Last week, I explored the City of Richardson's proposed budget. I reconstructed historical data from the last six of Richardson's budgets. I concluded that "the fact that Richardson's proposed 2011-2012 budget shows a very slight deficit is not a cause for concern."
Is this another case of cherry-picking data? After the jump, an analysis.
Here's the table I presented that shows the bottom line in Richardson's budget for each of the last six years.
In the comments for that post, I was told repeatedly (by the same person, but still ...) that I had the "wrong numbers" without ever being told exactly what was wrong with them. What I inferred was not that I had made a data transcription error, but that I wasn't using the commenter's preferred set of data from the Comprehensive Annual Financial Reports (CAFR). I was using budget data. The data in the CAFR tells a (slightly) different story.
in net assets
Year by year, there is a lot of variability, but over the long run it cancels out.
Net assets as of September 30, 2005 were $201,383,000.
Net assets as of September 30, 2010 were $202,622,000.
Almost flat. That's not bad if you consider the country as a whole is experiencing the worst economic downturn since the Great Depression. If you look at families' change in net assets over the last five years, how many wish they had managed a net gain, even a very slight net gain? But if you take a shorter time span, say the last three years, the city's books look more like what's happening nationwide. Net assets declined by about $18 million, about 9%, in the last three years.
So, which do you prefer? Budget or CAFR? Apples or oranges? Which one has the "wrong numbers?" Neither. Which dataset you choose to highlight, and which years within those datasets, depends on your politics. The city, wisely, looks at everything. Only that way can you see the whole picture. Neither apples alone nor oranges alone make a tasty fruit salad.
If you're still with me, an obvious question should be: why are there two sets of numbers? Basically, it comes down to a difference between using a cash basis of accounting (the budget) and an accrual basis (the CAFR). One tracks the cash flowing in and out of the city's accounts each year. The other takes a longer view, looking at future liabilities like pensions and apportions a share of those future costs to the current year, even if no money changes hands this year.
Large swings in net assets can happen for many reasons. Some are difficult to predict or control. For example, make a simple change in expected future interest rates or make a deliberate change in employee retirement benefits and watch how your long-term liabilities can change dramatically. Note this paragraph buried deep (page 21) in the presentation to the City Council during this year's budget preparation "retreat." Expect it to have a significant positive impact on the next CAFR.
"Significant revisions in the City’s retirement benefit program will result in a reduction in the annual TMRS contribution rate and the long term liability for this program. Beginning Jan. 2012, the rate will be 14.79% of payroll, a reduction from the current year’s rate of 19.31%. This change lowered the city's unfunded liability by $29.6 million from $75.7 million to $46.1 million."It's important for the city to understand and be in control of finances that impact both the budget and the CAFR. Based on the data above, in my judgment the city has such control. I conclude that the fact that Richardson's last three CAFRs show declines in net assets is not a cause for concern (at least, not yet).
City of Richardson budget information can be found here.
Rumorcheck.org's explanation of the difference between the budget and the CAFR can be found here.