), budgetary performance (10 points), liquidity (10 points), debt and contingent liabilities (10 points), and institutional framework (10 points).20 Similar to Moody's, Standard & Poor's has subfactors that are considered in its rating process. You will notice that Moody's and FitchRatings have a different number of factors than Standard & Poor's, but the factors generally cover the same performance areas. It should be noted that bond ratings are often viewed, particularly by investors, as crude indicators of long­ term financial condition. For example, a Standard & Poor's AAA rating indicates a city is likely in better financial condition than a city with a BBB­ rating (the lowest investment grade rating) but a user is unable to tell how much better from the ratings. Furthermore, ratings assigned to general obligation (GO) bonds often apply to all GO bonds of the same issuer, although GO bonds issued with state credit backing or other credit enhancement may carry a higher rating than the ordinary GO bonds of the same issuer. This chapter describes the evaluation of financial condition. Continued sound financial condition indicates quality financial management and good financial performance. Achieving strong financial performance, however, does not ensure efficient and effective operating performance. Although it is difficult to provide an adequate level of services without sufficient financial resources, achieving efficient and effective use of productive resources requires innovative budgeting and management techniques. We defer discussion of these techniques until Chapter 12. In reading Chapter 12, keep in mind the importance of maintaining sound financial condition if service levels are to be sustained. Key Terms Benchmarking, 420 Budgetary solvency, 409 Cash solvency, 409 Economic condition, 410 Financial condition, 409 Financial position, 409 Fiscal capacity, 410 Long­run solvency, 409 Service capacity, 410 Service­level solvency, 409 Selected References Berne, Robert. Research Report, “The Relationship between Financial Reporting and the Measurement of Financial Condition.” Norwalk, CT: GASB, 1992. Chaney, Barbara A., Dean M. Mead, and Kenneth R. Schermann. “The New Governmental Financial Reporting Model,” Journal of Government Financial Management, Spring 2002, pp. 27–31. Governmental Accounting Standards Board. Concepts Statement No. 1, “Objectives of Financial Reporting.” Norwalk, CT: GASB, 1987. Mead, Dean M. What You Should Know about Your Local Government's Finances: A Guide to Financial Statements. Norwalk, CT: GASB, 2011. ———. An Analyst's Guide to Government Financial Statements. Norwalk, CT: GASB, 2000. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 17/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ———. What You Should Know about Your School District's Finances: A Guide to Page 426 Financial Statements. Norwalk, CT: GASB, 2012. Maher, Craig, S., and Karl Nollenberger. “Revisiting Kenneth Brown's ‘10­Point Test’.” Government Finance Review, October 2009, pp. 61–66. Nollenberger, Karl. Evaluating Financial Condition: A Handbook for Local Government, 4th ed. Washington, DC: ICMA, 2003. Questions 10­1. Describe some typical causes of municipal financial crises. How could an effective monitoring system reduce the risk of a financial crisis? 10­2. The GASB indicates that economic condition is composed of three components. Identify and define the three components of economic condition. 10­3. The International City/County Management Association (ICMA) describes four types of solvency within the concept of financial condition. Identify each type and explain why each is important to the long­term financial health of a government. 10­4. Identify some of the characteristics of a government's citizens that can affect the government's financial condition. Explain how the characteristics affect financial condition. 10­5. When conducting a financial analysis, ratios based solely on governmental fund financial statements would not be considered sufficient for assessing economic condition. Explain why this statement would be true. 10­6. Explain how organizational factors, such as management practices and legislative policies, affect a government's financial condition. 10­7. Should citizens be concerned if the funded ratio for pension plans decreases over time? Why? 10­8. Illustration 10­4, adapted from Crawford and Associates, lists several ratios under the heading Financial Position. Which of the ratios listed most closely aligns with the GASB research study definition of financial position provided on page 409? Explain why the ratios you selected align with the definition of financial position. 10­9. What is EMMA and when would someone want to use EMMA? 10­ 10. Identify factors that the rating agencies use in determining bond ratings. Which of the factors identified is beyond management control and how could this factor affect the government's finances? Cases 10­ 11 Research Case—EMMA. Electronic Municipal Market Access (EMMA) provides investors and others interested in state and local government debt and financial information an excellent resource. By accessing EMMA an individual is able to learn about what type of debt is outstanding for a government of interest, and he/she is also able to learn about the debt's characteristics along with the financial performance of the entity. Access EMMA (http://emma.msrb.org) and using the Education and Browse Issuers sections complete this case. