Post on 14-Apr-2017
Micah WintnerP ADM 523, Section 1Dr. Beckett-Camarata
MD&A Analysis
The Governmental Accounting Standards Board is a hodgepodge of people whose
various backgrounds all come together to form the basis for how a comprehensive annual
financial report should be presented.
David Vaudt, who is the chair of the GASB, worked at KPMG for 25 years, and then was
elected Iowa’s state auditor (Board members). The board is made up of six men and one woman,
and they’ve all held high level-responsibility jobs at either the state level or corporate executive
level. The GASB members aren’t difficult to contact (see appendix, Exhibit A), and this six
member board, and their accompanying staff, headquartered in Norwalk, Connecticut, under the
power of GASB statement No. 34, guide the hand of governmental accounting for all fifty
United States, including for the village of Buffalo Grove, Illinois.
Buffalo Grove, Illinois’ census numbers shows a village that is diverse and wealthy. The
median household income between 2010 and 2014 was $96,768 among a population of 41,701
people, compared to the $53,482 median income for the United States as a whole (QuickFacts).
Among Buffalo Grove’s 16,276 households, in 32.5 percent of them, the spoken language is
something besides English. Safewise, a home-security analysis team, called Buffalo Grove the
thirty-first safest city in Illinois: “The village is protected by a robust police department that
takes care of public safety needs from traffic control to providing resources to local schools and
special programs for Alzheimer’s patients. Their comprehensive approach seems to be working,
because Buffalo Grove was free of both murders and rapes in 2012” (The 50 safest cities in
Illinois). Money Magazine called Buffalo Grove the forty-sixth best place to live in in the United
States in 2013, citing the village’s economic stability and wide range of employment options as
factors (Best places to live 2013).
The village of Buffalo Grove’s website, www.vbg.org, touts news articles with titles like
“Standard & Poor’s (S&P), Moody’s assign highest credit ratings to village of Buffalo Grove,”
and, “Buffalo Grove symphonic band presents formal concert April 24 at Stevenson Performing
Arts Center.” Stevenson is one of the many local, geographically distributed high schools in the
area to which Buffalo Grove allocates funds to from its high property taxes, and its direct and
overlapping governmental activities responsibilities shared with the surrounding communities,
like Lincolnshire, Illinois, and Arlington Heights, Illinois.
But Buffalo Grove would not have gotten to be this way without a heavy governmental
presence guiding the community. The village has over fifty trustees operating on various
commissions and boards (The village of Buffalo Grove, Illinois). Scott Anderson is the village’s
director of finance, and also heads the police pension board. His name is on the cover of Buffalo
Grove, Illinois’ 2014 CAFR, whose Management’s Discussion and Analysis this paper will be
analyzing. Scott Anderson oversees the village’s accounting and financial reporting, finance
administration, treasury management, general services, and the office of the village clerk. He
signed the letter of transmittal in the 2014 CAFR, where he mentioned that, “GAAP requires that
management provide a narrative introduction, overview, and analysis to accompany the basic
financial statements in the form of a Management's Discussion and Analysis (MD&A).”
(Comprehensive annual financial report of the village of Buffalo Grove, Illinois, as of and for
the year ended December 31, 2014).
The MD&A narrative and analysis is in fact stipulated by GASB summary of
statement No. 34, which says the following about the important aspects of the MD&A:
MD&A should provide an objective and easily readable analysis of the government's
financial activities based on currently known facts, decisions, or conditions. MD&A should
include comparisons of the current year to the prior year based on the government-wide
information. It should provide an analysis of the government's overall financial position and
results of operations to assist users in assessing whether that financial position has improved or
deteriorated as a result of the year's activities. In addition, it should provide an analysis of
significant changes that occur in funds and significant budget variances. It should also describe
capital asset and long-term debt activity during the year. MD&A should conclude with a
description of currently known facts, decisions, or conditions that are expected to have a
significant effect on financial position or results of operations. (Summary of statement No. 34)
The village of Buffalo Grove, Illinois’ latest available MD&A analysis is in its 2014
CAFR. The MD&A analysis is 15 pages. It contains within it a look at the entity’s overall
financial position, significant variations between original and final budget amounts, a synthesis
of significant capital asset and long-term debt activity during the year, and a description of any
known facts, decisions, or conditions that would have a significant effect on the government’s
financial position.
