Local Fiscal Health Dashboard – Methodology & Glossary

Local Fiscal Health Dashboard – Methodology & Glossary

Methodology & Scoring

Find a full tutorial on using the Local Fiscal Health Dashboard here.

For more details about the weighting of the ten individual dimensions, along with how the key financial ratios are translated into a score, please see the working paper: here

Single audit reporting packages are due nine months after the entity’s fiscal year end under 2 CFR 200.512. For most California entities, the reporting package is due March 31st of each fiscal year. In some circumstances cities are exempt from the ACFR reporting requirement.  If the local government entity’s federal awards expenditures were less than $750,000, it must provide the SCO with written notification of their exempt status.  Exempt status notifications are due nine months after the entity’s fiscal year end.  

Glossary

What are the ten performance metrics that determine a jurisdiction’s financial score?

General Fund Reserve Score – Rates the extent to which a jurisdiction’s general fund reserves are sufficient to cover general fund expenditures. The metric is calculated by dividing general fund unrestricted fund balance by total general fund expenditures less transfers to other funds. The larger the general fund reserve ratio (ex. a ratio of 2.5), the better, because this indicates sufficient reserves.

Debt Burden Score – Rates the size of the government’s long-term obligations (excluding pension, OPEB) relative to its revenues. The metric is calculated by dividing non-retirement long-term obligations by revenues.The smaller the debt burden ratio (ex. a ratio of 0.1 or 0.2) the better, since this indicates relatively little long-term debt compared to revenue.

Liquidity Position Score – Rates the extent to which general fund cash, cash equivalents, and investments will cover the general fund’s liabilities. The metric is calculated by dividing general fund cash and equivalents plus general fund investments by general fund liabilities. A high liquidity ratio (ex. a ratio of 16) indicates the government has access to plenty of liquid assets to cover immediate cash outflow and will therefore be assigned a high score for this metric. As the State and Local Government Financial Fundamentals paper by Duffy and Giesecke notes, “a government with absolutely no liquidity is likely to file for Chapter 9 [bankruptcy] proceedings.

Revenue Trend Score – Rates the growth of general fund revenue over the last 3 years. The metric is calculated by finding the geometric annual growth rate of general fund revenues over the last three years. A positive revenue growth ratio indicates growth (ex. A revenue growth ratio of 0.2 is a positive trend and therefore will earn a good score for this metric, whereas a revenue growth ratio of 0 or -0.1 will earn a low score).

Pension Costs Score – Rates the portion of revenues that is consumed to fund pension obligations, and thus the fiscal burden that pension costs exert. The metric is calculated by dividing the actuarially required pension contribution by the revenues for that year. A lower ratio (ex. 0.01) indicates a lower proportion of revenues required to fulfill the required contribution and therefore a higher score for the metric, whereas a higher ratio (ex. 0.15 or 0.17) indicates a higher pension burden.

Pension Funding Score – Rates the proportion of a government’s pension liability that is covered by pension assets. The metric is calculated by dividing fiduciary net position by total pension liability. A higher ratio (ex. 0.95) indicates a higher proportion of the pension liability that is covered, and therefore will earn a higher score than a low ratio (ex. 0.65).

Pension Obligations Score – Rates the size of a government’s net pension liabilities relative to the government-wide revenue. The metric is calculated by dividing net pension liability by revenues. A lower ratio (ex. 0 or 0.02) indicates lower obligations relative to government-wide revenues and therefore will earn a better score than a higher ratio (0.8 or 1).

OPEB Obligation Score – Rates the size of a government’s net OPEB liabilities relative to the government-wide revenue. The metric is calculated by dividing the net OPEB liability by the revenues. A lower ratio (ex. 0 or 0.01) indicates lower unfunded OPEB obligations as a share of government-wide revenues and therefore will earn a better score than a higher ratio ( ex. 0.8).

OPEB Funding Score – The OPEB funding score rates the degree to which a government fully funds its OPEB liabilities. A higher ratio (ex. 0.9) indicates a high proportion of funding and will therefore earn a better score than a low ratio (ex. 0.08).

Net Worth Score – The net worth score rates the size of a government’s unrestricted net position relative to the government-wide revenues. The metric is calculated by dividing unrestricted net assets by government-wide revenues. A higher share of unrestricted net assets relative to revenue will earn a higher score than negative assets or a small share of assets.

Glossary Definitions Derived from the Hoover Instition’s Municipal Finance Issuer Fundamentals.

Methodology Source – Giesecke, Oliver and Duffy, Seamus, State and Local Government Financial Fundamentals (September 7, 2023). Available at SSRN: https://ssrn.com/abstract=4565350 or https://dx.doi.org/10.2139/ssrn.4565350