The User's Perspective
Coming to a CAFR Near You: The New Statistical Section, Part 2
The statistical section is the part of a comprehensive annual financial report (CAFR) where governments present historical information-typically for the past 10 years-about their finances and operations and about their constituents and economy. An article in the last issue of The User's Perspective detailed how the standards governing the statistical section had been revised and updated by GASB Statement No. 44, Economic Condition Reporting: The Statistical Section. Most state and local governments that prepare a CAFR are in the process of implementing Statement 44 right now. This article concludes the description of the information that you will find in the new and improved statistical section.
Demographic and Economic Information
Prior to Statement 44, the requirement to present "demographic statistics" came with no guidance as to what statistics ought to be reported. The standards also did not specifically require that this information be presented for the same 10-year period as most of the other statistical section schedules. Consequently, governments presented a wide variety of demographic and economic indicators, with very little consistency from government to government. The standards also required a schedule of "property value, construction, and bank deposits."
Based on the GASB's research with financial statement users, it is evident that certain indicators are highly valuable to decision making and analysis, whereas others are decidedly less so. Therefore Statement 44 requires governments to present a basic set of four indicators for the past 10 years-population, total personal income, personal income per capita, and the unemployment rate. These indicators were much more highly rated by the users the GASB surveyed than any other demographic and economic indicators typically presented in the statistical section.
Statement 44 allows for the fact that the four required indicators may not be relevant to all types of governments. Special-purpose governments, such as public universities, water and sewer authorities, and airports, may present different information that is more meaningful to their statistical section users. For instance, a university might present information about graduation rates and high school diploma recipients, which might indicate trends in demand for higher education. Information on construction permits, especially for new residential construction, could be very informative for a water and sewer authority.
Statement 44 also requires a new schedule for all governments—principal employers for the current year and the period 9 years prior (the first and last years of the 10-year trend covered by the statistical section). Previously, this schedule was considered by some to be a substitute for the principal taxpayers' schedule. However, the information it contains is viewed substantially differently by users. Whereas principal taxpayers' information helps the user to understand the degree to which a government is dependent on a small number of significant taxpayers for its revenue, the principal employers' information speaks more broadly to the health of the economy upon which the government depends. If a large proportion of total employment comes from one or a few employers, then significant downsizing by one of those employers, or even closure or relocation, could have a substantial impact on the economy and, therefore, the government.
The schedule of principal employers generally presents the 10 largest employers in terms of the number of people they employ. Some governments may present more than 10. A government may present fewer than 10 if they account for half or more of total employment. For each employer presented, the schedule should contain the number of employees and the percentage of total employment. The schedule should cover all types of employers, including federal and other government employers and the military, rather than just private sector employers. Some governments may not have information for the period 9 years prior; consequently, you may see a comparison with a more recent year until enough time has passed to establish a 10-year span.
You should also be aware that there may be issues regarding the availability of some employment information. Rules instituted by the federal Bureau of Labor Statistics after September 11 prohibit state departments of labor or economic security from publicly identifying the names of individual employers. This rule has been interpreted differently from state to state-some believe they can continue to provide information without identification, whereas others believe they cannot provide any of the employment information they collect at all. This is important because many governments depend on these state departments to provide principal employer information. There are several ways that governments may approach this situation. Some may obtain the information from other sources, such as chambers of commerce, and thereby present employment numbers with the employers identified. Others may present the employment information without employer names-perhaps labeling them "Employer 1, Employer 2," and so on. Although the absence of employer names may make it difficult to make judgments about the likelihood of individual employers relocating or downsizing, the schedule is still valuable in identifying concentrations of employment within a few employers. Governments that cannot obtain employment numbers for individual employers, even without identification, may present other information instead, such as employment by industry.
There are other important considerations regarding the availability of information. Governments should present the information that is most current for the 10-year period. Certain indicators, such as personal income, are revised for several years before being finalized. Personal income and other information also take some time to be produced and, therefore, may not be available for the most recent year or two of the decade covered by the statistical section. Governments should clearly indicate on the schedule when information is not available and why.
Governments also should present information that is most specific to their geographic area. For states and larger cities and counties, indicators are often available every year. But for smaller governments, such as many towns and villages, information may not be available every year. Population, for example, may only be available from the decennial Census. Such governments may seek information for the intervening years from other sources, such as a department of the state government, or may not provide any information at all for those years.
