Chapter 10 - Analysis of Governmental Financial Performance

CHAPTER 10:

ANALYSIS OF GOVERNMENTAL FINANCIAL

PERFORMANCE
OUTLINE

Number

Topic

Type/Task

Status
(re: 15/e)

Explain
Identify, define
Describe
Describe
Identify
Compare, explain

Same
New
Same
New
New
Same

Explain
Explain
Identify, explain

Same
Same
Same

10-10

Causes of municipal financial crises

Economic condition
Financial condition
Financial Trend Monitoring System and citizens
Solvency
Unrestricted net position and unreserved fund
balance
Organizational factors in the FTMS
Pension plan funding
Financial indicators and short-term financial
position.
Credit or bond analysts

Identify

Same

Cases:
10-1
10-2
10-3

Citizen reports
Municipal credit analysts and bond ratings
Financial trends

Research
Analyze
Analyze

New
New
10-3, revised

Examine
Multiple Choice
Matching
Calculate, analyze
Assess
Analyze
Analyze
Analyze

Same
10-2, revised
10-3, revised
Same
New
New
New
Same

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
Financial analysis
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 managements 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. The GASB identifies economic condition as a composite measure that comprises three
components: financial position, fiscal capacity, and service capacity. Financial position is
the status of the items on the governments balance sheets and statements of financial
position. It relates to questions such as what is the value of the governments assets or its
liabilities. Fiscal capacity is the governments ongoing willingness and ability to meet its
financial obligations as they become due. It relates to questions such as is the government
willing and able to pay its bills when they are due? Service capacity refers to the
governments ongoing willingness and ability to meet commitments and provide services.
A question related to service capacity might be is the government maintaining streets?
10-3. The four types of solvency the ICMA describes are: cash solvency, budgetary solvency,
long-run solvency, and 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.

10-2

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Answers (Contd)

10-4. As part of community needs and resources in Illustration 10-4 of the chapter several
citizen characteristics are identified that can impact the governments financial condition.
Some of the characteristics include age, income, employment, and home
ownership/property values. These characteristics can impact both the demand for
services and ability to provide services. For example, the age of the citizenry can impact
the need for schools, public safety, and perhaps the types of parks and recreation facilities.
Additionally, it may impact the business climate given that the age of the population can
affect the types of businesses establishing in a location. The income level of the citizens
affects the demand for services and the ability to provide services. Lower income and
unemployed individuals generally have a greater need for government services but are
unable to provide the resources necessary for the services. The higher and more stable the
employment rate among citizens the greater the business activity, which also helps
contribute to higher and more stable government revenues. Higher levels of home
ownership and high property values help generate revenues for those governments that
rely on property taxes to fund services. Additionally, the revenues associated with home
ownership generally tend to be a more stable and reliable source of revenues for
governments. The citizen characteristics tend to be interrelated; for example, income,
employment and home ownership.
10-5. Budgetary solvency refers to the governments ability to generate enough revenue during
the period to cover its expenditures for the period; thereby, avoiding a deficit. The term
is closely related to what the GASB refers to as interperiod equity. An examination of
Illustration 10-3 should provide examples of ratios that would be beneficial in analyzing
budgetary solvency. A comparison of the revenue per capita ratio with the expenditure
per capita ratio would indicate whether the revenues were less than or greater than the
expenditures for the period. If revenues are greater than the expenditures the government
meets the definition of budgetary solvency. Similarly, the operating surplus/deficit ratio
provides an indication of whether the governments revenues are exceeding its
expenditures for the period.
10-6. Unrestricted net position is the residual equity account on the statement of net position,
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 position is a cumulative figure, covering the
governments entire existence. The unrestricted net position is 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 position 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.

