Hey, there! Log in / Register
Support Universal Hub
Help keep Universal Hub going. If you like what we're up to and want to help out, please consider a (completely non-deductible) contribution.
Help keep Universal Hub going. If you like what we're up to and want to help out, please consider a (completely non-deductible) contribution.
Comments
Looks Misleading
I'm not in municipal finance, but the city's financial statement follows the same general principles found in a non-profit's statements (and I am in that branch of finance). The claim is true but not true. It is true that the city has close to a billion in cash on the books (on June 30, 2008). But much of that is already committed to a variety of projects funded by external sources. The city can't simply take that money and spend it on whatever happens to excite Menino and the council.
The number that is more meaningful is at the bottom of the page, listed under "unrestricted net assets." That is the value of all city controlled assets netted against liabilities and assets restricted to specific purposes. This second part is important, because, for example, if the library is bequeathed $100 million by somebody, that money might be part of the cash McCrea sees, but it is not available for anything other than what the bequest specified (i.e. the library). That said, we don't know that the $405 million reported on that line represents cash. Keep in mind that net assets include the unappreciated value of physical plant, land, etc. What it really represents is the cash value of a completely liquidated city government. When we sell city hall, and everything else, pay all bills, eliminate the debt, that is what should theoretically be left over.
Another consideration is cash flow. It's likely that the city has more cash at the end of the fiscal year than at other points in the tax collection cycle. The city spends $250 million per month. To do that, it should probably carry at least two months worth of cash at any given point. There goes much of that $billion. And the rest of it probably doesn't really belong to the city anyway.
Excellent Post - question
Henry -
However, the current assets exceed current liabilities by about $900 million. The noncurrent assets and liabilities roughly wash each other out. So is it true that we have $405 mm in unrestricted assets of cash or easily converted to cash, $190 mm (which while restricted would still be applied to the $250 mm per month in expenditures you mention and brings us to a total of $500 mm in reserve for operations assuming half is for use this year), ignoring the trust money - which is probably for things like the library or the public garden, and then the key number is the $334 in capital assets net of debt - however this appears to be the balance of the $900 mm in current assets - is it not - so it appears that when you net it all out there is approximately another reserve of $300 mm available - not to suggest that all or even any of it should be spent - but at least a portion appears to be available if needed on relatively short notice?
But it's not available
The only way to use it for some sort of special project would be to run a deficit. I don't know whether the city is legally obligated to stay in the black (as the Commonwealth is), but it's not necessarily a good idea.
For the sake of argument, let's accept the $300 million figure as unrestricted cash. It can and should be used to avoid a month to month cash deficit, but as soon as it is used to, say, fill all the potholes and open 10 new schools, it's gone, forever. That means it's no longer available for cash flow. What do you think happens when the city cash position reaches 0? Police, teachers, fire fighters, etc., do not get paid. The city is responsible to prudently manage resources to avoid such problems. It can't do that if we purposefully embark on a deficit spending program.
Thanks but I'm seeing a disturbing pattern in the politics
Alan
Thanks - very good response. Agreed you wouldn't want to spend the whole thing of course - but would probably make sense to spend some for at least a year if it meant keeping teachers in the classroom and cops on the street - room for lots of other cuts and efficiencies - but those should be the last place you look and pulling $30 million if needed from a 'rainy day fund' in this environment should make sense (heard we have $100 million set aside for this - I'm guessing it's in that $300 million).
As for deficit - not sure if it's allowed (but if not why have a rainy day fund) but the city projected a deficit of $33 million for FY '10 as early as last spring when they developed the '09 budget - there's no way the city could have closed the extra $110 million even if state aid had not been cut. Checked the FY '08 budget and they had projected a $13 million deficit - and this too on what appears to be grossly inflated projections of expenses (FY '08 budget came in $100 million less than projected/actuals were $75 million less and we still expanded city headcount).
Something's awry. Any guesses?
Spending down cash could impact credit rating
A consequence of spending down the available cash would likely be that the ratings agencies would downgrade Boston's debt rating. Running low on cash -- to the extent that you get closer and closer towards not having cash on hand to pay salaries -- sure seems like a good reason for a downgrade.
Such a downgrade would be disaster, because it would raise the cost of floating bonds (interest rates would be higher), which is regularly necessary for the smooth financial operations of a large city government (or company or state goverment). It also might cause conditions in other obligations (like credit default swaps) to be triggered, which could lead to big fees (e.g., some of Mass Turnpike Authority's many financial problems).
You could easily imagine far worse financial impacts from a credit downgrade than the amount of money you slipped out of the cash-on-hand in order to try and avoid layoffs in the short term.
I don't buy this from
I don't buy this from McCrea. In an election year, what would compel Menino to drastically cut popular services and look to tax hikes rather than spend this hypothetical billion dollars sitting there? Doesn't make any sense.
Agreed
What this really illustrates is that McCrae doesn't have a strong grasp of financial information. To me, his statement weakens his standing among the candidates.
3 questions
Rob -
I think McCrea's post raises 4 questions:
1) Do we have almost $1 billion - the answer appears to be yes
2) Can we spend this money - the answer appears to be some of it
3) Should we spend this money - we don't know - curiously nobody at city hall is even asking the question, much less offering an answer
4) Knowing that funding crises appear periodically, why does the city so cavalierly give our land to the BRA and not demand compensation - if we had - would we have the money to close the gap - especially for vital services - again the answer appears to be yes
Conspiracy theories
The people who are going to think that the City has some windfall of money are going to think that no matter what. it's one of those points where the left wing nuts and the right wing nuts come together. If a few people want to put their heads in the sand and deny there is a fiscal crisis, fine. Maybe we could sell off the BPL as one of the assets in Mr. McCrea's surplus, or a bridge or two. Get real.
No conspiracies
Truth - you seem a bit paranoid - any reason? Sounds like somebody pushed a hot button you didn't want pushed. Nobody's suggesting conspiracies - perhaps just a very nasty case of budget politics with kids and teachers as poker chips. And if it truly is a financial "crisis" and we have a $100 million rainy day fund, exactly who has their head in the sand if we're not taking a look at using it? If not now, when?
Meals Tax
First of all, the mayor does this every year - and then the mayor looks like a hero when we magically dodge the budget bullet and balance the budget.
If you go up to the state house and ask for a meals tax and they learn you have a billion dollars in the bank - including $100 million in a rainy day fund - you don't get a meals tax. Nobody's ever pointed this out before and since it's been hiding in plain sight for years, the mayor probably figured nobody ever would. Ooops!
Spoke to a city councilor a few years ago and his comment was "It's very curious, every time we need a few hundred thousand for a park or other small neighborhood issue, there's never any money. But when a really big ticket item hits, the mayor always seems to have the money for it." Very curious, very curious indeed.
Do you have a retirement
Do you have a retirement fund?
Lets say I have a retirement fund and in 20 years I have 10 year old children. Im losing my job and my wife makes ok money, so were coasting along but not doing "great". The kids want to go to Disney World but we dont have the funds lying around for that, do I take money out of my retirement account to do it? Do I mortgage the house? I would say no, but if I needed to for their health I would. I would also mortgage the house for improvements to the house, or if I needed a car (assuming I lived in a car environment at the time) because it would be essentially to everyday life, but for a park? No