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 18/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Required Page 427 a. Use the Education Center to help answer the following questions: 1. What is a credit rating and when is a credit rating issued? 2. What is an official statement and what financial information is required in an official statement? b. To answer the following questions, use the Browse Issuers, click on a state (your home state might be of interest to you), and then click on a city of interest. Finally, look for a debt issuance, while a general obligation issuance is preferred, any long­ term debt issue should provide the information needed to answer the following questions. Be aware that not all governments will have outstanding debt issuances. 1. Is a credit rating provided for the debt issue you selected? If so, who issued the rating and what is the rating? 2. Was the debt initially issued at a premium or a discount? 3. Click on a CUSIP for your debt issue and indicate what financial information was included with the official statement. Check for continuing disclosures (there is a continuing disclosures button)—are CAFRs provided under continuing disclosures? 10­ 12 Municipal Credit Analysis.* In the 2010 CAFR, Detroit indicated that its general obligation debt rating had been downgraded by Moody's Investors Services from a Ba2 to a Ba3. Based on its fourth quarter Performance Dashboard1, Detroit was subsequently downgraded to junk bond status as of the fourth quarter of 2012 by all three rating services (Caa2, Moody's; CCC­, Standard & Poor's; CCC­, Fitch). The audit of the 2011–2012 financial reports resulted in the following statement from its auditor, KPMG: “The City has an accumulated unassigned deficit in the General Fund of $326.6 million as of June 30, 2012, which has resulted from operating deficits over the last several years. The deficits raise significant liquidity risks regarding the City's ability to meet its financial obligations as they come due without raising revenues, cutting costs of services provided, and effectuating financial restructuring.”2 As Detroit indicates in its 2012 CAFR report, the city faces socioeconomic factors that make it difficult for the city to regain its financial footing: The City of Detroit is the largest City in Michigan and the 18th largest City in the United States. However, as documented in the 2010 Census, the City's population continues to decline, which contributes to the declining property and income tax base. In addition, the City faces continued high unemployment (18.9% in October 2012), which hinders personal income tax collections. Resident home foreclosures and delinquent property tax levels are another financial concern. The weak economy has had an adverse impact on the State's budget resulting in cuts of revenue sharing to local governments. The City's revenue sharing for the year ended June 30, 2012 was $173.3 million or $66.0 million less than the year ended June 30, 2011. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 19/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Although the City's current economic condition is poor, the future outlook for recovery and improvement is positive. Businesses are transferring employees from suburban cities to the City of Detroit. New residents are moving into the City's mid­town area. Page 428 Following are selected financial indicators from Detroit's CAFRs, which provide financial data that can be used to help identify financial trends the city has experienced with regard to its economic condition. In July of 2013 Detroit filed for bankruptcy.3 Since its bankruptcy filing, numerous events have occurred that impact the city's economic condition. Required a. Using the information provided in the case, the information provided in the Illustrations 10­3 and 10­4, and the information provided in the Credit Analyst Models section of the text provide an analysis of factors that would lead to the downgrading of the debt rating. b. The City of Detroit's Finance Department provides quarterly performance indicators on financial sustainability and some economic indicators along with service performance. Additionally, the Emergency Manager for the bankruptcy provides quarterly filings on the Detroit Web site. These quarterly reports provide a status update on Detroit's financial situation. Using the information provided by the Finance Department and the Emergency Manager, assess the city's economic condition. As part of the assessment indicate whether you believe the city's condition has improved, worsened, or remained the same since 2012. 10­ 13 Financial Analysis.* In 2010 the city had failed to honor its guarantees on The Harrisburg Authority (THA) debt. (THA is a component unit of the city.) In 2011 Harrisburg filed for bankruptcy; however, the bankruptcy petition was denied by the court. The State of Pennsylvania appointed a receiver for the City of Harrisburg in 2011 to help with the city's economic recovery. The https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 20/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. following three paragraphs are taken from the mayor's transmittal letter in the 2012 CAFR report. Subsequent to the three paragraphs are two bar charts providing 10 years of information on General Fund balance and net position and a table providing 5 years of debt performance information. Page 429 For perspective, 2009 was the year the City went from a 2008 statement of net position, where assets exceeded liabilities by $46,178,883, to a deficit in 2009 of $227,092,975. It was the year in which the contingent