Looking at Troy's Financial Health

The Comprehensive Annual Financial Report gives some insights

Earlier this month, the Auditor of State’s Office released the City of Troy’s Comprehensive Annual Financial Report on their website. This report is a behemoth, coming in at just over 200 pages of charts and tables that look at every part of the city’s financial health; investments, debt, value of infrastructure…it’s all there.

This publication is going to take some time looking at different aspects of the city’s financial health and if there is a specific question or a specific item that you are interested in, our paid subscribers are more than welcome to leave their question in the comment thread.

What is a CAFR?

But for today’s discussion, it is helpful to understand what exactly a Comprehensive Annual Finance Report (CAFR) is. The CAFR is a thorough and detailed presentation of a government entity's financial condition, typically prepared at the end of each fiscal year.

Many would argue that the city’s budget is the most important fiscal document that the city creates. Well, unlike an annual budget, which is a forward-looking document that outlines planned expenditures and expected revenues for the upcoming year, a CAFR provides a retrospective view of the entity's actual financial performance and position. In reality, both reports are very important and play a vital role in understanding the city’s financial picture.

The CAFR consists of three main sections: introductory, financial, and statistical. It includes audited financial statements, notes to those statements, and supplementary information that provides a complete picture of the entity's financial health. This report goes beyond the basic financial statements to offer a comprehensive look at the government's entire financial condition, including long-term trends, non-financial data, and demographic information.

The CAFR serves multiple purposes, including demonstrating financial transparency, providing crucial information for bond rating agencies, and helping stakeholders understand the government's financial position and performance over time. It's a key document for assessing the long-term fiscal health and sustainability of a government entity, whereas the annual budget focuses more on short-term operational planning and resource allocation.

What Did Troy’s CAFR Say?

In reviewing the management discussion in the CAFR, there are a few highlights that are worthy of exploring. Perhaps most importantly, the City of Troy experienced significant financial growth in 2023. The city's total net position increased by $23,971,056, with both governmental and business-type activities contributing to this positive trend. However, this doesn’t necessarily mean the city pocketed an extra $24 million last year.

Governmental activities saw a substantial increase in net position of $19,452,775, while business-type activities grew by $4,518,281. The business growth activities are what are considered “enterprise” funds, such as the water fund and wastewater fund. This growth indicates strong financial management and a thriving local economy. The City’s General Fund, a key indicator of the city's fiscal health, reported an impressive increase in fund balance of $9,639,291.

The city's assets grew considerably, primarily due to increases in the taxes received and appreciation of capital assets. This growth in assets demonstrates the city's expanding tax base and ongoing investment in infrastructure. However, it's worth noting that long-term liabilities also increased, mainly due to changes in net pension and OPEB (other post-employment benefit) liabilities.

Revenue Growth

Troy's revenue streams showed robust performance across various categories. Income taxes, the largest source of revenue for the city, generated approximately 75% of governmental activities' general revenues. The reliance on income tax underscores the importance of maintaining a strong local job market and attracting large-scale employers.

Program revenues, which are generally grants and transfers from other governmental entities, for both governmental and business-type activities saw significant increases. Notably, capital grants and contributions for governmental activities nearly doubled from the previous year, rising from $3,417,260 to $6,991,032. This surge in capital funding shows an increased investment in city infrastructure, including projects like the West Main Street project and improvements at the Wastewater Treatment Plant.

Investment earnings rebounded strongly in 2023, with governmental activities reporting $3,738,624 in earnings compared to a loss of $4,535,213 in the previous year. This turnaround indicates improved market conditions and effective management of the city's investment portfolio.

How Dollars Were Spent

On the expenditure side, public safety remained the largest category for governmental activities, accounting for 43.8% of program expenses. This allocation reflects the city's commitment to maintaining a safe community. General government and community development also saw notable increases in spending, suggesting investments in administrative capacity and economic development initiatives. Of interest, 8.3% of all funding was provided for “leisure-time activities”.

Business-type activities demonstrated solid financial performance, with operating income of $634,315. The water and sanitary sewer operations were the largest contributors to expenses in this category, which comes as no surprise.

The city's overall financial position remains strong, with a healthy balance of restricted and unrestricted net position. The increase in net investment in capital assets for both governmental and business-type activities indicates ongoing infrastructure improvements and capital investments.

Moving Forward

Looking ahead, Troy appears well-positioned for continued growth and financial stability. The city's efforts to attract large-scale employers and expand its commercial tax base have yielded positive results, as evidenced by the strong income tax revenues. However, the increase in long-term liabilities, particularly related to pension and OPEB obligations, warrants ongoing attention and management.

The robust growth in capital grants and contributions suggests that Troy is successfully leveraging external funding sources to support its development goals. This ability to secure additional resources will be crucial for maintaining and expanding city services and infrastructure in the future.

In conclusion, the CAFR paints a picture of a municipality on a solid base. With strong revenue growth, prudent fiscal management, and ongoing investments in key areas such as public safety and infrastructure, the community is well-positioned to meet the needs of its residents and businesses. While challenges remain, particularly in managing long-term liabilities, the overall financial health of the city provides a solid foundation for continued prosperity and growth in the years to come.

Tell Us What You Think!

What do you think about our financial health? Is there a burning question you have? Debt capacity? Where are city investments? Our paid subscribers are more than welcome to leave their ideas and insights in the comment thread.

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