Overall Financial Position
The MD&A provided a condensed statement of net position, which shows a minor
decrease in net position between 2013 and 2014. One factor the MD&A analysis says has an
impact on net position is “net results of activities,” and water and sewer expenses increased by
$200,000 from 2013 to 2014, according to page 9 of the 2014 MD&A. This could be because
Buffalo Grove, Illinois, derives its water from the Northwest Water Commission, which is
responsible for distributing Lake Michigan water to the Illinois villages of Arlington Heights,
Buffalo Grove, Palatine, and Wheeling (Comprehensive annual financial report for Northwest
Water Commission, for year ended April 30, 2012). There are several factors in the water
commission’s CAFR that can account for Buffalo Grove’s increase in water and sewer expenses:
first, the water commission estimates its budget needs for ten years ahead, which is a long range
for estimating needed capital. Also, the commission says that it is undertaking major initiatives:
1. Continuation of the development of a strategic plan addressing the needs for system
redundancy and continued operation for the next 100 years.
2. Entered into an engineering agreement for the development of system looping and an
increase in system storage. This is the first project of this nature since initial construction of the
Commission.
3. Entered into an engineering agreement for the study of costs and possible route of an
additional source of Lake Michigan water from the City of Evanston either by pipeline or by
tunnel.
4. Continuation of a Corrosion Control Program to reduce lead and copper levels in
members’ water supply.
5. Assistance given to member communities in obtaining the necessary technical and
statistical information to complete the required EPA Consumer Confidence Report.
(Comprehensive annual financial report for Northwest Water Commission, for year ended April
30, 2012)
These are all reasons that Buffalo Grove’s water costs might have increased: for the
continued participation in the Northwest Water Commission, which has a capital asset plan all on
its own. Back to Buffalo Grove’s MD&A, it says point blank that the net decrease in net position
for governmental activities was “due to the depreciation for capital asset” (MD&A page 10).
Variations between Original and Final Budget for General Fund
Buffalo Grove’s 2014 CAFR, MD&A analysis, has a chart of budget to actual revenues
and expenditures (see appendix, Exhibit B). The variations are less than five percent variance
between budgeted revenues and expenditures. The actual change was a $902,000 increase in
revenues, after accounting for revenue sources and expenditure outlays (MD&A page 16). The
MD&A shows that property tax was the biggest receivable for governmental-activities, at over
$14 million, and that could explain Buffalo Grove’s favorable variance with its budgeted
revenues.
Illinois’ property tax looks like it will continue to be a highly lucrative source. According
to the Illinois Policy Institute, the state of Illinois has the second highest property tax rate among
states at 1.93 percent, and the institute also found that Lake County, the county in which Buffalo
Grove resides, has the seventeenth highest property tax in the nation among all counties (Illinois
has the 2nd-highest property taxes in nation). Buffalo Grove’s MD&A analysis says this:
The governmental activities of the Village include public safety (police and fire), public
works, streets and sidewalks, building and zoning, and general government. Property taxes…
finance the majority of these services. (MD&A page 5)
With property taxes being the village’s largest source of revenue, and itself being at a
fixed rate and taxable to easily estimable property values, the budgeted income from property tax
should not have much variance. That being said, pension levies account for 39.2 percent of the
property tax levy (MD&A page 10), and Illinois already has pension problems. Keith Staats, JD,
wrote in the Illinois CPA society’s Insight Magazine that, “local pension costs are another
ticking time bomb. If local pension costs aren't reduced, property taxes will rise or pension funds
will run the risk of becoming insolvent.” (Ugly numbers).
Going forward, it’s clear that pension obligations can impact the amount of property tax
revenues collected, which might affect the stability the budget in the future.
Synthesis of Significant Capital Asset and Long-Term Debt Activity
The MD&A analysis has a whole host of information on pages seven through ten on its
capital asset and long-term debt activity; it lists four things that normally affect capital assets:
Net Results of Activities – which will impact (increase/decrease) current assets and
unrestricted net position.
Borrowing of Capital – which will increase current assets and long term debt
Spending Borrowed Proceeds on New Capital – which will reduce current assets and
increase capital assets. There is a second impact, an increase in invested in capital assets and an
increase in related net debt which will not change the invested in capital assets, net of debt.
Reduction of Capital Assets through Depreciation – which will reduce capital assets and
net investment in capital assets. (MD&A page 7).