liability for The Harrisburg Authority Resource Recovery Facility debt guarantees of approximately $264 million would be recorded on the City's financial statements due to payment defaults on that debt. As of December 31, 2012, the City's liabilities exceeded its assets by $277,261,834, representing a further decrease of net position of $28,092,042. As of December 31, 2012, the City's governmental funds (General Fund, Grant Programs, Debt Service and other Non­Business Type Funds) reported combined ending fund balances of ($76,414,768), a decrease of $23,421,231 from 2011. The General Fund is the City's primary operating fund and the largest source of day­ to­day service delivery. The Fund Balance of the General Fund decreased by $23,569,137 for the year ending December 31, 2012, from the prior year, primarily due to a significant drop­off in departmental earnings resulting from a $7 million decrease in administrative service charge revenue from the Water and Sewer Funds, higher expenditures incurred from a write­off of approximately $5 million of Incinerator amounts receivable from under guarantee agreements for principal and interest previously paid by the bond insurer, and an $11.2 million accrued liability associated with the settlement of reimbursable sewer related amounts owed to several suburban municipalities. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 21/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 430 Required a. Using your library's resources, locate Craig S. Maher, and Karl Nollenberger. “Revisiting Kenneth Brown's ‘10­Point Test’.” Government Finance Review, October 2009, pp. 61­66. The City of Harrisburg has a population of between 47,000 and 50,000 people. Based on its size, assess the City of Harrisburg's debt performance relative to that of comparably sized cities. b. Later in the mayor's 2012 transmittal letter she indicates that the city is confident of financial solvency and the city is working toward an economically bright future. Based on the limited information you have been provided, discuss your assessment of how financially solvent the city appears and its timeframe for achieving an economically bright future. 10­ 14 Financial Trends. You are a new city council person for the City of Columbia, Missouri. You are aware that several cities have been in the news recently because of the financial crises they have faced. The governing bodies have been criticized for not being aware of the negative signals and trends that obviously contributed to challenging financial situations. Although you were assured at the first few council meetings that the city was https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 22/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities overall in good financial shape, you want to be sure you “do your homework” and assess the financial condition of the city for yourself. You know that the City of Columbia prepares a Financial Trends report each year based on the ICMA's Financial Trends Monitoring System and that it posts this on its Web site at www.gocolumbiamo.com. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 23/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Required Page 431 a. Go to the city's Web site and view a copy of the Financial Trends report. (Hint: Once at the Web site, click on City Government and you will find financial reports.) The trend report can be accessed by clicking on Financial Reports. Examine the trend information and make a list of any indicators that are negative. b. Prepare a list of questions for the next city council meeting. Your questions should help you focus on whether you and the other council members should be concerned about any trends. Exercises and Problems 10­ 15 Examine the CAFR. Utilizing the CAFR obtained for Exercise 1­16 and your answers to the questions asked in Chapters 1 through 9, assess the economic condition of the government. For purposes of this project, the term economic condition is as defined earlier in this chapter. Examine the following issues and questions. a. Analysis of revenues and revenue sources. (1) How stable and flexible are the city's revenue sources in the event of adverse economic conditions? (2) Is the revenue base well diversified, or does the city rely heavily on one or two major sources? (3) Has the city been relying on intergovernmental revenues for an excessive portion of its operating expenditures? (4) What percentage of total expenses of governmental activities is covered by program revenues? By general revenues? (5) Do any extraordinary or special items reported in the statement of activities deserve attention? b. Analysis of reserves. (1) Are the levels of financial reserves (i.e., spendable fund balances, contingency funds, and unrestricted net position) adequate to meet unforeseen operational requirements or catastrophic events? (2) Do total governmental fund revenues exceed total governmental fund expenditures? Do General Fund revenues exceed General Fund expenditures? What has been the trend in the ratio of revenues to expenditures? (3) Is an adequate amount of cash and securities on hand, or could the city borrow quickly to cover short­term obligations? c. Analysis of expenditures and expenses. (1) Do any components of expenditures and, at the government­wide level, expenses exhibit sharp growth? (2) How flexible are expenditures? That is, are there large percentages of relatively nondiscretionary expenditures, such as for interest and public safety? (3) How does the growth pattern of operating expenditures and