Private Applications of Local Government Risk Metrics
1. PRIVATE APPLICATIONS OF
LOCAL GOVERNMENT RISK METRICS
American Society for Public Administration 2014 Annual Conference
14 March 2014 – 355e3b63b69c
James P. Howard, II
School of Public and International Affairs
3. About Columbia
◦ Established in Howard County, Maryland in 1967
◦ Fully planned community
◦ Designed by one developer, the Rouse Company
◦ Approximately 100,000 residents
3
4. About the Columbia Association
◦ Established by the Rouse Company
◦ Provides parks and recreation services
◦ Not a governmental entity
◦ Structured as a membership organization
4
5. Columbia Association Finances
◦ Annual revenues of approximately $63 million (FY2013)
◦ Used borrowing extensively in early years to fund capital and operating costs
◦ Accessed capital markets initial through private placement
◦ Now borrows directly in lending markets
5
7. Solvency and Liquidity Measures
◦ Liquidity measures use ratios to identify short-term issues
◦ Solvency measures use ratios to identify long-term issues
◦ Ratios can be compared across different governments
◦ Can be calculated from publically-available data
◦ There are many ratios to choose from, but four stand out1
1
Judy Wesalo Temel. The Fundamentals of Municipal Bonds. 5th ed. John Wiley & Sons, 2001, p. 176.
7
8. Debt Service Burden2
debt service burden =
total debt service
revenues
(1)
2
Steven A. Finkler et al. Financial Management for Public, Health, and Not-for-Profit Organizations. 4th ed. Prentice Hall, 2012, pp. 574–576.
8
13. Sample Ratios, FY 20064
Howard Annapolis CA
General Obligation Debt 541,323,315 48,264,854 63,035,000
Debt Service 67,132,766 2,838,210 12,703,000
Assessed Value 29,852,994,080 4,150,982,690 8,034,858,000
Revenue 996,345,521 46,079,248 52,923,000
Property Tax 353,894,412 23,245,058 26,060,000
Operating Expenses 931,195,501 42,951,755 30,775,000
Population 276,287 37,300 98,383
Per Capita Income 54,924 44,927 54,924
debt service burden 6.74 6.16 24.00
debt burden 1,959 1,294 641
debt carrying capacity 1.81 1.16 0.78
debt finance capacity 3.57 2.88 1.17
4
James P. Howard, II et al. Measuring the Financial Health of the Columbia Association. Budget Advisory Committee. Columbia, Maryland:
Columbia Association, Inc., February 8, 2007. 13
17. Conclusions
◦ The CA can use traditional municipal debt metrics
◦ The results can be misleading and out of proportion
◦ This should be applicable to other private corporations that collect leins
17
18. Acknowledgements
◦ Sean Harbaugh, Columbia Association
◦ Susan Krabbe, Columbia Association
◦ Gavin Cohen, City of Rockville
◦ Melissa S. Leaman, City of Annapolis
◦ Ed Gibson, University of Baltimore
18
