OBJECTIVE: The objective of this project is to allow you to apply what you have learned concerning government financing and reporting through an analysis of a local government financial statement (Comprehensive Annual Financial Report – CAFR.pdf).
OBTAIN CAFR: Your assignment is to download a city’s most recent CAFR and analyze its financial condition given the parameters identified below. Please note that it can’t be the City of Boca Raton’s CAFR that was used in Module 10. (ATTACHED – FY 2019 CAFR for The City of Plantation, Florida)
READ FINANCIAL CONDITION LITERATURE: I have posted three readings on Canvas that can help you on this assignment. Please read them, since they will give you a lot of information regarding what to use, and why you are to use it. Also, you are more than encouraged to seek additional references for your project. (ATTACHED – 1. BUDGET-Ten-point-test.pdf, 2. Measuring and Evaluating Financial Condition Thesis-1.pdf, and 3. New York Financial Condition Analysis.pdf)
Introduce and explain the composition of the reporting entity you have selected. (10 points). This is to be no more than two paragraphs, where you introduce the entity you are examining, what you are going to accomplish in this report, and a general statement about the financial condition of the entity.
Analyze the financial condition of the city. (80 points)
Your analysis should include a financial ratio analysis. You can use the Budget 10-Point scale article or the Financial Condition Analysis Master Thesis located on Canvas. Using the information from the CAFR calculate the ratios that you believe will be useful in conducting the analysis. Please show your ratio calculations in a table included as part of your paper.
Your analysis should consider each of the following items. That does not mean that you need to discuss every item listed below, but these are items that you may want to consider when evaluating a governmental unit. The ratios calculated in part a) should be selected to help in addressing and supporting your analysis.
Analysis of revenues and revenue sources
How stable and flexible are the city’s revenue sources in the event of adverse economic conditions?
Is the revenue base well diversified, or does the city rely heavily on one or two major sources?
Has the city been relying on intergovernmental revenues for an excessive portion of its operating expenditures?
What percentage of total expenses of governmental activities is covered by program revenues? by general revenues?
Do any extraordinary or special items reported in the statement of activities deserve attention?
Discuss any other observations you have about revenues that you consider important.
Analysis of reserves
Are the levels of financial reserves (i.e., fund balances, contingency funds, and unrestricted/restricted fund balances) adequate to meet unforeseen operational requirements or catastrophic events?
Is insurance protection adequate to cover losses due to lawsuits or damage to property?
Is an adequate amount of cash and securities on hand, or could the city borrow quickly to cover short-term obligations?
Analysis of expenditures and expenses
Do any components of expenditures and, at the government-wide level, expenses exhibit sharp growth?
Is adequate budgetary control being exercised over expenditures?
How does the growth pattern of operating expenditures and expenses over the past 10 years compare with that of revenues?
Analysis of debt burden
What has been the 10-year trend in general obligation long-term debt relative to trends in population and revenue capacity?
Are significant debts of other governments (e.g., a school district, a county) supported by the same taxable property? What has been the trend for this “overlapping” debt?
Are there significant levels of short-term operating debt? If so, has the amount of this debt grown over time?
Are there significant debts (e.g., lease obligations, unfunded pension liabilities, accrued employee benefits) or contingent liabilities?
Are any risky investments such as derivatives disclosed in the notes to the financial statements? Are the types of investments adequately explained, and are their risks adequately disclosed?
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 City and County Data Book published by the U.S. Bureau of the Census. See the library or get selected data from the Census Bureau’s Web site www.census.gov (Links to an external site.).)
Potential “red flags” or warning signs.
Decline in revenues
Decline in property tax collection rate
Expenditures increasing more rapidly than revenues
Declining balances of liquid resources and fund balances
Reliance on nonrecurring (i.e., special item) revenues to support current-period operations
Growing debt burden
Growth of unfunded pension and other employee-related benefits such as compensated absences and post-employment health care benefits
Deferral of needed maintenance on capital plant
Decrease in the value of taxable properties, retail sales levels, or disposable personal income
Decreasing revenue support from federal or state government
Unusual climatic conditions or the occurrence of natural disasters
Ineffective management and dysfunctional political circumstances
PROJECT REPORT: You are to write a 10 – 12 page report on your City’s financial condition. The Report must be double-spaced, 12-point font, one-inch margins, typed. Your assignment is not to answer each specific question identified in the readings or listed above, but to write a narrative that discusses the financial condition of the City – as you were writing it to the Mayor who has no idea about financing. Reports will be graded on content, analysis/discussion, and construction (organization, use of Standard English, grammar, syntax, etc.). (10 points for format section)
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