Financial Health Indicators
What are Financial Health Indicators?
Each year, the Ohio Auditor of State declares a number of local governments in a state of fiscal distress: fiscal caution, watch or emergency. It is a duty prescribed by law, but one that troubles the Auditor because of the costs to the local entity – both financial and psychological.
In an attempt to help cities and counties avoid being declared in fiscal distress, Auditor Dave Yost instructed his team to develop a series of indicators that would help identify those that show signs of heightened fiscal stress. Years of effort has led to the creation of an assessment that serves as a “fiscal physical” for cities and counties, alerting them to areas of concern.
Staff from the Auditor of State’s office used historical data for entities that had been declared in fiscal distress to create the indicators. Using that data, the Auditor’s office developed a set of Financial Health Indicators to recognize early signs of fiscal stress for cities and counties.
The indicators – 17 for entities who report financial statements using the Generally Accepted Accounting Principles (GAAP) and 15 for those who use a cash or modified cash basis of accounting – are a collection of financial information, percentages and ratios gathered from annual financial statements filed by local governments with the Auditor’s office in addition to their audit reports. The indicators are useful in predicting both financial stability and stress.
The indicators are explained in detail in the accompanying documents, including how they are measured, their individual importance and how each is a sign of fiscal stability or stress.
No single indicator is a sign of fiscal stress as they all should be viewed collectively to gain a more accurate picture of the fiscal health of a city or county. Citizens, government leaders and policy makers can gain great insights into the fiscal trends of an entity from reviewing the indicators.
Collectively, the indicators provide meaningful information about the state of our state’s largest governmental units through heat maps, which pull together results for all 88 counties and 247 cities.