10-3

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Answers, 10-6 (Contd)

On the other hand, assigned and unassigned 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 services. Assigned and unassigned
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
accounting principles require display and disclosure of pension information, but do not
prescribe the 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 by the SEC and others has been that required GAAP disclosures do not
provide adequate information to citizens about the severe underfunding of pension plans.
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 position 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
10-4

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Answers, 10-10 (Contd)

investment firms and insurance firms) compare a wide set of indicators to institutional
benchmarks in determining the credit risk of municipal bonds.
Solutions to Cases
10-1. According to the AGA government financial information should be provided to citizens
in a form that is clear and understandable, updated regularly, easy to access, and honest
and accurate. To that end the purpose of Citizen-Centric Reporting is to provide
meaningful and understandable information about financial condition and performance in
a four page format.
The information students provide on why they believe such reports are important will
vary. Students should bring up some of the following points in their report: (1) it is
important that governments try to communicate effectively with citizens given that
citizens are revenue providers and users of government services, (2) citizens believe they
are entitled to transparent financial management information about their governments, (3)
citizens believe governments have an obligation to provide transparent financial
information, and (4) the lack of communication can create distrust, particularly when
performance is poor. Citizen-centric reports may be more beneficial than the CAFR
report for some of the following reasons: (1) there is just too much information in a
CAFR (it is overwhelming), (2) it is too complex for most citizens to understand, (3) it is
too difficult for citizens to find information on performance, and (4) it is too time
consuming to review (citizens wont see a cost/benefit).
The following information is from the AGAs template for its four page Citizen-Centric
Reports:
1. Page one should provide the strategic objectives of the government, what the
government is required to do, and demographic information on a per capita basis.
2. Page two should provide a performance report on key missions and services.
Performance measures that are provided should be compared to prior years and
strategic targets.
3. Page three should provide revenue and expenditure information. This information is
most meaningful if it is related to the performance information provided on page 2.
4. Page four should provide prospective information related to expected goals or issues
facing the government.
After locating and reviewing a Citizen-Centric Report, students should provide a brief
argument concerning whether the report they reviewed met the AGAs purpose for such
reports.
10-2. a. According to the information provided, Detroit was downgraded from a Ba2 to a Ba3.
Moodys Ratings Symbols and Definitions (available through www.moodys.com)
defines debt rated Ba as having speculative elements and subject to substantial credit
risk. The number after Ba indicates the debts location within the Ba range. A

10-5

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, Case 10-2 (Contd)

number 3 indicates the debt is at the lowest end of the Ba range, which makes it the
most speculative and risky of the Ba debt.
b. There are so many financial problems identified in the excerpted material, students
should not have trouble making a list. Some items that should be considered include:
1) Detroit has a large unrestricted net asset (position) deficit ($1.6 billion) in 2010,
which is a greater than 70 percent increase from the prior year. This is despite
efforts to reduce costs.
2) A large part of the increase in the unrestricted net asset (position) deficit appears
to be driven by ineffective hedging activity. This may indicate poor financial
asset management, or poor risk policies. Either could be an indicator of ongoing
problems in the area of asset management.
3) There was a decline in tax revenues in 2010 that may be ongoing given that
property values are depressed and the unemployment rate is high. Closely tied to
the revenue problem is the business environment in Detroit the motor city.
Detroit has relied heavily on one industry (automotive) in the past. Although the
automotive industry has improved, it is unlikely it will employ as many as in the
past.
4) Several cost reduction strategies were implemented, but these were not sufficient
to eliminate a deficit. The difficulty here is that cost reductions can not be done
indefinitely without affecting services. Additionally, it appears that even with
labor reductions, there are increasing pension and other post-employment costs
that are seriously affecting Detroit.
5) Never a good indicator is the fact that Detroit is using one time actions to help
cover costs (Cobo Center special item).
6) Detroit has issued bonded debt (fiscal stabilization bonds) to reduce the operating
deficit. This creates a serious interperiod equity issue.
10-3. a. The solution to this case will depend on which years Financial Trends report each
student obtains. In the 2010 report, the following indicators are labeled as negative
rather than positive or neutral (see Illustration 10-6):
ENVIRONMENTAL FACTORS:
Employment base
Business activity: Retail sales
FINANCIAL FACTORS:
Service charges coverage: General Fund
b.

