DUE 10/31

There are over 40 standard indicators that can serve as an evaluation basis for the financial condition of a city. The indicators used in this course will be as follows:

Revenues

· Total Revenues

· Total Revenues per Household

· Intergovernmental Revenues as a Percent of Operating Revenue

· Property Tax Revenues

· Sales & Use Tax Revenue per Household

· Restricted Revenues

Expenditures

· Total Operating Expenditures per Household

· Fringe benefits

· Fixed Costs as a Percent of Operating Expenditures

· Debt per Household

This fiscal condition analysis, however, will focus only on the five (5) most important financial indictors:

Revenues

· Total Revenues

· Property Taxes

· Sales Taxes

Expenditures

· Operating Expenditures

· Personnel Costs

Adjusting for Constant Dollars

Adjusting for inflation converts current dollars into constant dollars. The conversion from actual dollars to constant dollars allows for analysts to take into account the appearance of growth that may be due to inflation. When dealing with dollars over time:

Before entering the budgeted amounts in the excel spreadsheets, you need to convert each dollar amount to constant dollars. Due to inflation, the purchasing power of the dollar changes over time, so in order to compare dollar values from one year to another, they need to be converted from nominal (current) dollar values to constant dollar values

The easiest way to do that is to use an inflation calculator, such as the one found in the assignment resources.

REVENUE INDICATORS

Revenues determine a city’s capacity to provide services. Important issues to consider relative to revenues are growth, diversity, reliability, flexibility and administration. Under ideal conditions revenues will grow at a rate equal to or greater than the combined effects of inflation and expenditure pressures from new and/or expanded services. They should be sufficiently flexible to allow necessary adjustments in response to changing conditions. They should be diversified in their resources so as not to be overly dependent on residential, commercial or industrial land uses or on external funding sources such as federal grants or discretionary state aid. User fees should be regularly evaluated and revised to cover the true cost of providing services. Analyzing a revenue structure will aid in identifying the following types of problems:

• Deterioration in revenue base

• Internal procedures or priorities that may adversely affect revenue

• Over-dependence on obsolete or external revenue sources

• User fees that are not covering the cost of providing services

• Changes in tax burden

• Inefficiency in collection or administration of revenue

Total Revenues per Household

Description: As a city’s population grows, it is anticipated that the needs for services will increase in a direct relationship. Therefore, the level of revenues per households should at least remain constant and at a minimum, equal to operating expenditures per household. If operating revenues per household decrease or become lower than operating expenditures per household, it may hamper a city’s ability to maintain the existing level of services unless new sources of revenues or ways of trimming expenses can be found.

TABLE AND CHART HERE

Property Tax Revenue

Description: Local property tax revenues are driven primarily by the value of residential and commercial property, with property tax bills determined by the local government’s assessed mill levy on the value of property. Property tax collections lag the real estate market, because local assessment practices take time to catch up with changes. As a result, current property tax bills and property tax collections typically reflect values of property from twelve to eighteen months prior.

A decline or diminished growth rate in taxable value may result from a number of causes such as an overall decline in property values, the transfer of taxable property to organizations that are exempt, or a decline in new development.

TABLE AND CHART HERE

Sales Tax Revenue as Percentage of Total Revenues

Description: Changes in economic conditions are also evident in terms of changes in sales tax collections. When consumer confidence is high, people spend more on goods and services, and city governments benefit through increases in sales tax collections. Prior to the recession, consumer spending was also fueled by a strong real estate market that provided additional wealth to homeowners. The struggling economy and the declining real estate market have reduced consumer confidence, resulting in less consumer spending and declining sales tax revenues.

Warning Trend: Declining or negative growth in sales & use tax revenues

TABLE AND CHARTS HERE

EXPENDITURE INDICATORS

Expenditures are a rough measure of a city's output effort. Generally, the more a city spends, the more service it is providing, or it is providing higher quality service however increased expenditures can also be a sign of problems in ineffective budget control or excessive growth, decline in personnel productivity and growth in services not supported by revenues.