expenses over the past 10 years compare with that of revenues? d. Analysis of debt burden. (1) What has been the 10­year trend in general obligation long­term debt relative to trends in population and revenue capacity? https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 24/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities (2) Are significant debts of other governments (e.g., a school district, a county) supported by the same taxable properties? What has been the trend for this “overlapping” debt? (3) Are there significant levels of short­term operating debt? If so, has the amount of this debt grown over time? https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 25/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. (4) Are there any significant debts (e.g., lease obligations, unfunded Page 432 pension liabilities, accrued employee benefits) or contingent liabilities? (5) Are any risky investments such as derivatives disclosed in the notes to the financial statements? e. Socioeconomic factors. What have been the trends in demographic and economic indicators, such as real estate values, building permits, retail sales, population, income per capita, percent of population below the poverty level, average age, average educational level, employment and unemployment, and business licenses? (Note: Many of these items and other potentially useful information can be obtained from the Census Bureau's Web site www.census.gov.) f. Potential “red flags” or warning signs. (1) Decline in revenues. (2) Decline in property tax collection rate. (a) Less than 92 percent of current levy collected? (b) Property taxes more than 90 percent of the legal tax limit? (c) Decreasing tax collections in two of the last three years? (3) Expenditures increasing more rapidly than revenues. (4) Declining balances of liquid resources and fund balances. (a) General Fund spendable fund balance deficit in two or more of the last five years? (b) General Fund assigned and unassigned fund balance less than 5 percent of General Fund revenues and other financial sources? (5) Reliance on nonrecurring (i.e., special item) revenues to support current­period operations. (6) Growing debt burden. (a) Short­term debt more than 5 percent of operating revenues? (b) Two­year trend of increasing short­term debt? (c) Short­term interest and current­year debt service on general obligation debt more than 20 percent of operating revenues? (d) Debt per capita ratio 50 percent higher than four years ago? (7) Growth of unfunded pension and other employee­related benefits such as compensated absences and postemployment health care benefits. (8) Deferral of needed maintenance on capital plant. (9) Decrease in the value of taxable properties, retail sales levels, or disposable personal income. (10) Decreasing revenue support from federal or state government. (11) Increasing unemployment. (12) Unusual climatic conditions or the occurrence of natural disasters. (13) Ineffective management and/or dysfunctional political circumstances. Required a. Calculate, insofar as possible, the financial ratios in Illustrations 10­3 and 10­4 of the text. Evaluate the ratios in terms of the red flags, information provided in Illustration 10­3, benchmarks provided in Illustrations 10­5 and 10­6, and long­term trend data for each ratio, if available. List any assumptions you made. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 26/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities b. PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Locate any additional data that you think may be useful in assessing Page 433 the financial condition of this city; for example, see the U.S. Census Bureau's Web site at www.census.gov and the Web sites of cities you consider comparable in size or other attributes to this city. c. Prepare a report on the results of your analysis. The report should have an appendix providing a few graphs and/or tables to support your analysis. In particular, graphs showing revenues, expenditures, and key debt ratios for the past 10 years and selected demographic and socioeconomic trends are helpful. You may want to include some of the ratios calculated in part b in an appendix. Be succinct and include only data relevant to your analysis. Organize your report along the lines of the ratios evaluated in part a. 10­ 16 Multiple Choice. Choose the best answer. 1. Evaluation of government financial performance is important for which of the following reasons? a. Credit analysts use it to determine whether bonds should be issued. b. Investors use it to make decisions about bond investments. c. Oversight bodies use it to develop new laws. d. Managers use it to evaluate day to day operations. 2. Which of the following terms or concepts focuses primarily on a government's ability to generate enough cash over a 30­ or 60­day period to pay its bills? a. Interperiod equity. b. Financial position. c. Budgetary solvency. d. Cash solvency. 3. Why does GASB prefer to use the term economic condition rather than financial condition? a. Economic condition considers the probability that the government will meet both financial and service obligations currently and in the future but financial condition does not. b. Financial condition does not consider the ability to maintain service levels. c. Economic condition focuses on both the ability and willingness to meet financial and service obligations. d. Financial condition focuses primarily on liquidity. 