Financial Health Indicators (FHI)
December 2021 – we recently became aware that a portion of the calculation for Indicator #1 had been omitted from the programming when the calculations were updated for implementation of GASB Statement #75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which was effective for periods beginning after June 15, 2017 (i.e., calendar year 2018). The portion of the calculation omitted related to the prior year amount. Since there was no prior year amount during the initial implementation year, the omission did not affect the 2018 FHI reports and data sheets; however, the omission did result in errors in the 2019 and 2020 FHI reports and data sheets, and for some cities and counties resulted in an incorrect outlook result for Indicator #1. The calculation error has been corrected, all 2019 and 2020 FHI reports and data sheets previously generated have been updated and replaced, and individual cities or counties for which this correction resulted in a change in outlook for Indicator #1 have been notified.
A 'Fiscal Physical' for Local Governments
We all know that if we eat right and exercise, it will be reflected in our key health indicators: our bad cholesterol, good cholesterol, blood sugar level, etc. If we keep those numbers in order, the chances are pretty good that we’ll live long, healthy lives and will avoid visits to the emergency room.
The same goes for government: If expenses are kept in line with revenues, there’s a cushion of reserves in the bank, and the debt isn’t too high, chances are that entity won’t end up in fiscal emergency.
Before 2016, there was no easy-to-understand, readily accessible "vitals" sheet showing the relative health of Ohio cities and counties. So, the Auditor's office developed a series of indicators to help communities identify signs of heightened fiscal stress. This assessment tool serves as a “fiscal physical” for cities and counties, alerting officials to areas of concern in their communities.
Financial Health Indicators
Staff studied historical data for entities that had been declared in fiscal distress and identified key indicators of fiscal stress. 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 that report financial statements using the Generally Accepted Accounting Principles (GAAP) and 15 for those that 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.
The Bigger Picture
It is important to note that 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. The vast majority of cities and counties have at least one indicator in a “critical” or “cautionary” category. 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 253 cities.*
*Six municipalities were reclassified from villages to cities as a result of the 2020 census. Seven years of data under the same classification and basis of accounting is required to generate an FHI report; therefore, FHI reports cannot be currently generated for the newly reclassified cities.