Furthermore, demographic and economic indicators may not be collected for the jurisdictions covered by some governments. For example, a school district may cover all or some portions of multiple local governments. Such a government might present information for each of the jurisdictions it covers, or perhaps for the jurisdiction it most closely overlaps with. In any case, the schedule should be clearly noted to explain how the information relates to the government's geographic area. Finally, some governments, such as public colleges and universities other than community colleges, are not related to any particular geographic area; these governments will have to apply professional judgment to determine what information is most meaningful to its statistical section users.
The last of the 15 schedules previously listed in the standards for the statistical section was called "miscellaneous statistics." Although it was probably intended to be a catch-all category for other relevant information not included in other schedules, it developed over time into an eclectic array of factoids such as the date of incorporation of the government, park acreage, number of fire hydrants, and number of police officers. The GASB found that three specific kinds of information in that schedule are particularly useful-number of employees, indicators of demand for services or amounts of service provided, and indicators of capital asset volume, usage, or nature. Unfortunately, this information was not always presented and generally only for select functions or programs.
Statement 44 replaced the miscellaneous statistics schedule with a trio of 10-year schedules of operating information-government employees, operating indicators, and capital asset information. The first schedule presents the number of the government's employees, generally broken down by the functions, programs, or activities used in the government's financial statements, at a minimum. However, you may see the information organized differently if a government does not maintain employment data in those categories. For instance, a government might provide the data by department or agency instead. There is no specific requirement regarding whether the employment information should be annual averages versus end of the fiscal year, or total employees versus full-time equivalent. However, the schedule should clearly explain the nature of the information.
The second operating schedule presents indicators of demand or level of service for each function, program, or activity. (See Figure 1.) These might include the number of emergency responses for a fire department, the average daily inmate population for prisons, or the number of persons receiving economic assistance. Statement 44 does not specify particular indicators to report, nor how many to report, but governments are expected to select indicators that are representative of and informative about their functions, programs, or activities. However, there are a number of commonly used indicators for many types of special-purpose governments. For example, school district statistical sections often include student enrollment, cost per pupil, pupil-teacher ratios, percentage of students receiving free or reduced price meals, and even teacher salaries. Public colleges and universities often provide admissions and enrollment statistics, as well as degrees granted. Airports commonly report the number of persons flying in and out. Water and sewer authorities report gallons of water consumed and gallons of wastewater treated.
The final operating schedule contains indicators that describe the capital assets available to the government for each function, program, or activity. (See Figure 2.) Again, specific indicators or a particular number of indicators are not required, but many will be common to similar types of governments. Miles of streets and highways, water mains and sewers, wastewater treatment capacity, total prison beds, and number of ball fields are frequently provided. As with operating indicators, common indicators have developed for many special-purpose governments. Many school districts present a list of school buildings, for instance, with student capacity and actual enrollment. Libraries might present information about their branches and the volumes in their collection. Airports might report square footage for terminals, number of gates and runways, and amount of parking spaces.
You may find more information than is specifically required by Statement 44. It contains a general statement that governments may provide greater detail or entirely different and separate information as long as it helps to meet the objectives of the statistical section. This means that governments can go beyond the minimum requirements of level of detail, or may add nonrequired features such as percentage distribution and percentage change, and even comparisons with other governments. If a government has included other information in order to comply with continuing disclosure requirements connected with its outstanding debt, it is still allowed to do so. Governments also may add graphs and charts to depict specific information in the schedules.
Narrative Explanations and Other Aids to Understanding
The users of the statistical section may not be intimately familiar with the explanations behind the information that is found in the schedules. Statement 44 calls on governments to add explanations to the schedules to help you understand what the information means. Consider, for example, a government that reorganizes some major departments, shifting responsibilities or divisions from one to another. In the schedule of government employees, it may look like employment grew rapidly and significantly in some functions but declined in others. The same kind of change might be seen in the schedule presenting expenses. A note on the schedule would help you to understand what occurred and to avoid drawing uninformed conclusions. Likewise, a note describing a major tax increase would help you to interpret revenue trends. Governments also are expected to identify the sources of information that does not come from elsewhere in the financial report, as well as to describe any assumptions or methodologies utilized to produce the information.