Analysis of San Jose Fiscal Condition

Category:

Description

Analysis of San Jose Fiscal Condition

Introduction

The impact of fiscal conditions of all jurisdictions in American is felt by all its citizens. Several forms of fiscal health indicators exist and may be measured in terms of the ability of a county or city to attract business. The amount of money collected in form of tax and the quality of services provided by the jurisdiction can equally be used as indicators. A state, county, or city in sound fiscal health should implement the promises it makes to the public-sector employees. For one to have a clear view of the fiscal outlook of a given county or city, its comprehensive annual report must be reviewed. Due to its bulkiness, the undertaking can be strenuous at times.

In this paper, however, ten measures that indicate a city’s financial well-being are calculated. They all evaluate the ability of the city to carry out is main mandate, namely provision of services to its residents. The measure used calculates the ability of the city to pay bills. Its capacity to cover annual expenses using its revenues is also evaluated, both at present and in future.

Background-analysis of San Jose Fiscal Condition

A city has a responsibility to provide services to its residents. However, its ability to meet this obligation depends on its fiscal condition. The lives of the residents of the city of San Jose, for instance, depend on services such as sewage treatment, security provided by the police, and safe transport. It will be impossible for a city to provide these services if it did not have healthy finances. The city of San Jose experienced a decade of deficits in the general fund. This period was followed by moderate growths in revenues after the 2007-8 financial crises as the economy grew. Over the years, however, the city has reduced the number of City Programs. Additionally, the number of its staff reduced significantly during this period. For instance, its average employment rate over a period of three decades is 7.1 people for every 1000 residents. Today, the figure stands at 5.7 and it is one of the lowest when a comparison is done with other cities in America. This development has had a significant impact on the delivery of services to its residents.

The Local Government Being Studied

Based on the information presented on its website, the city of San Jose is governed according to a council-manager structure. The system utilized the leadership by elected officials under the managerial expertise of a city manager who is always appointed. The community in the city is represented by the city council, which also plays the legislative role. San Jose’s charter empowers members of this council to create policies for the city. Additionally, they approve budgets and adopt ordinances. The council consists of the elected members and the Mayor. The Mayor has a responsibility to prioritize budget and recommend appropriate policies or programs.

The Rationale for Choosing the City of San Jose-analysis of San Jose Fiscal Condition

Although the City of San Jose has experienced moderate growth in revenues in the recent years following strong economic progress, the number of programs undertaken by the city is still low. This is evidenced by the low number of staff compared to other large cities within the state of California. Additionally, the city generates less tax per capital compared to its neighboring cities. By 2016 the city had accumulated a total of $1 billion outstanding debts. Additionally, its unpaid retiree health benefits and pension amounted to $3 billion.  The situation had a negative impact on its ability to deliver services. Its fiscal condition back then has prompted this research to determine its ability to pay its bills at present and to use its revenues to meet the expenditures.

San Jose’s General Fiscal Condition

Different cities across America use different strategies to collect revenue. Furthermore, each city has unique sources of revenues. San Jose, just like most of the California cities, obtains a significant proportion of its revenue from fees paid for services delivered and taxes.  According to Semuels (2016), the city battled with several social problems in 2016 as it sought to address its fiscal challenges. The city has a high poverty rate of 12.9. Hundreds of its residents are homeless. When compared to other equally rich cities, San Jose collects the lowest amount of revenue. The comprehensive annual financial report for the fiscal year 2014-2015 indicates that the revenue collected by the city amounted to $1.88 billion. It came from several sources that included charges on business permits, rent for using Norman Y. Mineta San José International Airport, and parking fees.

The Tools for Assessing San Jose’s Fiscal Condition-analysis of San Jose Fiscal Condition

Several ratios will be used to assess San Jose’s fiscal condition They are general fund balance, liquidity, change in net position, operating margin, own source revenue, near-term solvency, debt burden per resident, general government coverage, enterprise coverage, and capital asset coverage ratios (Zafra-Gómez, Lopez-Hernandez, & Hernández-Bastida, 2009). Several measures are used to determine the fiscal soundness of San Jose. For instance, the building up reserves is used as an indication of the ability of the city to allocate a share of its revenues for the purpose of strengthening its fund balance. It will be in a better financial position if it has a higher ratio. The ability to pay expenses is the second tool utilized in this research to measure the city’s liquidity. The city will be said to be in sound fiscal condition if it is found to have a high ratio.

