11-37) A headline in The New Y
11-37) A headline in The New York Times on August 16, 2017 read:“Hartford (Connecticut), with Finances in Disarray, Veers TowardBankruptcy.” The article said, among other things, “…Hartford,which has one of the highest property tax rates in the state …still cannot raise enough money to pay for basic governmentoperations.” Here are some economic, demographic, and financialdata taken Census Bureau QuickFacts (accessed August, 2017) andfrom Hartford’s June 30, 2016 CAFR. (The financial statements,expressed in thousands of dollars, have been condensed.)
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Economic, Demographic data |
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Hartford |
Connecticut |
United States |
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Population, 2010 Census |
124,775 |
3,574,097 |
308,745,538 |
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Population, 2016 estimate |
123,243 |
3,576,452 |
323,127,513 |
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Percent, high school grad, or higher |
70.60% |
89.90% |
86.70% |
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Median household income |
$ 30,630 |
$70,331 |
$53,889 |
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per capita income |
$ 17,311 |
$38,803 |
$28,930 |
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Individuals living below poverty |
33.40% |
10.50% |
13.50% |
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2016 unemployment rate (source: CAFR) |
10.30% |
5.50% |
5.30% |
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City of Hartford |
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General Fund |
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Balance Sheet |
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6/30/2016 |
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Assets: |
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Cash and Cash equivalents |
$60,524 |
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Receivables (mostly taxes) |
84,332 |
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Total Assets |
144,856 |
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Liabilities |
55,007 |
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Deferred inflows of resources |
75,718 |
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Fund balance: |
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Assigned |
8663 |
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Unassigned |
5468 |
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14131 |
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Total Liabilities, deferred inflows of resources and fundbalance |
144856 |
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City of Hartford |
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General Fund |
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Statement of revenues, expenditures, and changes in Fundbalance |
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For the year Ended June 30, 2016 |
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Total Revenues |
$565,580 |
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Total expendiutres |
565,754 |
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-174 |
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Excess (deficiency) of revenues over expenditures |
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Other financing sources (uses) |
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Transfer in |
5,438 |
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Transfer out |
-13,059 |
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Total other Financing sources (uses) |
-7621 |
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Net change in fund balance |
-7,795 |
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Fund balance, beginning of year |
21,926 |
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Fund balance, end of year |
14,131 |
Other Comments
A) The debt service Fund had a beginning fund balance of$97,174. The Debt service FUnd statement of revenues, expendiutres,and changes in fund balances for fiscal year 2016 shows $72,734thousand of debt service expenditures, zero revenues, and $9,302thousand of transfers in. It also shows significant inflows fromrefunding existing debt and the issuance of new debt. The samegeneral pattern occurred in fiscal year 2015. Hence, it isreasonable to assume that most of the year’s debt serviceexpenditures was financed, not by tax revenues, but rather by“rolling over” existing debt issuing new debt or drawing down thefund balance
B) Hartford’s outstanding general obligation debt increased from$512.9 million at the beginning of fiscal year 2016 to $683.2million at the end of the year. The CAFR reports that the assessedvalue of taxable property was $3,623,072,000 and the actual valueof taxable property was $6,664,914,000. You can calculate Hartfordspersonal income by multiplying the population by the per capitaincome.
Required: Use the foregoing data to computeappropriate financial statement analysis ratios. Then, use theeconomic and demographic data, the financial statement ratios, the“Other Comments” shown above, and the rule of thumb data containedin the text to comment on Hartford’s financial position andfinancial condition
Answer:
Answer:
1. Computationof appropriate financial ratios ($’000)
| Sl No | Ratio | Formulae | Nuemerator | Deniminator | Ratio | Remarks on Ratio |
| 1 |
Current Assets Ratio |
Current Assets/Current Liabilities | 144856 | 55007 | 2.63 times | Hartford liquidity position is good. |
| 2 | Debt to assets ratio | Outside Liabilities/Total assets | 55007 | 144856 | 0.40 times | Debt covers 40%of its assets |
| 3 | Debt to Fund Balance (equity) | Liabilities/Fund Balance | 55007 | 14131 | 3.89 times | Outside liabilities are relatively very high. |
| 4 | Profit to total revenue ration | Profit/Revenue | -174 | 565,580 | Note 1 | Note 1 |
| 5 | Return on assets | Profit/Total assets | -174 | 144,856 | Note 2 | Note 2 |
| 6 | Receivables to total revenue | Receivables/Total Revenue | 84332 | 565580 | 15% | Company if we see isolatedly, is good in tax collection. |
Note 1: The company has earned the deficiency of $ 174 thousandsas against the total revenue of $ 565, 580 thousands. Thedeficiency is very minimal, less than 0.01 %.
Note 2: The company has earned the deficiency of $ 174 thousandsas against the total assets of $ 144, 856 thousands. The return onits total assets is negative, i.e. -0.12%.
2. Comments onHardfords financial position and condition
1. Unemployment and poverty is higher in the state of Hartfordas compared to Connecticut and the Countrys (United States)average.
2. % school graduation/higher is very less in hartland asagainst Connecticut and the Countrys average.
3. These are the direct reasons why the hartfords percapitaincome and median households income is less as compared toConnecticut and the Countrys incomes.
4. These are the direct reasons why debt service expenses havebeen financed not by collection of taxex but by rollover ofexisting debt.
5. Also, CAFR reports shows that the assessed value of taxableproperty was $3,623,072,000 and the actual value of taxableproperty was $6,664,914,000. It means that, state is inefficient incollecting the property taxes. Collecting taxes by considering veryless amount as assessable value.
6. Hartfords personal income is $ 2133,459,573. (i.e.Population*Percapita income). The average tax revenue should havebeen 640,037 thousands at 30% of personal income. Where ashartfords has accounted only $565,580 only as the revenue infinancial statements for the fiscal year ending 2016.
Hartfords tax collection system is not efficient, that may bethe reason for the poor fiancial position.
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Please revert for any clarifications,.
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