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Home My WebLink About1998 04 13 Regular Item A lCOMMISSION AGENDA Il'EM A REGULAR X CONSENT INFORMATIONAL April 13th, 1998 Meeting MGR t?tVftt( IDEPT ~ Authorization REQUEST: The Finance Department is requesting the City Commission's acceptance of the Comprehensive Annua:l Financial Report (CAFR) for fiscal year ended September 30, 1997. PURPOSE: The purpose of this Board item is to have the Commission accept the Comprehensive Annua:l Financial Report for the fiscal year ended September 30, 1997. CONSIDERATIONS:: A. The CAFR is prepared to give the City Commission and the citizens a greater understanding of the City's financial standing than can be obtained through the financia:l statements alone. The City is also submitting the CAFR to the Government Finance Officers Association in anticipation of receiving the Certificate of Achievement for Excellence in Financial Reporting. The Certificate represents a significant accomplishment for a government and its management. According to bond rating agencies, the Certificate of Achievement for Excellence in Financial Reporting could contribute to a better bond rating for the City. Credit evaluators consider the CAFR one of the most important tools in evaluating creditworthiness. (Source: The CAFR and the Certificate of Achievement: A Rating Agency Perspective - see attached article). RECOMMENDATION: 1. Acceptance of the CAFR for the fiscal year ended 9/30/97 by the City Commis,sion. ATTACHMENTS: 1. The CAF'R and the Certificate of Achievement: A Rating Agency Perspective (article). The CAFR was available to the Commission on March 31,1998. COMMISSION ACTION: PROFILING GFOt The CAFR and the Certificate of Achievement: A Rating Agency Perspective By &1"""" R. Hrm't'Ssyalll' """, "". Sold,s BudgetS ate bein~ sluhcd :lnd,finance departments are experiencing staff shOlt- ages due to layoffs. Consequently, in order to save money, some government officials are considering discontinuini: prep:Jr:ltion of :a Comprehensive AllOu:J1 Finand:tll~e- port or Component Unit Financial Report (CAFR/CUFR). Others, while planning to prepare the CAFR/CUFR, h:we decidc:d nut to submit it to the GFOA's Certifi,:ate of Achievement for Excellence in financial RepClrtinJ; Prugr:un. It is important tu understand, htl\\e'O'er, before deciding not to prepare a CAfR, what the bond rating agencies 'have rn ~1Y about the si~nific:1nce of the Ci\fR/CUFIl :md the receipt of the Certificate of Achievement for Excellence in fin:lncial Reporting. ' " The Cmific:ne of Achievement progr:ml was est:lblished by the GFOA in 1945 to recognize and encourage excellem:e in financi:lI reporting by state and local I:Uv- ernments. The attainment of a Certifil:ate of Achievement represents :t signific.1r1lt accomplishment for a government ami its management. In 1991, 1,738 Certiric:nc:s of Achieveriient were aw:trded for CAFRs and CUFlls. GFOA encourages stare :md Ic)Cal gIJV- ernments to prcpye a CAfR/CUFR t:ach ye:u and to report in accord:lnce will, generally :lcccpted accuunting principles (GAAP). Often this is:1O expensive. time- consuming and sometimes tediuus t:uk. To underscore the importance of the CAFRI CUFR and to discourage thuse who look at discontinu.1nce of the re)XJrt as an economy measure, the Special Review Executive Committcc (SREC;I of the certiflC.,te program conduaed interviews with Hy G~<;man. manal;ing dirr.ctor of the Municip:11 finance Department of St:tndard 6: Pour's Curp., And with D:tn Heimuwit7.. executive vice president and direc.'tur of public fin:III,,:e for Moody's Investors Service. The obi"~:tive of the interviews w~s to find uut how the r:ating :agencies viewed: -42 OcTc.... 19'12 . C;u.,laNMf,NT t'INA"Cf, llVIt,'" . the prep:aration of the CAFR/CUFR, . reportin~ in accordance with GAAP and . the significance of receiving the Certificate of Achievement. The SREC found th:tt the r:ating agencies were in :agrccment about each of the subiea areas. The following is a synopsis of their comments. Prep:uiJtion of the CAFR/CUFR 80th ratin~ agencies encour:tge CAFR/CUFR preparation. They believe thitt the CAFR/CUFR, which goes well beyond the gener:11 purpose fin:lOci:ll statements