Then, the MD&A analysis presents how these factors impacted the current year:
At the end of the current fiscal year, the Village reported positive balances in all three
categories of net position, both for the government as a whole, as well as for its separate
governmental and business-type activities. Within the governmental activities, the Village
increase in “Current and Other Assets” of $2.2 million is attributed to an increase in grant
revenue. The Village has received funding for capital improvements from the State of Illinois
Department of Commerce and Economic Opportunity. These funds are designated for street and
bridge improvements, “Current and Other Assets” for business-type activities increased $0.1
million over the prior fiscal year. The excess revenue was derived from an increase in the water
and sewer rate for those services. The Village has adopted a philosophy of funding capital
improvements to a large extent on a pay-as-you –go basis, and retires debt obligations quickly,
resulting in positive net position calculations. Declines in “Capital Assets” are primarily as a
result of depreciation. (MD&A page 8)
The chart to which the previous paragraph’s numbers are referring to is Appendix, exhibit
C, and the increase in revenue for business type activities related to water and sewer expenses
was mentioned earlier, when discussing the Northwest Water Commission.
The MD&A on page 16 says the village had a combined total capital assets in 2014 of
$91.52 million between buildings, streets, storm sewers, and equipment. The MD&A mentioned
that the most significant capital activity was the continued progress on the Weiland Road
Corridor Study, lift station improvements in the Water Fund, and scheduled vehicle replacements
made during the year as part of a systematic funding and replacement program for all village-
owned vehicles (MD&A page 17).
The Weiland Road Corridor study is a good example of how individuals still have a say
in how their municipality spends money. A brochure, back from 2010, which invited villagers to
come to a meeting regarding the road improvements, said:
The Village of Buffalo Grove, the Lake County Division of Transportation and the Cook
County Highway Department welcome you to this Public Information Meeting for improvements
under consideration to the Weiland Road corridor from Buffalo Grove Road to IL Route 22 and
the Lake Cook Road corridor from Buffalo Grove Road to Hastings Lane. We invite you to view
the exhibits on display and talk with study team members. Your comments and opinions are an
important part of this study. You are encouraged to provide comments in writing or speak with
the Court Reporter. In order for your comments to become part of the project record, we ask that
they be postmarked by December 31, 2010. (Brochure: Public Information meeting, Weiland
Road and Lake Cook Road Phase I Study)
Appendix, exhibit D is a calendar of the road corridor study schedule from the brochure,
which is an example of how municipal projects are a combination of requiring a lot of time,
requiring the consent of the local residents, and budgetary considerations. Regarding the
village’s long term debt policies, the MD&A says:
The Village maintains assigned “AAA” ratings on its general obligation bonds
respectively from both Moody’s Investor Services and Standard and Poor’s Corporation. The
total per capita general obligation (GO) debt for the community stands at $251.27 and
represents .72 percent of the percentage of equalized assessed valuation of the Village. The
Village, under its home rule authority, does not have a legal debt limit. (MD&A page 17)
Facts, Decisions, Conditions, that affect the Government’s Financial Position or Operations
In the letter of transmittal, Buffalo Grove Director of Finance Scott Anderson said the
village aims to keep 25 percent of next years budgeted expenditures held up in an “unassigned
fund balance.” This is probably the most significant impact on Buffalo Grove’s operations. And
generally, they’ve been able to exceed that 25 percent by at least 10 percent (letter of transmittal
page iii). This kind of planning, with keeping at least a fourth of next year’s budget available in
the current year, and with Buffalo Grove’s relatively clear propensity to bring in revenue, can
have a very positive impact on its financial position and operations. There were many tax
considerations in 2014 that affected the government’s financial position:
Property taxes increased by $0.05 million. The increase in the corporate agency tax levy
collected in 2014 was 3.5 percent or $.27 million. The Fire Protection portion of the corporate
levy received the largest increase of $.12 million (44.4 percent). The total tax levy increased 0.35
percent in total with decreases in the IMRF and Debt Service levies of 2.37 percent and 16.63
percent respectively. The pensions levy increased .98 percent. Sales tax increased by $.65
million compared to the previous year. The growth in sales tax was 8.4 percent. Utility taxes are
up $.19 million, or 7.2 percent. The region experienced a very cold winter, leading to higher
natural gas consumption than average. Income taxes continue to decrease, down $.6 million from
FY 2013 and $1.4 million since FY 2012. Property transfer taxes were the highest, $.79 million,
since 2006 when that tax generated $.98 million. The Village expects the property transfer tax to
continue its upward trend (MD&A page 11).