Students will, of course, formulate different questions; however, you should

expect them to address the negative trends identified in part a. For example:
What is driving the negative trend in the employment base? Is anything being
done to counteract the trend (i.e., new business development)? Is the decline in

10-6

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, Case 10-3 (Contd)

retail sales a function of the overall economy? Since we are moving out of the
recession in 2010 are there projections for increased retail sales? Are the problems
with a decline in service charge revenues also related to the overall economy with
fewer people using government servicestitle registrations, new vehicle
registrations, etc?
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. Additionally, although Columbia has few negative trends there are
quite a few trends that need to be monitored. As a proactive measure, it may be
prudent to investigate what if anything is being done in the areas requiring
monitoring.
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 copying exhibits from the CAFR.
10-2. 1.
2.
3.
4.
5.

c.
d.
a.
d.
b.

6.
7.
8.
9.
10.

c.
d.
a.
a.
b.

10-3.
a. f. +
k. b. g. l. c. +
h. m. +
d. i. +
n. NE (see Note)
e. +
j. o. NE
Note: 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.

10-7

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions (Contd)

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.

FY 2014 Total Revenue

$ of Total Revenue

200,000,000
150,000,000
100,000,000
50,000,000
0
Oakdale

Aaa-Rated
Median

Comparison
RG Median

State Median

Comparison Groups

$ of Revenue per
Capita

FY 2014 Revenue per Capita

3500
3000
2500
2000
1500
1000
500
0
Oakdale

Aaa-Rated
Median

Comparison
RG Median

Comparison Groups

10-8

State Median

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, 10-4 (Contd)

b.

Oakdale has a much higher amount of total revenue for FY 2014 than its reference
groups, most notably larger than the state median. Oakdales 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. 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.

For the City of St. Cloud an increase in operating revenue per capita over time
may be seen as a positive financial condition trend. Increasing revenues indicates
an improved ability to provide services. It may also indicate tax revenues are up
due to increasing business and property values. However, it should also be noted
that the source of the increasing revenues is important. If the tax rates on citizens
are increasing to provide the same level of services the trend is not indicative of
strong financial performance in that it will be difficult to sustain the increasing
trend. Additionally, if the increasing trend is the result of increased reliance on
intergovernmental revenues (does not appear to be the case with St. Cloud), the
government is relying on resources over which it has no control.
The fact that St. Cloud has been able to decrease expenditures during a period of
fiscal stress indicates somewhat improving financial performance. The trend
indicates that management is actively working to balance its resource inflows and
outflows. However, sustained reductions in expenditures will eventually impact
the ability of the government to provide services.

b.

St. Cloud has several trends that indicate financial performance may be declining.
Probably the indicator of potentially greatest concern is the General Fund
operating surplus/deficit ratio. From 2007 to 2008 this ratio experienced a large
decline going from a surplus to a deficit. Although 2009 is still a deficit, the
deficit is much smaller than in 2008. The negative values indicate that St. Cloud
is unable to cover current period expenditures with current period revenues. This
is also reflected in the decreasing level of General Fund balance. A decreasing
fund balance indicates reserves are being used to pay for the current period costs
not covered by current period revenues.
There was also a fairly significant decline in capital outlay from 2007 to 2008. In
2007 and earlier the capital outlay was around 5 percent, this percent dropped by
about 50 percent in 2008 and 2009. A persistent decline (as in three or more
years) would indicate that St. Cloud may be deferring capital asset replacements.
10-9

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, 10-5 (Contd)

c.