Most cities are required to have balanced budgets; however, there are a number of subtle ways to balance an annual budget yet create long-term imbalances. Some of the more common ways are to use bond proceeds for operations, defer maintenance, or utilize temporary cuts from year-to-year. In each case, the budget remains balanced, but in the long-term significant deficits could be developing.

Ideally, a city will have an expenditure growth rate that does not exceed its revenue growth rate and will have maximum spending flexibility to adjust to changing factors. A review of city expenditures can identify deficiencies should they exist such as:

• Excessive growth of overall expenditures as compared to revenue growth

• An undesired increase in fixed costs

• Ineffective budget controls & models

• Excessive growth in programs that create future expenditure liabilities

Operating Expenditures per Household

Description: Operating expenditures per household reflect changes in expenditures relative to changes in population. Increasing per household expenditures can indicate that the cost of providing services is increasing at a pace beyond the city’s ability to pay. If spending is increasing faster than can be accounted for by inflation or new programs, it may indicate that a city is spending more funds to support the same level of services or the methods of providing the services are inefficient.

TABLE AND CHART HERE

Personnel Costs per Household

Description: Employee wages and benefits can represent a significant cost to a city. Some benefits are mandated such as FICA, workers compensation and unemployment. Others, such as health insurance and retirement are discretionary.

TABLE AND CHART HERE

Hint:

In the Concluding Analysis section, for each indicator, the analysis should focus on the patterns as they are linked to the warning trends of each indicator. That is, compare the data to the benchmarks (warning trends) and then address the following research questions: (Use the points as subheadings in the concluding analysis):

1. Research Question: How does the data trend for each indicator compare to the warning trend and what does this mean?

2. Research Question: How does the data trend for each warning trend compare to the data in the other warning trends and what does this mean?

*Note: These are interactive, so when you replace the appropriate figures in the spreadsheet with the data for Maumelle, Arkansas, the data, tables, and charts will automatically be updated to correspond with the data you entered. You must enter both the dollars in the budget and the constant dollar amounts (2025 Dollars).

There are over 40 standard indicators that can serve as an evaluation basis for the financial condition of a city. The indicators used in this course will be as follows:

Revenues

· Total Revenues

· Total Revenues per Household

· Intergovernmental Revenues as a Percent of Operating Revenue

· Property Tax Revenues

· Sales & Use Tax Revenue per Household

· Restricted Revenues

Expenditures

· Total Operating Expenditures per Household

· Fringe benefits

· Fixed Costs as a Percent of Operating Expenditures

· Debt per Household

This fiscal condition analysis, however, will focus only on the five (5) most important financial indictors:

Revenues

· Total Revenues

· Property Taxes

· Sales Taxes

Expenditures

· Operating Expenditures

· Personnel Costs

Adjusting for Constant Dollars

Adjusting for inflation converts current dollars into constant dollars. The conversion from actual dollars to constant dollars allows for analysts to take into account the appearance of growth that may be due to inflation. When dealing with dollars over time:

Before entering the budgeted amounts in the excel spreadsheets, you need to convert each dollar amount to constant dollars. Due to inflation, the purchasing power of the dollar changes over time, so in order to compare dollar values from one year to another, they need to be converted from nominal (current) dollar values to constant dollar values

The easiest way to do that is to use an inflation calculator, such as the one found in the assignment resources.

REVENUE INDICATORS

Revenues determine a city’s capacity to provide services. Important issues to consider relative to revenues are growth, diversity, reliability, flexibility and administration. Under ideal conditions revenues will grow at a rate equal to or greater than the combined effects of inflation and expenditure pressures from new and/or expanded services. They should be sufficiently flexible to allow necessary adjustments in response to changing conditions. They should be diversified in their resources so as not to be overly dependent on residential, commercial or industrial land uses or on external funding sources such as federal grants or discretionary state aid. User fees should be regularly evaluated and revised to cover the true cost of providing services. Analyzing a revenue structure will aid in identifying the following types of problems:

• Deterioration in revenue base

• Internal procedures or priorities that may adversely affect revenue

• Over-dependence on obsolete or external revenue sources

• User fees that are not covering the cost of providing services

• Changes in tax burden

• Inefficiency in collection or administration of revenue

Total Revenues per Household

Description: As a city’s population grows, it is anticipated that the needs for services will increase in a direct relationship. Therefore, the level of revenues per households should at least remain constant and at a minimum, equal to operating expenditures per household. If operating revenues per household decrease or become lower than operating expenditures per household, it may hamper a city’s ability to maintain the existing level of services unless new sources of revenues or ways of trimming expenses can be found.

