Case 3.1: Reporting on the Financial Condition of a General-Purpose Government
DJE Capital is a boutique investment firm based in Seattle, Washington. DJE Capital hopes to build a substantial presence by investing in the region. Having graduated with a Master’s in Public Administration (MPA) with a focus on Public Financial Management, the credit analyst position at DJE Capital is the perfect opportunity to put to the test the skills you learned in the MPA program.
You’ve been called into a monthly investment strategy meeting with two senior staff members – Eden Wise and Nolan Gentry. Wise, senior vice president for DJE Capital, was recently appointed as the director of municipal research while Gentry has been DJE’s senior vice president of investments for the last ten years. They are spearheading DJE’s initiative to invest in public sector organizations. They asked you to prepare a report on a general-purpose government (city or county government). They expect your report will summarize the following:
- The government’s financial position and operating performance.
- What do its financial statements tell us about the government’s liquidity, profitability, and solvency position?
- Does the government have a diversified revenue portfolio? What is the composition of core governmental activities? What activities are reported under business-type activities?
- Does the government have a lot of debt, pension liabilities, or other long-term obligations?
- Is the government reporting a negative unrestricted net position? Has it reported a negative unassigned fund balance in the General Fund in the last five years?
- Does the government have financial policies to guide future decisions?
- The government’s resiliency to changes in the economy, policy, or environment? For example, how would lower-than-expected revenues, higher-than-expected expenditures, shifts in federal or state policy, growth in liabilities, or changes in the underlying economic environment impact the government’s financial position or operating performance?
DJE Capital Inc. prides itself on the quality and thoroughness of its research. To that end, you’ll need to evaluate the government’s financial health using meaningful industry metrics. You will need access to the government’s most recent Annual Comprehensive Financial Report (ACFR). One year of data will suffice, but where possible, multiple years of analysis would probably be beneficial (but no more than five years).
There is no standard format or outline your report should follow or a comprehensive list of analyses it must contain. It is safe to assume that team members are unfamiliar with the government, the scope of its operations, or its financial condition. To that end, your memo should contextualize the size and scope of the government’s operations and operating environment. You may include tables and supporting material in an appendix. That information helps the reader better understand how you arrived at your assessment. Remember, if you include something in an appendix, you should refer to it in your written report. That said, you should avoid having extraneous information, especially if that information takes away from key findings.
Finally, to avoid bias, your analysis should be limited to information in the financial statements and publicly available information. You do not need to and are strongly discouraged from contacting the government agency until you’ve completed your analysis.
ASSIGNMENT
You are expected to submit a one-page report. Your report should use at least 11-point font and have the normal 1-inch margins. You may submit a Microsoft Excel Spreadsheet, as an appendix, with data and analyses used to complete your assessment of the government.