The MD&A seems to launch into a detailed account of fund policies, and fund revenues
and expenses, and what impact the fund has on the overall financial position of Buffalo Grove.
In conclusion, the general fund’s revenues and expenditures were so described:
The General Fund’s revenues increased by $3.2 million in 2014. Sales tax revenue
expanded generally through inflation. The housing market continued to recover in 2014 as
revenues were similar to the uptick the Village saw in 2013, with more of the traditional, non-
distressed type of housing transactions. Property taxes increased $1.5 million, while
Miscellaneous Income grew $.7 million and Other Taxes grew $.37 million. Charges for service
increased 27 percent over 2013, growing by $.27 million. Interest grew 47 percent over 2013
while Fines and Fees and Licensing and Permits both decreased in 2014 from the previous year
actuals. The overall growth in the General Fund of 9.14 percent is a positive indicator that the
Village has been able to generate adequate revenues. The under-performing revenues also give
the Village an opportunity to re-evaluate those sources if there is a trend emerging or if it was
related to a short term aberration. General fund expenditures increased by $3.9 million or 11.8
percent. The surplus of revenues over expenditures was $1.4 million. Adding in the Other
Financing Sources (Uses), the net change to fund balance resulted in an increase of $.9 million.
Public Safety Expenditures increased $.8 million, 3.62 percent, in FY 2014. Public Works and
General Government were able to reduce their expenditures $.4 million and $1 million
respectively (MD&A pages 13-14).
Appendix
Exhibit A: List of GASB Board and Staff and their emails and phone numbers
Source: (http://www.gasb.org/cs/ContentServer?c=Page&pagename=GASB%2FPage%2FGASBSectionPage&cid=1176156722469)
Exhibit B:
Source: (http://www.vbg.org/DocumentCenter/View/2428) MD&A page 16
Exhibit C:
Source: (http://www.vbg.org/DocumentCenter/View/2428) MD&A page 7
Exhibit D
Source: http://www.vbg.org/DocumentCenter/Home/View/511
Bibliography 1. Anderson, Scott. "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF
THE VILLAGE OF BUFFALO GROVE, ILLINOIS As of and for the Year Ended December 31, 2014." The Village of Buffalo Grove, Illinois. N.p., n.d. Web. <http://www.vbg.org/DocumentCenter/View/2428>.
2. "Best Place to Live 2013." Money Magazine. Time Inc., n.d. Web. 16 Apr. 2016. <http://time.com/money/2791464/46-buffalo-grove-il/>.
3. "Board Members." GASB. GASB, n.d. Web. 16 Apr. 2016. <http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176156726930>.
4. "Brochure: Public Information Meeting, Weiland Road and Lake Cook Road Phase I Study." N.p., n.d. Web. 16 Apr. 2016. <http://www.vbg.org/DocumentCenter/Home/View/511>.
5. "Comprehensive Annual Financial Report Northwest Water Commission Fiscal Year Ended April 30, 2012." (n.d.): n. pag. Web. 16 Apr. 2016. <http://gfoa.net/cafr/COA2012/NorthwestWaterCommissionIL.pdf>.
6. Costin, Brian. "Illinois Has the 2nd-highest Property Taxes in Nation." Illinois Policy. Illinois Policy, 15 Feb. 2013. Web. 16 Apr. 2016. <https://www.illinoispolicy.org/illinois-has-the-2nd-highest-property-taxes-in-nation/>.
7. Edwards, Rebecca. "The 50 Safest Cities in Illinois - SafeWise." SafeWise RSS. Safewise, 26 Mar. 2014. Web. 16 Apr. 2016. <http://www.safewise.com/blog/50-safest-cities-illinois/>.
8. "QuickFacts." United State Census Bureau. US Department of Commerce, n.d. Web. 16 Apr. 2016. <http://www.census.gov/quickfacts/table/PST045215/00,1709447>.
9. Staats, Keith. "Ugly Numbers." Illinois CPA Society. Illinois CPA Society, 2014. Web. 16 Apr. 2016. <http://www.icpas.org/hc-insight.aspx?id=24956&terms=pension>.
10. "SUMMARY OF STATEMENT NO. 34." GASB. GASB, n.d. Web. 16 Apr. 2016. <http://www.gasb.org/st/summary/gstsm34.html>.
11. "The Village of Buffalo Grove, Illinois." N.p., n.d. Web. 16 Apr. 2016. <http://buffalogrovevillageil.iqm2.com/Citizens/Board>.