Archive for Sunday, July 30, 2006

City budgeting focuses on big picture

Lawrence falls in middle of pack on governmental accounting practices

July 30, 2006

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Don Moler, executive director of the League of Kansas Municipalities, tells about an old-time businessman who knew just how to size up a city government.

"Whenever he went to a small community to decide if we wanted to set up shop there, the first place he would go is to the city cemetery," Moler said. "He said if people took care of the cemetery, he knew that they took pride in their past and were interested in where they were going. If it wasn't taken care of, that told him something different.

"That's a good example of something you can't find by looking on a balance sheet."

New standards

But these days, budgets and balance sheets of city governments are telling more about how well a city manages itself than ever before. That's because new accounting standards imposed by the Governmental Accounting Standards Board are turning City Hall budgets into something more likely to be found on Wall Street.

"The new push in governmental accounting is to really do a better job of looking at the bigger picture," said Justin Marlowe, an assistant professor who specializes in government finances at Kansas University's Department of Public Administration. "The idea is to have something equivalent to a bottom line, like a business does."

Stacking up

Marlowe has gathered data for seven Midwestern communities that are home to major universities. The data - most of which is from 2004, due to delays in reporting - gives a glimpse of how each city government is performing in financial areas ranging from maintenance to debt.

Construction on Massachusetts street has overtaken Downtown Lawrence this summer. The final phase of the project, which is replacing a pair of approximately 100-year-old waterlines, will take place next summer. It's reflective of the long-term budgeting and planning issues that Lawrence's city government has undertaken.

Construction on Massachusetts street has overtaken Downtown Lawrence this summer. The final phase of the project, which is replacing a pair of approximately 100-year-old waterlines, will take place next summer. It's reflective of the long-term budgeting and planning issues that Lawrence's city government has undertaken.

Besides Lawrence, the Midwest university cities chosen by the Journal-World to be examined are Ames, Iowa, home to Iowa State University; Iowa City, Iowa, home to the University of Iowa; Manhattan, home to Kansas State University; Columbia, Mo., home to the University of Missouri; Norman, Okla., home to the University of Oklahoma; and Stillwater, Okla., home to Oklahoma State University.

Overall, Lawrence falls right in the middle of many categories, which Marlowe said is acceptable.

"My assessment is that they are right in line with the cities that you can make a fair comparison to," Marlowe said. "I think you look at this and say that Lawrence is in a good position to keep doing what it is doing."

Lawrence and others

Here's a look at the categories that Marlowe measured and how Lawrence fared compared with the rest of the group. (The comparisons can also be found on pages 4 and 5.)

¢ Flexibility factor: This basically measures how much money each city has in its general fund balances, which have been described as a city's version of a savings account. A higher percentage of funds that are in these accounts generally are viewed as giving a city more ability to deal with a crisis without being forced to raise taxes.

In 2004, Lawrence had 29.1 percent of its general fund in such accounts. That was the fourth-highest percentage of the cities analyzed. It was well below Iowa City, which topped the list at 48 percent, and well above the 12 percent held by Norman. The average for the seven cities was 28.8 percent.

Lawrence, though, has tapped into its fund balances rather significantly since 2004. If commissioners approve the proposed 2007 budget, fund balance levels will be at 18 percent. Interim City Manager David Corliss has cautioned commissioners to not let the fund fall much lower than that.

Neither Marlowe nor Moler, though, said there was a hard and fast rule on how large a rainy-day fund a city should have.

"You could have buckets of money in the bank, but that doesn't mean you have a thriving community," Moler said. "It might be that you haven't spent money on anything, and you have things that are starting to fall apart."

¢ Asset growth. Marlowe attempts to look at the balance sheets of cities to determine how much their assets - such as streets, sewers, fire engines and other tangible pieces of property - have grown or declined. Marlowe says most communities should see their asset total increase or at least stay stable because that indicates they are spending money to maintain the assets.