TABLE AND CHART HERE

Property Tax Revenue

Description: Local property tax revenues are driven primarily by the value of residential and commercial property, with property tax bills determined by the local government’s assessed mill levy on the value of property. Property tax collections lag the real estate market, because local assessment practices take time to catch up with changes. As a result, current property tax bills and property tax collections typically reflect values of property from twelve to eighteen months prior.

A decline or diminished growth rate in taxable value may result from a number of causes such as an overall decline in property values, the transfer of taxable property to organizations that are exempt, or a decline in new development.

TABLE AND CHART HERE

Sales Tax Revenue as Percentage of Total Revenues

Description: Changes in economic conditions are also evident in terms of changes in sales tax collections. When consumer confidence is high, people spend more on goods and services, and city governments benefit through increases in sales tax collections. Prior to the recession, consumer spending was also fueled by a strong real estate market that provided additional wealth to homeowners. The struggling economy and the declining real estate market have reduced consumer confidence, resulting in less consumer spending and declining sales tax revenues.

Warning Trend: Declining or negative growth in sales & use tax revenues

TABLE AND CHARTS HERE

EXPENDITURE INDICATORS

Expenditures are a rough measure of a city's output effort. Generally, the more a city spends, the more service it is providing, or it is providing higher quality service however increased expenditures can also be a sign of problems in ineffective budget control or excessive growth, decline in personnel productivity and growth in services not supported by revenues.

Most cities are required to have balanced budgets; however, there are a number of subtle ways to balance an annual budget yet create long-term imbalances. Some of the more common ways are to use bond proceeds for operations, defer maintenance, or utilize temporary cuts from year-to-year. In each case, the budget remains balanced, but in the long-term significant deficits could be developing.

Ideally, a city will have an expenditure growth rate that does not exceed its revenue growth rate and will have maximum spending flexibility to adjust to changing factors. A review of city expenditures can identify deficiencies should they exist such as:

• Excessive growth of overall expenditures as compared to revenue growth

• An undesired increase in fixed costs

• Ineffective budget controls & models

• Excessive growth in programs that create future expenditure liabilities

Operating Expenditures per Household

Description: Operating expenditures per household reflect changes in expenditures relative to changes in population. Increasing per household expenditures can indicate that the cost of providing services is increasing at a pace beyond the city’s ability to pay. If spending is increasing faster than can be accounted for by inflation or new programs, it may indicate that a city is spending more funds to support the same level of services or the methods of providing the services are inefficient.

TABLE AND CHART HERE

Personnel Costs per Household

Description: Employee wages and benefits can represent a significant cost to a city. Some benefits are mandated such as FICA, workers compensation and unemployment. Others, such as health insurance and retirement are discretionary.

TABLE AND CHART HERE

Hint:

In the Concluding Analysis section, for each indicator, the analysis should focus on the patterns as they are linked to the warning trends of each indicator. That is, compare the data to the benchmarks (warning trends) and then address the following research questions: (Use the points as subheadings in the concluding analysis):

1. Research Question: How does the data trend for each indicator compare to the warning trend and what does this mean?

2. Research Question: How does the data trend for each warning trend compare to the data in the other warning trends and what does this mean?

*Note: These are interactive, so when you replace the appropriate figures in the spreadsheet with the data for Maumelle, Arkansas, the data, tables, and charts will automatically be updated to correspond with the data you entered. You must enter both the dollars in the budget and the constant dollar amounts (2025 Dollars).