Colorado Gives Communities Tools to Handle Financial Shocks

Pilot program offers 18 local governments fiscal policy and management expertise

Colorado Gives Communities Tools to Handle Financial Shocks

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;
Counties: Greater than $304.*

Intergovernmental revenue dependence: Measure of reliance on revenues that are not own source (state and federal revenue). 3-year average.

Municipalities: Greater than 25%;
Counties: Greater than 50%

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
  • Budget policy
  • Capital improvement policy
  • Debt policy
  • Expenditure policy
  • Investment policy
  • Reserve policy
  • Revenue policy
Statewide requirement
  • Annual adopted budget
  • Compliance with statewide budget requirements
Management and operations
  • Implement system(s) to monitor, measure, and evaluate performance (e.g., budget-to-actual, financial condition, program performance)
  • Asset inventory
  • Capital improvement plan
  • Dedicated finance staff
  • Professional manager or town administrator
  • Define and implement budget process

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. 

States are exploring ways to help local governments avoid fiscal distress
States are exploring ways to help local governments avoid fiscal distress
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State Strategies for Detecting Fiscal Distress in Local Governments

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Fact Sheet

As local governments across the country struggle to resolve budgetary challenges, some states are exploring ways to help their counties, cities, towns, and villages avoid defaulting on loans or filing for bankruptcy.

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The State Role in Local Government Financial Distress

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iStock Note: In April 2016, this report was updated to include revised information about Louisiana’s intervention practices and to improve the clarity of citations. What role, if any, should states play in helping cities, towns, and counties recover from serious financial trouble, what officials generically call “intervention?” The Pew Charitable Trusts conducted a study examining the range of state involvement in local government finances that drew on current literature, statutes, a survey of state officials, and interviews with government finance analysts. "The State Role in Local Government Financial Distress" examines various intervention practices, identifies challenges, and elaborates on three key policy guidelines. The analysis and state profiles can help inform state decision making about whether, when, and how to assist municipalities facing fiscal stress, the likely outcomes of various approaches, and the implications for cities, counties, states, and taxpayers.