How to look at the City’s financial condition

Beginning immediately, the Mayor will do his best to post a balance sheet for some of the key funds maintained by the City.   The first thing to understand is what are the key funds and how they can be used to run the City.

First there is the General Fund, this is the fund in which the city is run day to day.  It encompasses the payroll, utilities, vehicles, and virtually every other aspect of the City.  It receives 29.99 mills ($2.99 per $100 in valuation) from real estate taxes.  It also is the recipient of most other funds.  It is by far the one to keep your eye on.

Library fund:  This receives 0.42 mills ($0.04 per 100 in valuation) and  amounts to about $50,000 per year and supports our Library.

Debt Service Fund: This receives 8.63 mills ($0.86 per $100 in valuation) and is used to repay the bonds taken out back in 2009 and will be with us till about 2039 and beyond.   This has no bearing on our day to day operation of the City other than it is a big burden on our tax paying constituents.

Parks and Recreation: This receives 4.07 mills ($0.41 per $100 in valuation).  In theory this should cover all the cost of maintaining our parks and public buildings like the Civic Center.

So now lets look at how to interpret the Balance Sheets now being presented to the public.  The following information is from a web page put out by the Harvard Business School Online, authored by Tim Stobierski and edited to reflect our situation.

It’s always important to understand that the Tax Payer is the owner and the City is the company they operate.

The Balance Sheet Equation

The information found in a balance sheet will most often be organized according to the following equation: Assets = Liabilities + Owners’ Equity.

While this equation is the most common formula for balance sheets, it isn’t the only way of organizing the information. Here are other equations you may encounter:

Owners’ Equity = Assets – Liabilities

Liabilities = Assets – Owners’ Equity

A balance sheet should always balance. Assets must always equal liabilities plus tax payers’ equity. Owners’ equity must always equal assets minus liabilities. Liabilities must always equal assets minus owners’ equity.

If a balance sheet doesn’t balance, it’s likely the document was prepared incorrectly. Typically, errors are due to incomplete or missing data, incorrectly entered transactions, errors in currency exchange rates or inventory levels, miscalculations of equity, or miscalculated depreciation or amortization.

1. Assets

An asset is defined as anything that is owned by a company and holds inherent, quantifiable value. A business could, if necessary, convert an asset into cash through a process known as liquidation. Assets are typically tallied as positives (+) in a balance sheet and broken down into two further categories: current assets and noncurrent assets.

Current assets typically include anything a company expects it will convert into cash within a year, such as:

  • Cash and cash equivalents
  • Prepaid expenses
  • Inventory such as salt, etc.
  • Accounts receivable

Noncurrent assets typically include long-term investments that aren’t expected to be converted into cash in the short term, such as:

  • Land and property
  • Equipment used to produce goods or perform services

Because companies invest in assets to fulfill their mission, you must develop an intuitive understanding of what they are. Without this knowledge, it can be challenging to understand the balance sheet and other financial documents that speak to a company’s health.

2. Liabilities

A liability is the opposite of an asset. While an asset is something a company owns, a liability is something it owes. Liabilities are financial and legal obligations to pay an amount of money to a debtor, which is why they’re typically tallied as negatives (-) in a balance sheet.

Just as assets are categorized as current or noncurrent, liabilities are categorized as current liabilities or noncurrent liabilities.

  • Current liabilities typically refer to any liability due to the debtor within one year, which may include:
  • Payroll expenses
  • Rent payments
  • Utility payments
  • Debt financing
  • Accounts payable
  • Other accrued expenses

3. Owners’ Equity

Taxpayer’s  equity,  typically refers to anything that belongs to the taxpayers of the City after any liabilities are accounted for.

If you were to add up all of the resources a City owns (the assets) and subtract all of the expenses (the liabilities), the residual leftover is the state of the City.

Equity typically includes two key elements. The first is money, which is paid to the City through taxation.

The second is earnings that which the City generates over time.

© 2022 - City of Monessen