Question

11-37) A headline in The New York Times on August 16, 2017 read: “Hartford (Connecticut), with Finances in Disarray, Veers Toward Bankruptcy.” 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 government operations.” Here are some economic, demographic, and financial data taken Census Bureau QuickFacts (accessed August, 2017) and from Hartford’s June 30, 2016 CAFR. (The financial statements, expressed in thousands of dollars, have been condensed.)

		Economic, Demographic data
	Hartford	Connecticut	United States
Population, 2010 Census	124,775	3,574,097	308,745,538
Population, 2016 estimate	123,243	3,576,452	323,127,513
Percent, high school grad, or higher	70.60%	89.90%	86.70%
Median household income	$             30,630	$70,331	$53,889
per capita income	$             17,311	$38,803	$28,930
Individuals living below poverty	33.40%	10.50%	13.50%
2016 unemployment rate (source: CAFR)	10.30%	5.50%	5.30%

		City of Hartford
		General Fund
		Balance Sheet
		6/30/2016
Assets:
Cash and Cash equivalents		$60,524
Receivables (mostly taxes)		84,332
Total Assets		144,856
Liabilities		55,007
Deferred inflows of resources		75,718
Fund balance:
Assigned		8663
Unassigned		5468
		14131
Total Liabilities, deferred inflows of resources and fund balance		144856

		City of Hartford
		General Fund
		Statement of revenues, expenditures, and changes in Fund balance
		For the year Ended June 30, 2016
Total Revenues		$565,580
Total expendiutres		565,754
		-174
Excess (deficiency) of revenues over expenditures
Other financing sources (uses)
Transfer in		5,438
Transfer out		-13,059
Total other Financing sources (uses)		-7621
Net change in fund balance		-7,795
Fund balance, beginning of year		21,926
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 $72,734 thousand of debt service expenditures, zero revenues, and $9,302 thousand of transfers in. It also shows significant inflows from refunding existing debt and the issuance of new debt. The same general pattern occurred in fiscal year 2015. Hence, it is reasonable to assume that most of the year’s debt service expenditures was financed, not by tax revenues, but rather by “rolling over” existing debt issuing new debt or drawing down the fund balance

B) Hartford’s outstanding general obligation debt increased from $512.9 million at the beginning of fiscal year 2016 to $683.2 million at the end of the year. The CAFR reports that the assessed value of taxable property was $3,623,072,000 and the actual value of taxable property was $6,664,914,000. You can calculate Hartfords personal income by multiplying the population by the per capita income.

Required: Use the foregoing data to compute appropriate financial statement analysis ratios. Then, use the economic and demographic data, the financial statement ratios, the “Other Comments” shown above, and the rule of thumb data contained in the text to comment on Hartford’s financial position and financial condition

Answer 1

Answer:

1. Computation of 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 thousands as against the total revenue of $ 565, 580 thousands. The deficiency is very minimal, less than 0.01 %.

Note 2: The company has earned the deficiency of $ 174 thousands as against the total assets of $ 144, 856 thousands. The return on its total assets is negative, i.e. -0.12%.

2. Comments on Hardfords financial position and condition

1. Unemployment and poverty is higher in the state of Hartford as compared to Connecticut and the Countrys (United States) average.

2. % school graduation/higher is very less in hartland as against Connecticut and the Countrys average.

3. These are the direct reasons why the hartfords percapita income and median households income is less as compared to Connecticut and the Countrys incomes.

4. These are the direct reasons why debt service expenses have been financed not by collection of taxex but by rollover of existing debt.

5. Also, CAFR reports shows that the assessed value of taxable property was $3,623,072,000 and the actual value of taxable property was $6,664,914,000. It means that, state is inefficient in collecting the property taxes. Collecting taxes by considering very less amount as assessable value.

6. Hartfords personal income is $ 2133,459,573. (i.e. Population*Percapita income). The average tax revenue should have been 640,037 thousands at 30% of personal income. Where as hartfords has accounted only $565,580 only as the revenue in financial statements for the fiscal year ending 2016.

Hartfords tax collection system is not efficient, that may be the reason for the poor fiancial position.

_____________________________________________________________

Please revert for any clarifications,.