• Uncategorized

Matanuska-Susitna Borough Government Financial Performance Analysis

Matanuska-SusitnaBorough Government Financial Performance Analysis

Exerciseand problems 10 – 15

Matanuska– Susitna Borough

  1. Analysis of revenues and revenue sources

  1. Two aspects for long term stability of the government revenue sources are the elements of sustainability and flexibility. In the event of an unfavorable economic condition, the charge of service is generally unstable. These sources are readily subjected to legal restrictions in their design and are limited in their uses in which proceeds can be put. Regarding property taxes, they are relatively unstable and unreliable in their growth structure. With their 45% contribution to Borough’s revenues, in cases where homes are depreciated due to economic or other reasons and the property value is lost, then the resale value will diminish and hence reducing property taxes. From the table below, we can thus conclude that Matanuska-Susitna Borough does not have stable and flexible revenue sources because they depend on two sources i.e. property taxes and the capital grants and contribution. Borough requires additional own-source revenue sources in order to diversify its revenue base.

Borough’sRevenue sources distribution:

Source of revenue

Percentage (%)

Charges for services

7

Operating grants and contribution

9

Capital grants and contribution

31

Property taxes

45

Excise taxes

3

Transient accommodation taxes

0

Grants and entitlement not restricted to specific purpose

5

Investment income

0

  1. From Borough`s CAFR, it can be noted that the revenue base is not well diversified. Similarly, the company only relies on two primary revenue sources listed as the property taxes and the capital grants and contribution. Property in the area that is on sale is often overpriced way above the market value which in turn leads to increase in Property Taxes of the property on sale.

  2. From Borough’s CAFR, it is evident that they rely heavily on intergovernmental revenues. It can be noted that Matanuska-Susitna Borough spent an amount of $ 8,345,170 in federal awards. In a different schedule, the total expenditure by Borough for state financial assistance was reported as $ 113,163,702. One can observe there are a few contradictions with the information provided in the schedule in relation to the total amount.

  3. The total expenses of the government activities are reported as $176,840,658 while the total program revenues translate to $109,670,728. The estimated percentage of total expenses of the government activities that is covered by the program revenues is 161.2%. From the above information, it is clear to say that Matanuska-Susitna Borough is not earning sufficient revenues to take care of the expenses. On the other hand, the schedule in the statement of revenues, expenditures and changes in fund balance shows general revenues as $135,773,719 while the total expenses are presented as $97,171,389, thus expressing it in percentage as 71.6%. The figure above indicates that there is a budget excess of $38,602,330.

  4. I do believe that the total expenses and the program revenues require attention. This is because the revenues reported cannot sufficiently cover the expenses.

  1. Analysis of reserves

  1. According to Borough’s CAFR, the levels of financial reserves are inadequate to meet its operational requirements. This is attributed to the fact that it is over leveraged. As such, the company is obliged to borrow funds in other funds or accounts in order to meet any deficits.

  2. From Matanuska-Susitna Borough CAFR, it is evident that there is inadequate insurance protection to meet losses due from lawsuits and property damages.

  3. Similarly, there is an insufficient amount of funds and securities at hand. This is because Borough is over leveraged in that it may be incapable to gain access to additional emergency funds even from key lenders.

  1. Analysis of expenditure and expenses

  1. Looking at Borough`s components of expenditures in the government-wide level financial statements, it is easy to spot some growth in its expenses. There was a remarkable increase in the amount being spent on public services and public works, where Borough spent $28 and $4.3 respectively in 2014 and the amounts shot up to $41.2 and $14.0 in 2015. Additionally, other expenses also exhibited some slight growth including general government, and emergency services with amounts of $20.7, and $20.5 respectively in 2014 which rose to $21.5 and $23.8 respectively in 2015.

Belowis a chart illustrating growth pattern in government-wide expenses

  1. I can firmly say that budgetary control is being exercised over expenditures. This is because the budget created was adequate to cover the existing expenditures (p.25).

  2. Matanuska-Susitna Borough has recorded quantitative data for the changes in revenues and expenses fund account for the period 2006 to 2015. It can be observed that the revenues have been growing for the past ten years, whereas, expenses have been fluctuating within the last two years having significantly increased. Likewise, for the past decade, Borough has had a negative balance after expenses were subtracted from the revenues except for the year 2011 where an excess was reported (p. 165).

  1. Analysis of debt burden

  1. From Borough`s CAFR, it is noted that large amounts of funds have been borrowed for the last ten years, maybe, to cover the expenses that were not fully met. With an increasing trend in borrowing funds, Borough might get into debt, given that the funds are used to cover expenses that cannot be met by revenues generated by them.

  2. There exist small numbers of government supported by similar taxable properties which include Non-areawide Borough, City of Palmer, City of Wasilla, and the City of Houston. The trend for the overlapping debt has been reducing for the past ten years.

Belowis a graph illustrating direct and overlapping government.

  1. Socioeconomic factors

Concerningdemographics and economic information, Borough’s statisticalanalysis section indicates information about population, personalincome, per capita income, unemployment rate, and school enrollment.The population at Borough has been gradually increasing for the lastten years which may have a positive influence on the financialcondition. In contrast with population growth, the unemployment ratehas also been high and relatively steady. There is a directrelationship between population and personal income and per capitaincome which has also been increasing. However, high-income levelshave been associated with huge budgets and revenue bases for thegovernment.

  1. Potential “red flags” or warning signs

Accordingto the information provided in Matanuska-Susitna Borough CAFR, nobudgetary controls were put in place.

Also,changes in funds balances, governmental funds schedule has beenreporting a budget deficit after expenses are subtracted from therevenues. The high amounts of funds that were borrowed over the pastten years were used to cover additional expenses that totaled beyond,Borough’s revenues.

Creatingan imbalance in budgets and overspending is one serious disadvantagefor a country’s economy. We may find that the federal governmentmay not set a good example for the country when applying budgetaryrestrictions and encouraging saving to pay off amount outstanding.

Theoverlapping tax debt for the financial entities has been reducingfrom 2006. It does not make any sense to which debt associated withoverlapping taxes through Borough are declining whileMatanuska-Susitna is falling into debt. Property taxes are theprimary source of revenue for Borough. However, taxes cannot bereduced whereas debt associated with overlapping taxes cannot bedecreased when Borough is unable to cover expenses with a few amountof revenues earned.