WASHINGTON - Data relating to cities' general funds show that cities appear to have rebounded from the credit crisis, according to a report from Merritt Research Services.
"The facts are that cities have bounced back," Merritt president and chief executive officer Richard Ciccarone, who wrote the report, told The Bond Buyer. In a number of ways, cities are doing better than before the credit crisis, he added.
The report was published last week on muninetguide.com, of which Ciccarone is co-publisher. It is based on a review of fiscal 2014 financial results provided by Merritt for 1,172 U.S. cities. For many cities, fiscal 2014 started July 1, 2013 and ended June 30, 2014.
Governments' general funds are typically their largest discretionary funds for day-to-day operations. The percentage of cities with general fund deficits after transfers to or from their general funds hit a six-year low in fiscal 2014, with just 30% of cities having spent more than they generated in revenues during the year, according to the report.
That percentage is a significant improvement over 2009, when 58% of cities spent more than they generated in revenues. "Every year since the credit crisis, the percentage of cities experiencing deficits has been lower than the year before," Ciccarone wrote.
About 30% of 34 cities with populations over 500,000 had general fund deficits in fiscal 2014, down from 41% of the big cities last year and 62% in each of fiscal years 2008 and 2009, according to the report.
Perhaps the strongest sign that cities have generally rebounded from the credit crisis is that the median ratio of total fund balances to general fund expenditures has improved.
"A fund balance represents the bottom line on a traditional fund accounting balance sheet that takes into consideration what's left after the fund's liabilities are deducted from assets and a limited set of receivables as defined by modified accrued accounting," Ciccarone wrote.
The median ratio of total fund balances to general fund expenditures was 33%, which is higher than both the pre-crisis level of 29% in 2006 and the low point of 26% in 2010. Looking at the ratio of cities' "assigned and unassigned," or unrestricted and nondesignated, portions of their fund balances to their revenues, "cities still look strong as a group," Ciccarone wrote.
Cities' assigned and unassigned fund balance ratios varied widely, though only 11 of the 1,133 cities that reported this ratio had negative ones in fiscal 2014, according to the report. Cities with negative ratios included Atwater, Calif. and Flint, Mich. Traditionally analysts have suggested that cities ratios be at least 5%, Ciccarone said.
Most cities have also improved their cash positions in recent years. Analysts have found looking at the number of days of cash on hand cities have at the end of a fiscal year to be "helpful in sorting out generally which cities and other governmental entities are more prone to keep adequate reserves generally," Ciccarone wrote. Also, there is overlap between fiscally distressed cities and cities with low levels of cash, he added.
The cities reviewed in the report ended fiscal 2014 with a median of 106 days of cash on hand in their general funds, up from the low point in fiscal 2010, when it was only 81 days. The median general fund cash position for the big cities was close to 60 days of cash on hand in fiscal 2014, which is much higher than the reported 37 days in fiscal 2010 and is close to the reported 62 days in fiscal 2006, Ciccarone wrote.
Some cities don't carry close to the median amount of days of cash on hand for all cities. Seven percent of the cities finished fiscal 2014 with 30 days or less of cash on hand in their general funds, though all but four of those 84 cities had at least 30 days of cash on hand in their governmental activities accounts, according to the report.
"Having little or no cash at any point in time is a serious vulnerability often found among distressed cities," Ciccarone wrote.