The third tool used is change in net assets. A city that exhibits good fiscal condition is the one that can meet its expenses adequately using its revenues. Consequently, this tool should provide a higher figure. The extent to which San Jose depends on general tax dollars will also be evaluated. The measure must provide a lower ratio if the city exhibits financial independence.

The fifth tool will evaluate the extent to which the city relies on grants and aids from various government agencies such as the state, federal or the county government. The city must provide a lower ratio to be considered financially independent. The city must demonstrate it has the capacity to pay its annual revenues. It must indicate a lower ratio as a sign of the better financial condition. The amount of money borrowed per resident will also be calculated. Usually, lesser debts per capital are indications of a smaller debt burden that taxpayers have to carry. Additional, it is interpreted to mean that the city has the capacity to borrow money in the event that a need arises. For the city to be considered in better financial condition, it must demonstrate a higher value. The capacity of government funds to be used for making bond payments will also be considered. A lower ratio will be an indication of sound financial condition. When measuring ease with which resources for business-type activities ac be accessed to execute bond payments, the higher ratio must be obtained as an indication that the city is stable. The last measure utilized will evaluate the change in capital assets value. The ratio must be large as an indication that the city’s fiscal conditions are healthy.

Research Findings and Discussion

Analysis of the City’s Building Up Reserves Based on General Fund Balance Ratio

In the fiscal year 2016, San Jose’s the unassigned fund balances as indicated in its general fund grew slightly when analyzed with respect to revenues to reach approximately 0.082. Its comprehensive financial report for the same year indicates that the city has several reverses. The unassigned fund reserve is most unrestricted one. San José’s safety net reserve is also contained in this particular reserve and contains money allocated for paying for salaries services in the event that revenues dwindle. The city has a higher ratio. The high ratio is an indication that in 2016, the city had saved more money compared to the revenues it had collected. Therefore, it indicates that it has a sound financial condition.

Analysis of the City’s Ability to Meet Its Expenses Based on Liquidity Ratio-analysis of San Jose Fiscal Condition

Based on the 2016 comprehensive annual financial report, San Jose had more cash in its General Fund compared to the other years. It had a higher ratio of 4 due to its cash and investments that make put it in a position to pay for its short-term bills. The high ratio indicates it is better positioned to meet short-term obligations and is therefore in a healthy fiscal condition.

Measurement of Change in Net Assets Using Change in Net Ratio

For this measure, the city had a low ratio in the fiscal year 2015-16, at -0.002. It indicates that it lacks sound fiscal health. Based on its financial reports for the same year, the amount of money used to fund the operations of the city’s government surpassed the revenues collected. For this fiscal year, the different between the two amounted to approximately $80 million. Ideally, the revenues from various programs initiated in the city should adequately meet all the expenses incurred. In the current case, however, the city will have to dig into other savings to fund its operations. Consequently, it may prove difficult for the city to increase safety net reserve and save money to fund other projects.

General Tax Dollar Dependence Measure Based on Operating Margin Ratio-analysis of San Jose Fiscal Condition

The financial reports indicate that only a small fraction of government activities in the city required funding from the general tax dollar. The ratio provided a low figure of 0.6, indicating that the city is in a safe financial condition. Though the city gathers considerable revenues from sources such as parking fees, grants, and fines to fund some of the programs, only a limited number of programs rely on the general tax dollar. The most notable services involved provision of public safety. The measure is used to indicate the degree to which services in a city require assistance from the service dollar. Since it provided a lower ratio, it is evident that San Jose city provides most of its services based on the support of service fees. Consequently, less general taxpayer support is needed.

Dependence Upon Aid and Grants as Determined Using Own Source Revenue Ratio

The city’s 2016 comprehensive annual financial report indicated that a negligible fraction of the total revenue collected by the city came from aid and grants. Most of them took the form of intergovernmental assistance from various government agencies include county, federal, and state governments. A comparison of the total sum collected through grants and aid and the revenues that the city collected during this year provides a low ratio of 0.05. The value obtained indicates that a large portion of the total amount of revenue the city collected was raised from its sources that included fees and taxes. Cities should receive any grants that aim at supporting its provision of the required services. However, those that less independent hugely depend on these sources to provide the basic services. On the other hand, the more independent ones rely less on such sources. Consequently, San Jose is a highly independent city.

