Poway Analysis

Poway is a city that is located in San Diego County, California, USA. This city he received official status in 1980 (12/12). The city’s slogan is “National City”. The urban population was 47,811 in 2010 (Census, 2010) and 48,044 in 2000 (Census, 2000). “The city covers 39 square miles of her and has a population of 50,103” (Poway, 2016, p. Me). Poway is located south of the city of Escondido and north of San Diego. Nearby communities include Ramona, Scripps Ranch, Rancho Bernardo, Rancho Penasquitos and Saber Springs.

The organization of the city administration is well developed, it provides many services and financial reports of high quality that are especially rewarded (Poway, 2016, p.v). The highest power in decision making is own by citizens of the city, as they live in the democratic country. However, on the regular basis decision-making on the city issues delegated to City Council and City Manager, as “the city operates under a Council-Manager form of government. The City Council serves as the legislative and policy-making body of the city and enacts the laws that protect the general welfare of the community. The City Manager is appointed by the City Council and serves as the Chief Executive Officer” (Poway, 2016, p. i).

The services of the city are presented in the chart below:

In the next discussion will be presented such information based on the analysis of CAFR data about Poway as the relevant economic data on net costs, revenues, and expenditures of activities. In addition, the author will present the revenue trends showing the negative impact of the recession on city budgeting and labor force. The way of handling the situation through financial instruments and investments is also described in the discussion. Finally, the question of pension funds management in the city is addressed at the end of the paper.

Discussion

Transmittal letter

The Transmittal Letter in the Poway CAFR provides an economic overview on the city including the data on the local economy, major accomplishments of the city, its major initiatives, internal framework, budgetary controls, relevant financial policies and other information.

It states, that the city’s population is well paid and can allow single-family homes (median home value is $667500). As result of such well-being, the crime rate is the lowest in the county among cities. The School District of Poway shows very high performance in comparison to others in the state and nation (Poway, 2016, p.i).

The city has a low level of unemployment (3.3% vs. the state’s 5.7%). The labor force in 2017 is 25900. Among top employers of the city are such companies as General Atomics, Geico, Poway Unified School District, Delta Design, Pomerado Hospital and Sysco Food Services (p.ii). At the same time, new businesses start in the city such as Best Buy pickup center, Barons Market Warehouse, Ellsworth Handcrafted Bikes, Fastenal, Grace Digital (home and internet audio), SAIA Freight, and Somacis (circuit boards) (Poway, 2016, p. ii).

The city has a number of top ranks by different ranking systems, in particular on such parameters as safety, and quality for raising the family. The special feature of the city is its ”green“ status and the closeness to nature, providing its citizens an opportunity to have healthier life (Poway, 2016, p. ii).

Among major accomplishments of the city, there are $3.55 mln operating budget surplus. In addition, the city getting investments in the form of commercial construction projects initiates technology improvements (phone system, library).

Among major initiatives of the city is the study and development of Poway Road that is a main commercial corridor for Poway. Water conservation and use reduction is a highly important initiative for the city and its population as well as the preparation for disasters. Among the top financial initiatives of the city is a reinvesting in the city infrastructure (Poway, 2016, p. iv).

Financial statements

The financial statements by the government, as well as its additional notes on the economic conditions, are valuable sources of the government activities and particular funds under its management. The structure of statements presented in CAFR of Poway city includes:

Basic financial statements

Government-wide financial statements

Fund financial statements

Governmental Fund Financial Statements

Proprietary Fund Financial Statements

Fiduciary Fund Financial Statements

Notes to Basic Financial Statements

The city-specific info that is available from the CAFR of Poway is presented, for example, in the Statement of Net Position and the Statement of Activities. Thus, it lists all city’s governmental activities (services): public safety, public works, community services, and general government. The financial sources for these activities funding are listed as well (property taxes, sales taxes, motor vehicle license fees and franchise fees).

The other kind of activities presented in the CAFR of Poway are business-type or proprietary activities, that is City’s Water and Sewer systems funding by fees of customers.

Finally, this statement shows the component units including for Poway activities of two separate legal entities: the Poway Housing Authority and the Poway Public Financing Authority (Poway, 2016, p.6).

The part of report reflecting the fund financial conditions focuses on particular funds existing in the city. Part of them are required by law or by bond covenants, others are established by the will of the city manager to provide the high-quality administration of resources (purpose oriented) and to meet legal responsibilities associated with the usage of certain taxes, grants, and other money (Poway, 2016, p. 6).