Although the last couple of years have been difficult for St. Cloud, overall the city
appears to be in relatively good shape, based on the available information. While
the General Fund balance has declined it is still considered to be large by most
any standard used (a red flag would be in the 5-10 percent range). The percentage
of the General Fund balance relative to all operating revenues is very large (some
may even consider it excessive). Thus, St. Cloud is well positioned to weather a
recession that results in a couple of bad years of financial performance. Operating
revenues per capita have exceeded operating expenditures per capita the last two
years, which is a sign the government is getting costs under control. Liquidity has
decreased over time, but is still extremely high by any standard, indicating St.
Cloud has the ability to cover short-term obligations as they come due. Current
liabilities have been relatively stable with a decline in 2009, indicating that St.
Cloud is not using short-term debt to pay its bills.

d.

Students may come up with several different answers to this question. However,
some factors not included in the table, but which would impact financial
performance, include: environmental factors (community demographics, political
culture, how the economy is impacting St. Cloud); organizational factors
(management practices and experience); financial factors such as revenue
diversity, long-term debt structure, and unfunded liabilities.

10-6. a.

The GFOA Certificate of Achievement for Excellence in Financial Reporting is

awarded to governments that go beyond minimum generally accepted accounting
principles in preparing their financial reports. Excellence is exhibited through
efforts at full financial transparency and disclosure. Thus, the award is given for
excellence in the quality of financial reporting, not excellence in financial
performance. The award makes no reference to, and provides no measure of the
financial performance of the government for which the report is prepared.

b.

No. There are very few indicators provided that would cause agreement with the
statement that Harrisburg is in a state of renewal. Business-type activities are
about the only indicator of renewal, in that they show a positive unrestricted net
asset (position) balance, and the changes in net assets (position) have been
positive the last three years. However, reviewing the two graphs it can be seen
that every year for the reported six years, Harrisburg has had large negative
unrestricted governmental net asset (position) balances. The change in net assets
(position) for governmental activities has been negative all but two years. In 2008
the negative change in unrestricted net assets (position) looks to be approximately
25-30 percent of the 2007 net asset (position) balance. Illustration 10-7
Performeter information indicates this is worse than the lowest suggested rating
on the table (see measure 8).
The performance measures provided for debt also defy the comments made by the
mayor. The debt service coverage ratio has declined by almost half since 2003.

10-10

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, 10-6 (Contd)

Although it is up in each of the last two years, it remains so low that it falls below
the lowest suggested rating on the table in Illustration 10-7 (see measure 12).
Bonded debt per capita is very high, has remained high over the period provided,
and actually increased in the 2008 year. Again if Harrisburgs bonded debt per
capita is compared to the Performeter benchmarks, Harrisburgs debt is higher
than the lowest suggested rating by almost twice.
c.

Just from the limited information provided in the problem, it would appear that
the CAFR provided sufficient information about the economic condition of
Harrisburg to indicate the potential for default. The debt ratios indicate a very
negative debt position. Harrisburg does not appear to be in a strong enough
financial position to remedy the debt situation given the poor net (asset) position
in which it finds itself. Continuing negative net position indicates that Harrisburg
is unable to generate enough revenues to cover its expenses. As a result
Harrisburg does not have the ability to provide ongoing services (service capacity)
much less have resources available to pay debt as it comes due (fiscal capacity).
A more extensive analysis of the Harrisburg CAFR would provide additional
indications of Harrisburgs poor economic condition. (As a note: At the time the
textbook went to press Harrisburg had not yet posted its 2009 or 2010 CAFR, it
was operating under an emergency financial plan.)

10-11

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions (Contd)

10-7. a.

