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Introduction	Financial Trend	Financial Condition	Financial Indicators	Adjusting for Inflation	Rating Structure
Community	Revenue	Expenditures	Operating Position	Debt Structure

Introduction

Financial Trend Monitoring System
The Financial Trend Monitoring System (FTMS) was developed by the International City/County Management Association (ICMA) as a method for monitoring the financial condition of local governments. This system identifies factors that effect financial condition and sets the framework for their analysis. The indicators described in the ICMA publication, Evaluating Financial Condition, A Handbook for Local Government, are designed to give local governments a method of monitoring financial condition using data that is easily accessible. Using this model local government’s can provide a report to policy makers, citizens, employees, bond rating agencies, and anyone else who may be interested in the their financial wellbeing. The FTMS is indented to be used as a management tool that can help to shape long term policy priorities.

Financial Condition
Financial condition, as defined by the FTMS, is the ability of a locality to maintain existing service levels, withstand local and regional economic disruptions, and meet the demands of natural growth decline, and change. These conditions are examined by looking at four areas of a localities fiscal condition as follows:

1. Cash Solvency – the ability to pay the bills over the next 30 or 60 days
2. Budgetary Solvency – the ability to cover expenditures with revenues and other resources over the normal budget period
3. Long-Run Solvency – the ability to meet expenditures as they come due in the future
4. Service Level Solvency – the ability to provide services at the level and quality that are required for the health, safety, and welfare of the community and that the citizens desire and expect.

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Financial Indicators
ICMA provides a list of over 40 indicators that can serve as a litmus test for the financial condition of a locality. These indicators are broken down into specific categories for further analysis. For this report 21 indicators were chosen from 5 categories that best fit the City’s accounting structure.

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Adjusting For Inflation
Adjusting for inflation converts current dollars into constant dollars. The conversion from actual dollars to constant dollars allows for analysts to take into account the appearance of growth that may be due to inflation. Adjusting for inflation involves three steps. The first step is selecting a price index. For this report the Consumer Price Index (CPI) was used. The CPI tracks the prices of good and services used by average wage earners. The goods and services include items such as food, housing, clothing, transportation, health, and recreation. The second step is selecting a base year as the starting point for comparison. The data for this report dates back to 1996 so it was used as the base year. The third step is the actual conversion from actual to constant dollars by multiplying the actual dollar amount by the conversion factor. The conversion factor is equal to the 1996 CPI divided by the CPI of following years. The table below depicts the CPI, conversation factors used for this report, and the percentage change from the previous year.

	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008
Consumer Price Index	156.60	160.50	163.00	166.60	172.20	177.10	179.90	184.00	188.90	195.30	201.60	207.30	215.50
1996 Conversion Table	1.000	0.978	0.963	0.942	0.911	0.886	0.872	0.853	0.831	0.803	0.778	0.757	0.728
Percent Change		2.24%	1.53%	2.16%	3.25%	2.77%	1.56%	2.23%	2.59%	3.28%	3.12%	2.75%	3.81%

The following example converts 1000 dollars in 2008 to constant 1996 dollars:

Conversion Factor = (1996 CPI / 2008 CPI) or (156.90 / 215.5) = .728

Constant Dollar = (Actual Dollar X Conversion Factor) or ($1000 X .728) = $728

This means that $1000 in 2008 would have been worth $728 in 1996

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Rating Structure 
There are significant variations in the way that local governments manage their finances. These variations make it difficult to develop standards that apply from organization to organization. Therefore, there are no defined benchmarks for many of the indicators. Benchmarks for these indicators should be set by the individual municipality. A few of the indicators do have benchmarks that are generally set by bond rating agencies or organizations such as the Government Finance Officers Association (GFOA). The FTMS focuses on trends rather than defined benchmarks. For each indicator a warning trend has been defined. City staff has evaluated each indicator and assigned ratings according to the following rating scheme:

	Green – the trend is favorable. The indicator meets any policy or performance measure set by the City.
	Yellow – the trend is uncertain. The indicator should be watched carefully because it may move in a direction that could have a negative impact on the City’s financial health.
	Red – the warning trend has been observed. The indicator does not meet the policy or performance measure set by the City. More information should be gathered and corrective action should be taken.

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