Finances as a Credit Factor

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Finances as a Credit Factor

• Springsted Mini-Symposium
• November 2004

Jonathan North Vice President 312-706-9973
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Discussion Topics

• Financial operations as credit factor
• Strategies in challenging times
• Case Studies

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• G.O. Bond Analysis The Four Factors

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G.O. Rating Factors
Debt Profile
Local Economy
The Rating
Financial Operations
Management
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• Financial Operations

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Moodys Analysis During Financial Stress

• Factors in your control, and outside of your
  control
• Financial Analysis
• Past Audits as starting point
• Present Structural balance
• Future Budget analysis (Revenue and
  Expenditures)

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Ghost of Audits Past A starting point

• Audits provide a snapshot
• Multi-year trend analysis
• Revenue composition
• Expenditure growth trends
• Budget to Actual (GASB 34)
• Balance Sheet changes

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Ghost of Finances Present Structural Balance

• Balanced
• Recurring Revenues or gt Recurring Expenditures
• Imbalanced
• Reliance on One-Shots or Use of Reserves for
  Recurring Expenditures
• Consecutive draws can impact rating if unplanned
  or result in unsatisfactory level of reserves

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Ghost of Finances FutureBudget Analysis -
Revenues

• One-time revenues for one-time expenditures
• State Aid
• Assumptions consistent with states budgetary
  reality
• Property Tax
• Legal Ability v. Political Willingness to raise
  taxes
• Impact of increased tax levy
• Collection rates, state caps, future revenue
  raising flexibility

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Ghost of Finances FutureBudget Analysis -
Expenditures

• Expenditure increases likely
• Ability to quantify new expenditures and detail
  potential areas of expenditure flexibility
• Three highlighted categories
• Wages (regional competition, contracts, service
  needs)
• Health insurance (flexibility, contracts, premium
  increases)
• Pension contributions (unfunded liability, annual
  contribution)

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Ghost of Finances FutureBudget - Likely Impact

• How will management make difficult decisions
  concerning tax increases and use of reserves?
• How can growing expenditures be internalized
  without compromising overall financial health?
• Balanced operations, current and future?
• Balance sheet impact

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• Strategies in Challenging Times

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Successful strategies

• Conservative revenue forecasting
• Expenditure controls with ongoing monitoring
• Multi-year budget planning
• Contingency planning
• Maintenance of strong reserves
• Strong management
• Considers pressure at other levels of government
• Incorporates operating budget impact of capital
  projects

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MN Strategies

• 60 levy-back option / levy limits sunset
• Generally credit positive
• Expenditure controls (ie schools negotiate
  salary increases to track state aid)
• Generally credit positive
• Shifting equipment expenditures from operating
  levy to d.s. levy
• Credit neutral
• Use of reserves
• Credit impact depends on severity, longevity and
  LT plan
• Nothing, let the next administration deal with it

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• Case Studies

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Case Study 1 Finances
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Case Study 1 Finances
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Case Study 1 At a Glance
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Case Study 2 Finances
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Case Study 2 Finances
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Case Study 2 At a Glance