Marlowe measures two different types of assets - those paid for through tax dollars and those paid for through fees. Streets, police cars, fire engines and other types of traditional government services are examples of assets paid for by taxes. Water and sewer systems would be examples of assets paid for by fees.

Tax-supported assets grew by 11.7 percent in Lawrence. That ranked the community fourth among the seven communities. Lawrence trailed Ames, which had the highest growth at 32.6 percent. Norman had the lowest with a decline of 34.6 percent. The average for the group was 9.7 percent. But if you take out the Norman number - which may have been partly caused by accounting issues - the average was 18.3 percent.

For fee-supported assets, Lawrence had the third-highest growth rate at 15.7 percent. Norman was top at 30.7 percent. Stillwater ranked last at 8 percent. The average was 15.6 percent.

Marlowe said the Lawrence number, particularly on the tax-supported side, probably was a bit low, indicating a need for more investment in infrastructure such as streets. Investing more in infrastructure has been the top issue as city commissioners craft a 2007 budget.

"I would say that number is in part why Lawrence is doing what it is doing now," Marlowe said. "The real question for Lawrence is: What will that number be in three to five years? I think it will be quite a bit higher."

¢ Government reliance. This measure examines how much a city relies on other governments for funding. Lawrence tops that list by a wide margin. In 2004, the city received 20.3 percent of its general fund revenues from state, federal or other government sources. Columbia was next closest at 15.9 percent. Stillwater was at the bottom of the list at 0.75 percent. The average was 7.1 percent.

Marlowe said the number can be viewed as both a positive and a negative. He said Lawrence's number likely was high because it was aggressive in going after government grants and participating in other government programs. That's fine, Marlowe said, as long as the city has a plan for how to replace that revenue once the funding expires.

"The problem with those revenues is that they can go away pretty easily," Marlowe said. "They are at the discretion of state legislators or Congress."

¢ Debt levels. This category measures what percentage of money the city spends each year goes towards paying off general obligation debt.

Lawrence had the third-highest level at 16.3 percent. Manhattan topped the list at 21.1 percent. Columbia and Stillwater both had no general obligation debt. The average was 10 percent.

Marlowe said debt wasn't necessarily a bad thing for a community. He said bond-rating companies keep a close eye on a community's ability to repay debt, which makes bond ratings a good indicator of a city's financial health. Lawrence has one of the higher bond ratings available.

Real-life tests

For people who don't want to wade through pages and pages of a city's financial statement, there are other ways to make evaluations about a community, experts said.

Kirk McClure, associate professor of urban planning at KU, said looking at several broad factors went a long way in evaluating a community. He suggested housing prices, wage levels, school performance and the highly intangible factors of quality of life.

McClure said he thinks Lawrence measures well in almost all the categories, even housing affordability.

"When you look at us nationally, we are very much in the middle range of affordable cities," McClure said. "I know a lot of people like to say we're not affordable, but all you have to do is stand up and look around a little bit farther than the Douglas County area to figure out we have it pretty good here."

The one area that he doesn't think the community is performing well in is the wage category. His frequent criticism is that Lawrence economic development officials have focused too much energy on attracting jobs that don't pay above-average wages.

"I think we need to get out of the 1970s style of economic development," McClure said. "We need to really start talking about how to improve our workforce because that's how you improve an area's wages."

Sizing up

Moler said there's an even simpler way to size up a community than going over its books. Go to it and use your eyes and ears.

"The long and the short of it," he said, "is that communities that take care of themselves and where people talk with pride about their community are the types of communities that are healthy and attract people."

Comments

lunacydetector 9 years ago

gee reality check, surely this is great propaganda coming from a couple of people who belong to the Progressive Religion. whatever happened to point/counter-point in an article?

you see, we still live in the People's Republic of Lawrence, the MOST restrictive community in the State of Kansas and quite possibly - the Midwest. the only thing missing are gigantic murals of our city fathers hanging on buildings downtown.

if you had an open mind, you would see the truth.

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