Introduction
The financial trend monitoring system (FTMS) was established by the international city/council management association (ICMA) as a technique for tracking the financial well-being of a local government. The objective of this report is to comprehensively investigate the financial trends of Illinois state to identify financial factors affecting the financial solvency of the state. Additionally, the report will recommend financial policy adjustments to enhance the overall financial condition of the state. The findings of this report will be essential to policymakers, bond rating agencies, citizens, employees, and anyone else who may be interested in the financial well-being of the state.
Data Analysis
The direction indicators can be described as favorable, cautious, or unfavorable. A favorable trend is positive and attains policy or performance measures set by the state. Caution indicates that the trend is uncertain and needs to be carefully monitored as it can harm the state’s financial condition. The unfavorable outcome shows the trend is a warning and fails to meet policy or performance measures set by the state. It indicates that more information needs to be collected and corrective action was taken as soon as possible. This analysis uses three factors each with measurable financial condition indicators. The factors considered for this analysis include revenues, expenditures, and debt indicators which are first adjusted for inflation. For each factor, the quantifiable indicator of the level of solvency is located, graphed and the trend analyzed.
The analysis adjusts for inflation through converting current dollars to constant dollars. The conversion from actual dollars to constant dollars allows for consideration of prevalence of inflation. The Consumer Price Index tracks the prices of goods and services used by average wage earners. The goods and services include items such as food, housing, clothing, transportation, health, and recreation. The conversion factor is equal to the 2017 CPI divided by the CPI of following years. The illustration below converts 1,000 dollars in 2021 to constant 2016 dollars. The annual CPI refers to that of entire urban consumers within the state of Illinois.
- Conversion factor = (2017 CPI/2021 CPI) or (234.293/ 260.368) = 0.8998
- Constant Dollar = (Actual Dollar X Conversion Factor) or (1000 X 0.8998) = $899.9
This means that $ 1000 would have been worth $900 in 2017.
Revenue
Property Tax Revenue Per Capita
The state is experiencing a favorable direction of its revenues based on analysis of the property tax revenue per capita based on table 1.0 below. Data in the table below has been retrieved from Lesner (2017) for illustration of the calculations. In the event, the per capita revenue decreases the city may unable to maintain existing services unless it finds new sources of revenue.
Table 1.0
Expenditure
Expenditure Per Capita
The state is experiencing unfavorable direction of its expenditure based on analysis of the trend of expenditure Per Capita on table 1.1 below. The data has been retrieved from Urban Institute (2022) for the calculation of the expenditure trends.
Table 1.1
Debt Position
Annual Debt Service
The state is experiencing unfavorable direction of its debt based on analysis of the trend of annual debt service on table 1.2 below. The Data below has been retrieved from Macrotrends (2022) and used to work out the section of the analysis
Table 1.2
Trend Evaluation
Revenue
Revenue per capita decreased from 2017 to 2018; however, with a modest rise in population, revenue per capita has moderately risen over the past few years. Despite this, the city has had little to no trouble in absorbing the population and has been able to maintain its service level. The trend is favorable indicating the ability of the state to source revenue to finance majority of its services.
Expenditure
The trend on the state’s expenditure is unfavorable; from 2017, the expenditure has been growing steadily until 2020, when it skyrocketed indicating that the cost of providing services is outstripping the City’s ability to pay. With the expenditure increasing without offsetting increases in revenue, the state needs to be worried on policy issues to ensure a balanced budget.
Debt Structure
The state is experiencing unfavorable trend in debt service based on the heightened amount of principal and interest it has to pay each year on long-term bet plus interest on short term debt. As the debt service increases, it adds to the City’s obligations and reduces the City’s expenditure flexibility. Debt service is a major part of the state’s fixed costs and its increase may indicate excessive debt and fiscal strain. For the past five years, Illinois has been experiencing reduced revenues to services it’s both short-term and long-term debts. With the state having taken long-term debts in the past years, there is need to develop significant policies to shield the state during tough economic times.
Policy Statement
The state of Illinois needs to develop different policies to curb the heightened expenditure as well as deal with the burden of its debts. Correcting the increased expenditure entails developing policies that aim at creating a balanced budget. the annual budget can be balanced in several subtle ways that will create a long-run imbalance in which expenditure outlays and commitments grow faster than revenues. Some of the more common ways are to use non-recurring revenues, borrow, or make use of reserve funds to fund operational expenses. Other ways are to defer maintenance on capital items or to defer funding of future liability, such as a pension obligation or other retiree benefits.
In dealing with difficulties to service debts, the state can adopt policies that aim at assessing all financial alternatives for funding capital improvements before issuing debt. Pay-as-you-go financing should be considered before issuing any debt. Pay-as-you-go financing may include Inter-governmental grants from federal, state, and other sources; current revenues and fund balances; private sector contributions; public/private partnerships; and leasing payments. The state should also develop policies that curb the deferment of costs. failure to adequately invest in capital needs will cost more in the future and could even create issues of budgetary solvency if the needs go unmet for too long.
References
Lesner, C. (2017). Tax Day 2017: Where does Illinois’ $38.1 billion in tax revenue come from? Illinois Policy. Web.
Macrotrends. (2022). Illinois Tool Works Net Income 2010-2022: ITW. Macrotrends. Web.
Urban Institute. (2022).Illinois. Urban Institute. Web.