Capacity to Meet Obligations Through Annual Revenues-analysis of San Jose Fiscal Condition

Based on the statistics provided in San Jose’s 2016 comprehensive annual financial report, it would require three years of revenue to adequately settle its current debts. It indicates that it has both long-term and short-term bills all of which must be settled in future. Two most evident examples are the notes payable and account payable. A comparison of both long-term and short-term debts to the amount of revenue collected by the city in 2016 provides a low ratio that indicates its financial security. The value of the ratio obtained indicates that in this particular year, the city could settle a considerable amount of its debts using annual revenues.

The amount of Money Borrowed by the City per Resident Based on Debt Burden per Resident

The financial report indicates that San Jose has a low amount of money that the government has borrowed for every resident. By 2015, it stood at approximately $2200 per resident. Consequently, the measure provides a low ratio, indicating that the city is better positioned to borrow money in future in the event that a need arises. It is important to note that the figure provided includes even the debt that a city is not obliged to settle using its general revenues.

Capacity to Carry Out Bond Payments Using Government Funds

Compared to several years ago, the city was better positioned to make bond payments in 2015 using government funds. In the fiscal year 2015, the ratio stood at slightly above 0.10. This indicates that the city’s fiscal conditions are healthy. In the fiscal year 2010-2011, the government coverage ratio was 0.20, almost twice the present value. At that time, a large fraction of the expense incurred by the city was a result of settling of the principle amount and the accrued amount. During this period, it struggled to provide services.

Enterprise Coverage Ratio-analysis of San Jose Fiscal Condition

The measure is used to determine the business type resources that are available for settling bond payments. The city’s capacity to make bond payments can be considered to have remained relatively constant since 2013. For the fiscal year 2015, a ratio of 6 was obtained. The high ratio is an indication that the city has a sound fiscal condition. Both the governmental services and business-type activities relating to the city have to settle their obligations. The business-type activities of the city include services provided by the Municipal Water System, the system for treating wastewater, and activities related to Mineta San José International Airport. In this measure, a comparison is done between interests accrued from an obligation to revenues generated from typical operations that will be used to pay for the expense.

Capital Asset Value Ratio

The measure is used to determine changes in value relating to capital assets. The available reports indicate that since the fiscal year 2011-2012, San Jose’s capital asset value ratio has been increasing. However, in June 2015 when the year was ending, the value of the capital asset was $270 million. It represented a less value when compared to the amount that was available at the start of the years. When an analysis is conducted over a period of five years, it is seen that the capital assets value of San Jose has been declining during this time. However, the increasing capital asset value ratio indicates that the city is experiencing better financial conditions in recent years.

The capital assets being described here include a wide range of properties such as buildings, public infrastructure, and vehicles. The main cause of their decrease in value is depreciation. When the city fails to renovate or replace these assets, they will fall in value as time goes by. The ratio takes a negative value to indicate that the assets’ value was declining.

Conclusion-analysis of San Jose Fiscal Condition

From the evaluation conducted, it is evident that fiscal condition of a jurisdiction serves more than just acting like a grade. It involves determining the ability of a local government to deliver the services that the residents expected using the available resources. Though every resident has a responsibility to understand the fiscal well-being of his or her jurisdiction, the process involved in extracting the required data is complicated. This research paper sought to provide measures of the fiscal condition of San Jose. The results obtained indicate that the City of San Jose is in a better fiscal position today compared to several years ago. The greatest improvements have taken place in its financial position and debts.

 

 

 

 

 

 

References

San Jose (201118). Finance – CAFR. Retrieved Retrieved March 16, 2018, from http://sanjoseca.gov/Archive.aspx?AMID=101

San Jose. (2018). Government. Retrieved March 16, 2018, from http://www.sanjoseca.gov/index.aspx?NID=105

Semuels, A. (2016, February 25). Budget Woes in One of America’s Wealthiest Cities. Retrieved March 18, 2018, from https://www.theatlantic.com/business/archive/2016/02/budget-woes-in-one-of-americas-wealthiest-cities/470877/

Zafra-Gómez, J. L., Lopez-Hernandez, A. M., & Hernández-Bastida, A. (2009). Developing a model to measure financial condition in local government: Evaluating service quality and minimizing the effects of the socioeconomic environment: An application to Spanish municipalities. The American Review of Public Administration, 39(4), 425-449.