TFT Fiscal Strength Index 2017: Methodology
CITY FISCAL STRENGTH INDEX 2017

TFT Fiscal Strength Index 2017: Methodology

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Our survey includes 116 U.S. cities with populations greater than 200,000, based primarily on date from 2015 financial reports issued by the cities themselves. Of the cities we analyzed, three had not published 2015 Comprehensive Annual Financial Reports by the end of 2016. Two of these cities are in New Jersey (Newark and Jersey City), where local governments do not publish audited financial statements following U.S. Governmental Accounting Standards. The state has its own system for local government financial reporting.

The third city, Baltimore, will publish its 2015 CAFR in early 2017, which is quite late. Federal regulations require state and local governments that receive over $750,000 in federal funds to file audited financial statements no later than nine months after their fiscal year end. Since Baltimore’s fiscal year ends on June 30, it should have filed its 2015 CAFR no later than March 31, 2016. For all three of the cities that did not publish 2015 CAFRs, we estimated scoring inputs based on other financial disclosures.

Related: See the Full 2017 Fiscal Strength Index Ranking of 116 US Cities

Our scoring system, based on a 100-point scale, is described in this new working paper on alternatives to municipal bond ratings. It uses five factors:

1. the ratio of a city’s general fund balance to its expenditures (40 percent weighting)

2. the ratio of its long term obligations (including OPEB but excluding pensions) to total government-wide revenues (30 percent weighting)

3. the ratio of actuarially determined pension contributions to total government-wide revenues (10 percent weighting)

4. change in local unemployment rate in 2015 (10 percent weighting)

5. change in property values in 2015 (10 percent weighting).

Related: Chicago, New York in Worst Financial Shape Among Large US Cities

The first three measures were obtained from Comprehensive Annual Financial Reports, while the last two are derived from other sources: the Bureau of Economic Analysis for unemployment rates and Zillow for home values. These two measures were included to gauge the future direction of city revenues: Weakening employment and home values could presage a decline in revenue, making a given city vulnerable to fiscal turmoil.

To get a perfect score of 100, a city would have to have a general fund balance of at least 32 percent of general fund expenditures; long-term obligations (excluding pensions) no greater than 40 percent of total revenue; actuarially required pension contributions equal to no more than 5 percent of total revenue; stable or declining unemployment; and home price appreciation of at least 3 percent.

It is not necessary for a city to have a near­-perfect score to be regarded as a good fiscal steward. Any score higher than 70 could reasonably be interpreted as a level of fiscal health sufficient to justify a AA­A credit rating, the highest possible.

To see the data behind the scores, please visit the new Center for Municipal Finance website.

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