Colorado Gives Communities Tools to Handle Financial Shocks
Pilot program offers 18 local governments fiscal policy and management expertise
In 2013, Colorado weathered historic floods that caused nearly $4 billion in damage across 24 counties. When federal funds to help communities rebuild came pouring in, however, some rural governments didn’t have policies and procedures in place to accept the aid.
While Colorado’s Department of Local Affairs (DOLA) had a system to assist local governments facing fiscal distress, it decided in the aftermath of the floods to be more proactive. In September 2017, DOLA launched the Fiscal Stability Strategic Planning Initiative, a pilot program that identifies local governments most at risk of developing fiscal problems and helps them implement best practices. These include policies tied to reserves, debt, and operations, along with such management practices as an asset inventory or capital improvement plan.
DOLA officials hope the initiative will help local governments better respond to economic downturns or other fiscal shocks. Rachel Harlow-Schalk, deputy director of DOLA’s Division of Local Government, noted that rural communities are especially vulnerable to events such as the loss of an employer or a major disaster.
“A lot of the practices that we are suggesting are often already in place in larger communities,” Harlow-Schalk said. “So many state and federal resources are brought to the table when there is such an event. Locals need to be ready for those resources and be able to really leverage them when they arrive.”
Even before the new program, Colorado was one of 23 states that regularly assess local governments’ fiscal health, according to research by The Pew Charitable Trusts. DOLA’s Division of Local Government has eight regional managers and four regional assistants that provide communities with research, grants, and technical assistance. The department also regularly publishes a “Local Government Financial Statistics Report,” which presents data on a key financial indicators.
The Colorado Office of the State Auditor also analyzes the fiscal condition of local governments and school districts by examining three-year trends on key financial indicators. It notifies local governments when they miss benchmarks but does not provide direct assistance.
The 18 counties, cities, towns, and villages that are taking part in the pilot are getting a deeper examination of their finances. The Division of Local Government collects data on 12 fiscal and demographic indicators, including debt per capita, intergovernmental revenue dependence, and the concentration of jobs from a single employer. (See Table 1.) It then compares the data to benchmarks based on national standards and DOLA’s own analysis of Colorado data. The indicators will serve as a baseline to assess the initiative’s impact.
Table 1: Fiscal Stability Strategic Planning Initiative Indicators |
|
|---|---|
|
Indicators |
Benchmark |
|
Current ratio 3-year average: 3-year average of the ratio of governmentwide cash-like resources to short-term liabilities (current assets/current liabilities). |
Less than 100% |
|
Debt per capita |
Municipalities: Greater than $1,778; |
|
Intergovernmental revenue dependence: Measure of reliance on revenues that are not own source (state and federal revenue). 3-year average. |
Municipalities: Greater than 25%; |
|
Operating deficit: Number of years in 3-year span in which total general governmental revenue was less than operating expenditures plus debt service. Indicates reliance on reserves for ongoing expenditures. |
2 or more years |
|
Property class concentration: Concentration of a taxable property class other than commercial or residential (for example, oil and gas production, mine, vacant, state-assessed utility). Could indicate high reliance on volatile and/or single industry or taxpayer. |
Greater than 30% |
|
Combined poverty and 65-plus: Sum of percentage of population in poverty and percentage of population older than 65. |
Greater than 35% |
|
Percent bachelor’s: Percentage of population with bachelor's degree or higher. |
Less than 20% |
|
Household population change risk: Percentage change in number of households. Indicates loss of households. |
Less than 0% change |
|
Household labor force age risk: Growth of population ages 25-44. Indicates loss of prime working age population. |
Less than 0% growth |
|
Local government share: Percentage of jobs in local government (school district, county, etc.). |
Greater than 25% |
|
Single large employer: Concentration of jobs from single employer |
Greater than 10% |
|
Employment growth: 2002-14. |
Less than 0% |
* Note: These amounts represent the localities with the highest 25 percent of debt per capita in their respective categories.
Source: Colorado Department of Local Affairs
DOLA’s regional manager completes an inventory of the 15 best practices the local government already uses and then helps local officials decide which others to adopt. (See Table 2.) The state also provides some financial resources to help with implementation.
Table 2: Community Financial Best Management Practices Inventory |
Financial policies
|
Statewide requirement
|
Management and operations
|
Source: Colorado Department of Local Affairs, Division of Local Government
After three years, the department plans to review changes on the indicators to assess each local government’s fiscal condition. DOLA officials noted that communities may not see substantial changes, as many indicators capture characteristics that will likely require more time to shift. Rather, the pilot aims to identify communities most in need and help them implement and improve fiscal management policies.
Mary Murphy directs The Pew Charitable Trusts’ states’ fiscal health project.
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