The city uses different approaches in the accounting of proprietary and governmental funds. Governmental funds include most of the city’s basic services. This part is focused on the flow of resources and its availability of the end of the year. The accounting method applied to this part is a modified accrual (measuring cash and liquid financial assets). The scope of governmental fund statements is a short-term of general operation and basic services by the city government. The important part of the statement is a comparison of available funds and amounts required to spend for city’s programs financing in the near future. The relationships between activities and funds of the city government are described in the Notes to Basic Financial Statements.

The proprietary fund’s section of the report contains mostly data about services taking charge by customers. The accounting and the way of data presentation for this services funds are the same as for activities reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position. (Poway, 2016, p.6)

Financial data

This section provides the quotes of financial and other data from the MD&A tables, Basic Financial statements and a statistical section that author finds important and informative on the economic situation in the city.

The key financial information from the MD&A including Net Assets and results of Operations is presented below.

The first graph shows the revenues and expenses in governmental activities. From this graph is clear that three main sources of revenue for the city are property taxes, sales tax, and charges for services. On the other hand, expenses of the city mostly assigned to public safety, public works, and community services. I find this information important as it helps to understand main priorities of the city administration and to see the roots of the highest safety in the city. From the information presented in the graph, Poway may be characterized as the city for family life.

The second graph shows the structure of government activities’ in- and outflows. From here is possible to notice that public safety is the most expensive activity of the city while development services are relatively inexpensive. This information is important for the understanding of the value (in the form of net costs) the city provides to its citizens through services.

The third graph shows relative costs of business activities of the city, in particular, water and sewer. From the graph is clear that net cost of the water services is higher than of sewer. In general negative figures for business activities outcomes is a bad tendency that may come from high investments to renovation. Information about net costs of different activities especially important in comparison because it gives an understanding of the economic nature and difference between business and governmental activities.

The data about revenue, expenditures, and employee count trends from statistical section showing the impact of the recession is presented below.

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Street Improvement Fund – Major Capital Projects Fund For the year ended June 30, 2016

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual 800 MHz Communication System Special Revenue Fund For the year ended June 30, 2016

From this schedules is possible to see a recessive tendency that takes a form of the negative variance in revenues.

Demographic and Economic Statistics Last Ten Calendar Years (Poway, 2016, p.189)

From this table is possible to see recessive tendencies in the city in the decreasing figures of the labor force.

Next, the author gives short description and presentation of ratios that were provided in the report of Poway.

Ratios of Outstanding Debt by Type  Last Ten Fiscal Years (Poway, 2016, p.182-183)

From this table is clear that the city actively uses financial instruments for getting additional sources both in a form of loan and interest. The loan instruments are presented in the government activities part while interest instruments in the business-type activities. The share of loan instruments is much higher than of revenue. The tendency of the debt rate is negative; therefore, an amount of city sources related to the market risks is decreasing. The invention of last five years is a private purpose trust that possibly allows managing sources more efficient.

Ratios of General Bonded Debt Outstanding  Last Ten Fiscal Years (Poway, 2016, p.184)

The percent of the value assessed into tax allocation bonds is diminishing for last 5 years; however, it is about 2% or 3-4 thousand dollars per capita.

The CAFR of Poway says a lot about pension obligations. From the table below is clear that total pension liability is growing. At the same time, the net change in the fiduciary net position is negative while this part present sources for covering liabilities. The sources of liability financing are only 78.09% and 75.68% of the total liabilities. The ratio between Plan-Net Pension Liability and Covered-Employee Payroll is 208.13% and 214.58%. Thus the pension burden is too high for the city budget, however, the positive tendency may be noticed from figures comparison of 2013-14 and 2014-15 periods.

Schedule of Changes in Net Pension Liability and Related Ratios Last 10 Years*

Conclusion

The city of Poway provides a highly informative report that allows its users to analyze the financial situation of the city in different aspects. Tables and the raw statistic is especially useful as in written part of report authors focus mostly on positive tendencies while the user analyzing the information on its own can see the negative tendencies as well.

References

Census. (2000). The 2000 United States Census. http://www2.census.gov/prod2/statcomp/documents/2001-02.pdf

Census. (2010). The 2010 United States Census. http://www.census.gov/2010census/

The city of Poway. (2016). Comprehensive annual financial report for the year ended June 30, 2016. https://poway.org/ArchiveCenter/ViewFile/Item/151