Private Applications of Local Government Risk Metrics
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The document discusses how a private membership organization called the Columbia Association (CA) in Maryland uses local government financial condition metrics to evaluate its fiscal health, even though it is not a governmental entity. It presents four common metrics - debt service burden, debt burden, debt carrying capacity, and debt finance capacity - and calculates them for the CA and compares to two nearby municipalities. While the CA can use these traditional municipal debt ratios, the results may be misleading since the CA is a private organization and collects membership dues rather than taxes. These metrics could potentially be applied to other private organizations that collect funding in a similar way to governments.
Private Applications of Local Government Risk Metrics
- 1. PRIVATE APPLICATIONS OF LOCAL GOVERNMENT RISK METRICS American Society for Public Administration 2014 Annual Conference 14 March 2014 – 355e3b63b69c James P. Howard, II School of Public and International Affairs
- 3. About Columbia ◦ Established in Howard County, Maryland in 1967 ◦ Fully planned community ◦ Designed by one developer, the Rouse Company ◦ Approximately 100,000 residents 3
- 4. About the Columbia Association ◦ Established by the Rouse Company ◦ Provides parks and recreation services ◦ Not a governmental entity ◦ Structured as a membership organization 4
- 5. Columbia Association Finances ◦ Annual revenues of approximately $63 million (FY2013) ◦ Used borrowing extensively in early years to fund capital and operating costs ◦ Accessed capital markets initial through private placement ◦ Now borrows directly in lending markets 5
- 7. Solvency and Liquidity Measures ◦ Liquidity measures use ratios to identify short-term issues ◦ Solvency measures use ratios to identify long-term issues ◦ Ratios can be compared across different governments ◦ Can be calculated from publically-available data ◦ There are many ratios to choose from, but four stand out1 1 Judy Wesalo Temel. The Fundamentals of Municipal Bonds. 5th ed. John Wiley & Sons, 2001, p. 176. 7
- 8. Debt Service Burden2 debt service burden = total debt service revenues (1) 2 Steven A. Finkler et al. Financial Management for Public, Health, and Not-for-Profit Organizations. 4th ed. Prentice Hall, 2012, pp. 574–576. 8
- 9. Debt Burden3 debt burden = total debt population (2) 3 Ibid., pp. 574–576. 9
- 10. Debt Carrying Capacity debt carrying capacity = total debt assessed value (3) 10
- 11. Debt Finance Capacity debt finance capacity = per capita debt per capita income (4) 11
- 12. THE CA'S FISCAL HEALTH
- 13. Sample Ratios, FY 20064 Howard Annapolis CA General Obligation Debt 541,323,315 48,264,854 63,035,000 Debt Service 67,132,766 2,838,210 12,703,000 Assessed Value 29,852,994,080 4,150,982,690 8,034,858,000 Revenue 996,345,521 46,079,248 52,923,000 Property Tax 353,894,412 23,245,058 26,060,000 Operating Expenses 931,195,501 42,951,755 30,775,000 Population 276,287 37,300 98,383 Per Capita Income 54,924 44,927 54,924 debt service burden 6.74 6.16 24.00 debt burden 1,959 1,294 641 debt carrying capacity 1.81 1.16 0.78 debt finance capacity 3.57 2.88 1.17 4 James P. Howard, II et al. Measuring the Financial Health of the Columbia Association. Budget Advisory Committee. Columbia, Maryland: Columbia Association, Inc., February 8, 2007. 13
- 14. Debt Carrying Capacity 0.0 2.5 5.0 7.5 2002 2004 2006 2008 2010 2012 Percent Jurisdiction Annapolis CA Rockville 14
- 15. Debt Service Burden 10 20 30 40 2002 2004 2006 2008 2010 2012 Percent Jurisdiction Annapolis CA Rockville 15
- 16. CLOSING
- 17. Conclusions ◦ The CA can use traditional municipal debt metrics ◦ The results can be misleading and out of proportion ◦ This should be applicable to other private corporations that collect leins 17
- 18. Acknowledgements ◦ Sean Harbaugh, Columbia Association ◦ Susan Krabbe, Columbia Association ◦ Gavin Cohen, City of Rockville ◦ Melissa S. Leaman, City of Annapolis ◦ Ed Gibson, University of Baltimore 18