4. Factors that influence a government's financial condition include which of the following? a. Financial factors, such as governmental fund financial ratios. b. Environmental factors, such as community needs and resources. c. Organizational factors, such as management practices and legislative policies. d. All of the above. 5. Which of the following environmental factors reveals the entity's underlying philosophies regarding willingness to support higher taxes, issuances of long­term debt, and increased social services? a. Political culture. b. Community needs and resources. c. External economic conditions. d. Management practices and legislative policies. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 27/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities 6. PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Which of the following would be an effective means of Page 434 benchmarking? a. Comparing the city's key ratios to those of special purpose governments in the area. b. Comparing current­period ratios to published medians of the same ratios for cities of similar size or in the same geographic region. c. Comparing key ratios to published medians of the same ratios for larger cities in other parts of the country. d. Comparing current­period ratios to estimates for future periods. 7. Which of the following conditions could signal decreasing fiscal stress? a. Increasing unemployment. b. Decreasing property values. c. Increasing revenues relative to expenditures. d. Increasing levels of unfunded pension obligations and other postemployment retirement benefits. 8. Rating agencies, such as FitchRatings, Moody's Investor Service and Standard & Poor's, produce bond ratings that a. Are created using the exact same measures and weights. b. Allow users to know how much better one issuing entity's financial condition is than another's. c. Focus both on quantitative and qualitative factors using proprietary models. d. Are intended to be precise indicators of the government's long­term financial condition. 9. Which of the following suggests a government that is relying primarily on revenues it directly controls? a. Property taxes, 20%; charges for services, 70%; grants and contributions, 5%; investment income, 5%. b. Property taxes, 20%; charges for services, 60%; grants and contributions, 10%; investment income, 10%. c. Property taxes, 40%; charges for services, 40%; grants and contributions, 10%; investment income, 10%. d. Property taxes, 60%; charges for services, 5%; grants and contributions, 30%; investment income, 5%. 10. What is Electronic Municipal Market Access, or EMMA? a. A library­based service that provides information about state and local governments that have issued debt. b. A fee­based service that provides information to investors and credit analysts about government bond issues. c. An online service that allows users to learn more about the municipal securities market. d. A source of municipal finance information developed by the Securities and Exchange Commission. 10­ 17 Financial Condition. Write the letters a through o on a sheet of paper. Beside each letter, put a plus (+) if a high or increasing value of the item is generally associated with stronger financial condition, a minus (−) if a high or increasing value of the item is generally associated with a weaker financial condition, and NE if the item generally has no effect on the financial condition or the direction of the effect cannot be predicted. a. Unfunded pension liability. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 28/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities b. Operating deficit. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 29/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities c. PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Revenues over expenditures. d. Intergovernmental revenues. e. Level of business activity. f. Education level of citizens. g. Unemployment rate. h. Restrictions on revenues. i. Personal income per capita. j. Debt service. k. Percentage of households below the poverty level. l. Short­term borrowing. m. Property values. n. Population growth. o. Political party of the mayor. 10­ 18 Page 435 Benchmarks. Examine the following tables from the Financial Trend Monitoring Report for the Town of Oakdale that reports on fiscal year 2017. The performance indicators selected are total revenue and revenue per capita. The town provides three reference groups with which to compare Oakdale: Aaarated municipalities, comparison municipalities, and the state median. Since local government budgeting in this state is driven by the property tax levy cap, this is a key variable in comparing municipalities. Required a. Prepare a histogram or bar graph that shows Oakdale in relation to the three reference groups, Aaa­rated median, comparison reference group, and state median https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 30/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities for FY 2017 total revenue and a separate graph for FY 2017 revenue per capita. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 31/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities b. PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Evaluate the financial performance of Oakdale for FY 2017. Use Page 436 information from the tables and the graph you prepared for Part a to support your analysis. c. What other performance measures would you like to see before you conclude the town is in good or bad shape for the fiscal year shown? 