Author: Jordan Paschal

Housing Res Education

Are Key Financial Indicators a Crystal Ball? Three Lessons from Detroit

After years in a continuous loop of population decline and higher taxes on a decreasing tax base, the largest municipal bankruptcy in U.S. history was filed by the City of Detroit in July 2013. After any disruptive event, our collective hindsight is 20/20, but could anyone who followed Detroit’s financial statements have seen this coming? We often discuss calculating key financial indicators to assess the financial health of a fund; would have doing so early on helped predict the bankruptcy? Recently, a study by Stone et. al., [1] sought to answer this question by analyzing Detroit’s financial condition through the lens of two dozen financial indicators. Their results illuminate some important points about using key financial indicators.

The authors computed 24 financial indicators from the City’s Comprehensive Annual Financial Reports (CAFRs) from 2002 to 2012. They calculated indicators from the financial data reported in two places: government-wide statements, and the balance sheets and operating statements for Detroit’s Governmental Funds. While they did not look at Proprietary Funds specifically, which would include the Enterprise Funds in which water and wastewater utilities usually reside, there are some lessons we can apply to Enterprise Funds using this study.

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The Power of Words: Survey Results on Communicating the Need for a Water Rate Increase Part 2

Our first post this week presented overall findings from a survey conducted on communication between staff and elected officials regarding water utility finances. As many would assume, a solid working relationship between the two parties is important to achieving a rate increase that provides full-cost recovery. But, when hearing a rate case, what information matters most to elected officials?

The survey asked elected officials what kind of information is the most important in helping them make the best decision about a rate increase for the water utility. It also asked administrators what they believed to be the most important information to share with elected officials. This allowed a comparison to be made between elected officials’ and administrators’ responses.

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