The Performeter analysis for 2009 is as follows:

City of Lawton, Oklahoma - Performeter Analysis - 2009

Performance Measure
2009
Financial Position Ratios
Unrestricted Net Assets (Position)
General Fund Budgetary Fund
Balance
Capital Asset Condition
Pension Plan Funding Status
Debt to Assets
Current Ratio
Total Financial Position
Financial Position Score
Financial Performance
Change in Net Assets (Position)
Interperiod Equity
Sales Tax Growth
BTA Self Sufficiency
Debt Service Coverage
Total Financial Performance
Financial Performance Score
Financial Capability
Revenue Dispersion
Bonded Debt Per Capita
Available Legal Debt Limit
Property Taxes Per Capita
Sales Tax Rate
Debt Service Load
Total Financial Capability
Financial Capability Score
Overall Financial Performance

Rating* Weight

Score

2.30%

1.25

3.75

6.90%
55%
63%
58%
3.74

3.75
6.00
0.75
4.25
10.0

2
1
1
1
3
11

7.50
6.00
0.75
4.25
30.00
52.25
4.75

1%
102%
4%
119%
3.9

5.50
10.00
2.00
10.00
10.00

3
2
2
3
3
13

16.50
20.00
4.00
30.00
30.00
100.50
7.73

57%
$267
40%
$59
3.625%
14%

6.00
7.25
4.00
4.25
3.75
7.00

1
1
2
1
2
2
9

6.00
7.25
8.00
4.25
7.50
14.00
47.00
5.22
6.05

* The rating was calculated by interpolating to the nearest quarter point. Students may end up
with slightly different values if they calculate to the nearest half or whole point.
10-12

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, 10-7 (Contd)

b.

Lawtons 2009 overall performance (6.05) appears to be slightly above acceptable,

if a score of 5 is considered to be acceptable. The financial performance for
Lawton is quite strong at 7.73, with individual scores at the highest rating in
several categories. Financial position performance (4.75) is the weakest, scoring
below the mid-point of 5. Financial capability (5.22) is acceptable.

c.

Although the analysis in part b indicates that Lawtons 2009 performance is

slightly above acceptable, the exercise shows that 2009 performance is below
2008 performance. There are declines in every financial position ratio. In all but
the case of the debt to asset ratio a decline in the ratio indicates a decline in
performance. The most significant declines are in the unrestricted net asset
(position) ratio and the pension plan funding ratio. The financial performance
ratios remain quite high, despite the fact that there are negative trends in all but
the debt service coverage ratio. This ratio improved from 1.94 to 3.9. Note that
while the sales tax growth ratio increased, this is viewed negatively with regard to
performance. Finally, financial capability also exhibited some negative trends
with bonded debt increasing, available debt limit decreasing, property taxes
increasing and debt service load increasing. Revenue dispersion increased
slightly, which is the one positive trend in the financial capability ratios. Lawton
will need to remain vigilant if it wants to stay at an acceptable performance level.

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 government-wide financial statements presented in this case are:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Unrestricted net position

Capital asset condition
Debt to assets
Current ratio
Quick ratio
Change in net position
Interperiod equity
Business-type activities self-sufficiency
Revenue dispersion

Measures (15) bonded debt per capita, (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

10-13

Chapter 10 - Analysis of Governmental Financial Performance

Ch. 10, Solutions, 10-8 (Contd)

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.

2.

3.

4.

2014 Calculations
(see Ill. 10-4 for definition
of ratios)
Ending
Governmental activities:
unrestricted net
4,597
position 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

2014
2013
2012
($ 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

Ch. 10, Solutions, 10-8 (Contd)

5.

Quick ratio

6.

Change in net
position from the
prior year
(governmental
and business-type
activities total)

7.

Interperiod equity
(number of times
revenue exceeds
expenses)

8.
9.

BTA selfsufficiency
Revenue
dispersion (% of
own-source
revenue)

10. Bonded debt per

capita

11. Available legal

debt limit
(remaining % of
debt limit
available)
12. 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
position
from 2009
statement of
activities)

Governmental activities:
20,302+3,860+1,886
+495-100
1.10
1.16
times
times
23,973
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

Ch. 10, Solutions, 10-8 (Contd)

* Insufficient information is available (i.e., the beginning of the year balance of

depreciable assets) to calculate average depreciable assets for the year 2012.
Thus, for 2012, the end of year balance was used in the denominator of the ratio.
** Actual property tax levy information was not provided, property tax revenues
was used instead.
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
position has 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 ratios 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