10­ 19 Financial Trend Monitoring System. The City of St. Cloud, Minnesota, annually prepares a trend report using the ICMA's Financial Trend Monitoring System. The table presented here captures trend information provided by St. Cloud in its 2013 Annual Financial Trend Report. For a description of the indicators included, see Illustration 10­3 in this chapter. Required a. Based on the trend, which indicators indicate improving financial performance? b. Based on the trend, which indicators indicate declining financial performance? Using Illustration 10­3, discuss what the decline indicates. c. Discuss your overall assessment of St. Cloud's financial performance. d. What additional information would be helpful in assessing St. Cloud's financial performance? 10­ 20 Comparative Ratios. The government­wide financial statements for the City of Arborland for a three­year period are presented on the following pages. Additional information follows: Population: Year 2017: 30,420, Year 2016: 28,291, Year 2015: 26,374. Debt limit remained at $20,000,000 for each of the three years. Net cash from operations is generally 80 percent of total revenues each year. Required a. Which of the financial performance measures in Illustration 10­4 can be calculated for the City of Arborland based on the information that is provided? b. Calculate those ratios identified in part a for FY 2017. Show your computations. c. Provide an overall assessment of the City of Arborland's financial condition using all the information provided, both financial and nonfinancial. Use information from the prior years to form your assessment. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 32/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 33/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 437 https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 34/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 438 https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 35/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 439 https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 36/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 440 *This case represents an update to the Detroit case that can be found in the 16th edition of the textbook. 1 http://www.detroitmi.gov/DepartmentsandAgencies/Finance/PerformanceIndicators.aspx 2 Comprehensive Annual Financial Report, Independent Auditors Report, Detroit, Michigan, 2012, p 2. *This case represents an update to the Harrisburg case presented in the 16th edition of the textbook. 3 Michael Corkery and Matthew Dolan, “Detroit Bankruptcy Likely to Spark a Pension Brawl; Filing Will be a Test Case of How Far a City Can Go in Shedding Retiree Costs,” The Wall Street Journal (online), July 20, 2013. 1 We define financial transparency as all relevant financial information that is fully and freely available to users. 2 Dean M. Mead, What You Should Know about Your Local Government's Finances: A Guide to Financial Statements (Norwalk, CT: GASB, 2011). A related guide, also by Dean M. Mead, is What You Should Know about Your School District's Finances: A Guide to Financial Statements (2012). 3 Dean M. Mead, An Analyst's Guide to Government Financial Statements (Norwalk, CT: GASB, 2012), p. 277. 4 Robert Berne, Research Report, “The Relationship between Financial Reporting and the Measurement of Financial Condition” (Norwalk, CT: GASB, 1992). 5 Ibid., pp. 16–17. 6 Ibid. 7 Karl Nollenberger, Evaluating Financial Condition: A Handbook for Local Government, 4th ed. (Washington, DC: International City/County Management Association, 2003); a revision of the original 1980 text by Sanford M. Groves and Maureen G. Valente. 8 Governmental Accounting Standards Board, Concepts Statement No. 1, “Objectives of Financial Reporting” (Norwalk, CT: GASB, 1987), par. 61. 9 GASB Statement No. 44, “Economic Condition Reporting: The Statistical Section” (Norwalk, CT: GASB, 2004), par.49. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 37/38 6/26/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities 10 Lisa Parker, Dean Mead, Dan Brown, and Jay Fountain memo to Economic Condition Reporting: Fiscal Sustainability Task Force Members. Definitions of “Economic Condition and Its Components, Including Fiscal Sustainability,” GASB, May 17, 2010. 11 Governmental Accounting Standards Board. See Project Pages: Economic Condition Reporting: Financial Projections at www.gasb.org. 12 Ibid. 13 Nollenberger, Evaluating 14 Crawford Financial Condition, pp. 147–52. & Associates, P.C., The Performeter® (Oklahoma City, OK, 2008). See its Web site at crawfordcpas.com. 15 Barbara A. Chaney, Dean M. Mead, and Kenneth R. Schermann, “The New Governmental Financial Reporting Model,” Journal of Government Financial Management, Spring 2002, pp. 27­31. In this article, the authors calculate and compare these ratios for two cities with similar population size. 16 Government Finance Officers’ Association, Recommended Practice: The Use of Trend Data and Comparative Data for Financial Analysis (2003). Available at www.gfoa.org. 17 Christopher 18 Richard O'Leary, “Rating Agencies to Re­evaluate Ratings Criteria,” Investment Dealer's Digest, August 23, 1999, pp. 7–9. J. Raphael, FitchRatings Presentation at the GFOA Conference: Rating Methodology, May 19, 2014. 19 Moody's Investor 20 Standard Service, Rating Methodology: US Local General Obligation Debt, January 15, 2014. & Poor's Ratings Services, https://www.spratings.com/us­local­government­scenario­builder, accessed May 27, 2014. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/46!/4/4/4@0:0 38/38 
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