Factors Affecting Financial Condition. The transmittal letter from the chief financial officer to the mayor and city council of Detroit that accompanies the City of Detroit’s Comprehensive Annual Financial Report for the Year Ended June 30, 2004, includes the following:
Economic Considerations
This is not an easy time for Detroit. But, we are not alone. The latest numbers tell us that around the world, a quarter of the world’s urban centers are declining in population—twice the number of just a decade ago.
Nationally, the economy continues to be troubled. We are fighting two foreign wars that have diverted billions of dollars away from domestic programs at a time when the need for those programs have (sic) grown. Gasoline prices are reaching record levels that could seriously impact the auto industry. The federal government is running record deficits. The federal government is systematically cutting assistance to local units of government across a broad range of programs such as community development block grants, homeless assistance, and others. For example, the funding under the federal COPS program to hire new police declined from $2.5 million to un 4der $150,000 in three years. Closer to home, Michigan’s economy continues to be one of the weakest in the nation, ranking 49th out of 50 states in unemployment. For Detroit, this has meant deep cuts in income taxes and state revenue sharing. In Detroit, rising health care and pension costs are costing the City $200 mil 41 lion more than they did just three years ago at a time when our revenues are falling. In the past three years—
• Health care costs have risen $78 million or 46%.
• Pension costs have risen by $120 million.
Required
a. Which of the environmental, organizational, and financial factors from the ICMA’s financial trend monitoring system (see Illustration 10—1) are identified in this excerpt from the City of Detroit’s letter of transmittal?
b. Take the perspective of a taxpayer and member of a citizen watchdog agency in the city. Prepare a memo to the chief financial officer of the city in which you request specific financial ratios to be calculated and presented so you can better assess the financial condition of the city. Use the transmittal letter provided to guide your choice of ratios.
c. Review the letter of transmittal in the most recent copy of the comprehensive annual financial report for the city. Is there a similar section on “Economic Considerations”? Comment on why there may be differences in presentation between two years.