in providing infornlation useful to credit evaluators, is one: of the most import:mt tools usc:d in evaluatin~ the creditworthiness of 5tate and 10c.,1 govern- ments. The fin:md:ll st:ltement in(ornl:l- tion :lnd st:ltistical data included in the CAFR/CUFR provide, in one document, more th:m 90 percent of wh:tt is nccJed in ~redit evaluation. The CA...R/CUFR presents use(ui'in(or- Illation to the credit :malyst ill :m organi1.eJ manner. It includes key trend J:tta. usually spannin~ a pcritJJ of 10 ye:trs. cuncerning the econumy. taxes, spending patterns :lI1d the nature ur the governmental strm:turc. The r:\ling agencies believe :\ 10-year trend is si~nifi- cant and helpful. Over this periud of time, a government will unduubtedly have been through one or more: economic rc:ccssions, which is important tn the rating agencies in measuring the vulnerability of the economic b:\sc:. The a:onomic b:\sc: trends arc amon~ the key elements in municipal credit detemlinatinn. Other import:lnt clements for credit ev:tlu:ttion. in additiun tu the must recent CAFR/CUFR. include: the current budget. the entity's deht m,lI1agemellf policy alld interim fin:lI1dal infunmuion. These clements sc:rve tu upd:lle the his- torical infnnn:ttion indude:d in the CAFR/CUFIl. All of this infnrmatinn Ioge:ther prnvilk-s the analyst with :1 good understandin~ nf the entity's fin:mcial planning. Reporting in Ac:cordilllc:e wilh GAAI' The r:uing :1genck'S agn:ed th:\t fin:mci:11 statements :md uenll infonn:ttion prep:lrcd in :lccord:\Ilce with GAAI' :lre d"osir:thle for u"odit evalu:ttion. ACL1trdin~ tu Heimuwit1.. "CAAP provid,,'!i the b:lsic framework for gnYl:rnmental entities to pre5C.,lt fin:mdal statements and dis- dOliUn:s that .In: ~onsistently prepared. It nlscl proviJes a basis to use: the infor- mation when comparing with other entities." The rating agencies :are comfonable with current GAAP fin:ancial reporting. With potentially signific:ant revision on the horizon, some apprehension existS that the impact of changes will not be eHeaively communic:ated to the thrcc major user groups of state and loc:u government financial information: the citizenry, legis- lative/oversight bodies and creditors/ investors. Communic:ating change :tnd its impaa on financi:\1 planning is viewed as crud..1 to the analysts. Change also could h:lYe an imp:lct on trend information. The 'consistenq' OInd ongoing integrity of trend information also was viewed as important by the rating agencies. The Significance of the Certificate Assessment of financial management is also a key clement in credit evalllation. The Certificate of Achievement. alon~ with the prep:tration of a CAFR/CUFR :tnd GAAP fin:lnci:11 reporting arc all cvidence of better mana.:ement. While the results of fin:\Ilci:11 oper:ltions :tre a key dement to credit assessment, a CAFR/CUFR which receives the Certifi- cate of Achievement is also important in assessing management's capabilities. According to Hy Grossman, "All other things being equal, such as :a strong financial condition, good local economy and good debt management, the receipt of the Certificate of Achievement could push an entity over the cdge to a bettcr bond rating. We encourage citics and other (gov- ernmental) units to apply (for the certificate), and I would encourage those who have applied a couple of times and not quite achieved it, to keep tf)'ing." In closing. buth rating :Igencies advise that the ~lYailability of fin:lOci:t1 infur- m..tinn which is consistently prep;tred and proviJes :m an:llysis of trend infurm:uion is import..nt in guvernmental credit analysis. A CAFR/CUFR prepared in :lccord;lI1c:e with GAAP provides most of the inforn\:\tion nceded for credit an:t1ysis, and the consistent receipt of the Certificate of Achievement lends more confidence to the infon\l:ttion contained in the CAFR/CUfR. Both r:uing agencies indicated that the prep..ration of a CAFR/CUFR should not be 5:lcrificed in times of budgeting constraints. Accordin~ to Hcimowit7., "Our biggL"St concern is getting all of the infurnl:ltion to do uur analysis. Govern- ments shuuld be mindful of the faa that they h:lVe creditors who want to follow (cUIl/i'IUN .... ,""'.,. S6) : '4.~'...-- '"' ", . 0"