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General revenue recovery has been slow and uneven across counties
Counties Are Struggling With Rising Costs of Mandated Services
State and Federal Funding is Increasingly Insufficient to Cover for Mandated County Services
Endnotes
Methodology and Key Terms
Counting Money: State and GASB Standards for County Financial Reporting
County governments provide essential services to create healthy, safe, vibrant and economically resilient communities. The Great Recession and the slow recovery affected both the county economies and the fiscal conditions of county governments.1 Building upon the foundation laid by NACo’s Counting Money study on county financial reporting, this analysis examines trends in annual county revenues and expenses between 2007 and 2013, the latest year available for the majority of audited county financial statements.2 Using the fiscal data from the largest group of county governments reporting their financials in the same format (2,112 counties in 45 states and the District of Columbia), this report sheds light on the effect of the recession on counties and provides direction on the fiscal recovery of county governments.3 The evidence suggests:
1. General revenue recovery has been slow and uneven across counties.
General revenues did not recover to 2007 levels in nearly half of counties by 2013.
General revenues did not recover to 2007 levels in nearly half of counties (46 percent) by 2013, taking into account inflation. General revenues are discretionary funding, providing county boards the flexibility for allocating funds to needed services. This source of funding is primarily derived from taxes, fees and fines and any grants not restricted to a particular activity.4
Figure 1: The Recovery Has Been Uneven across Counties
Share of Counties with 2013 General Revenues Above 2007 Level, Inflation-Adjusted
Source: NACo analysis of data from the statement of activities in 2007 and 2013 audited county financial statements
Property taxes generate 72 percent of county general revenues.
The recovery has been uneven across counties. Overall, Western region counties recorded the most improvement through 2013, with 59 percent bouncing back to pre-recession levels (Figure 1). Backed by economies benefiting from rising oil and gas production between 2007 and 2013, the majority of counties in states such as North Dakota, South Dakota and Texas recorded higher general revenues in 2013 compared to six years before. In contrast, Southern counties were still reeling from the effects of the recession in 2013, with almost half of them below 2007 levels. Large counties (those with populations higher than 500,000) were affected the most, with more than two thirds not yet at pre-recession levels.
Map 1: Property Taxes are the Main Source of General Funding for Counties
County Property Taxes, Share of General Revenues, 2013
Note: The counties marked in grey fit into one of the following categories: do not have county governments, do not report their financials with basic financial statements or their statements of activities for 2007 and/or 2013 were not available. For more on the methodology, see the Methodological Appendix and the report Counting Money: State and GASB Standards for County Financial Reporting.
Source: NACo analysis of data from the statement of activities from the 2007 and 2013 audited county financial statements
Property tax revenues drove the performance of county general funding. In 2013, property taxes comprised 72 percent of county general revenues (Map 1).5 Property tax collections lag price movements in the real estate market because of the variety of assessment cycles around the country.6 For example, South Carolina requires counties to conduct a reassessment every five years, while Michigan mandates annual assessments.7 As a result, real estate market peaks precede peaks in property assessments and tax collections, sometimes by several years. The timing of the property assessment may mitigate or magnify the negative impact of real estate price decline on property tax collections. At the same time, rapid real estate price increases do not fully translate into increases in county property tax revenues due to various state limits on property tax increases.8 Forty-one (41) states had at least one type of limitation on county capacity to raise property taxes.
65 Percent of counties collecting sales taxes recorded declines in this revenue source between 2007 and 2013.
The recession and slow recovery suppressed consumer spending and sales tax revenues. Two-thirds of counties that collected sales taxes in 2007 saw their revenues from this source of funding decline by 2013. Not all states allow counties to collect sales taxes: of the 29 states granting counties this authority, counties in 19 states won voter approval to introduce local sales taxes. For example, in many Louisiana parishes and counties in New York and Ohio, sales and use taxes represented about 26 to 48 percent of county general revenues in 2013.
2. Counties are struggling with rising costs of mandated services.
48 percent of counties recorded overall 2013 expenses above their 2007 levels.
For governments, economic downturns translate into less revenue and higher volumes of services, as they try to deal with unemployment, business closures and more people in need. This fiscal squeeze is even more pronounced for county governments, being primary social safety net providers on the ground. With the economic recovery slow to take hold across counties, county governments struggle to meet state and federal mandates while serving their residents at adequate levels.9
Map 2: Counties Recorded Widespread Rising Expenses
Growth Rate of County Expenses, Inflation-Adjusted, 2007-2013
Growth Rate of County Expenses, Inflation-Adjusted, 2007-2013
Note: The counties marked in grey in fit into one of the following categories: do not have county governments, do not report their financials with basic financial statements or their statements of activities for 2007 and/or 2013 were not available. For more on the methodology, see the Methodological Appendix and the report Counting Money: State and GASB Standards for County Financial Reporting.
Source: NACo analysis of data from the statement of activities in 2007 and 2013 audited county financial statements
65 percent of counties witnessed increases in justice and public safety expenses above the overall rise in prices between 2007 and 2013.
Nearly half of counties (48 percent) recorded overall 2013 expenses above their 2007 levels, even when adjusted for inflation (Map 2).10 Over one fifth of parishes in Louisiana and counties in North Dakota, Utah and West Virginia experienced expense increases of more than 30 percent. Pressure increased on small counties (those with less than 50,000 residents), with about 55 percent registering expense increases. In some counties, expenses more than quadrupled in six years (in Dunn County, ND and Mountrail County, ND). At the core of the recession, large counties (those with populations higher than 500,000) were more likely to record lower expenses. Only 35 percent recorded expenses rising over the six-year period analyzed.
Map 3: Justice and Public Safety Expenses Increased in Most Counties
Growth Rate of County Expenses, Inflation-Adjusted, 2007-2013
Growth Rate Justice and Public Safety County Expenses, Inflation-Adjusted, 2007-2013
Note: The counties marked in grey fit into one of the following categories: do not have county governments, do not report their financials with basic financial statements or their statements of activities for 2007 and/or 2013 were not available. For more on the methodology, see the Methodological Appendix and the report Counting Money: State and GASB Standards for County Financial Reporting.
Source: NACo analysis of data from the statement of activities in 2007 and 2013 audited county financial statements
Many mandated services saw widespread cost increases.
Justice and public safety county costs rose across the country. Two thirds of counties (65 percent) witnessed increases in justice and public safety expenses between 2007 and 2013, above the overall rise in prices (Map 3).11 In many cases, justice and public safety expenses were the top cause of the increase in overall expenses. Alaska boroughs and counties in North Dakota and West Virginia had the highest surges of justice and public safety costs between 2007 and 2013. Counties are the first respondents in case of disaster: they operate 911 centers, run the sheriff departments and the county courts and operate and maintain county jails. Justice and public safety costs vary widely among counties, but typically account for 27 percent of county expenses. For more than a fifth of Georgia and Texas counties and over 80 percent of Maine counties, justice and public safety is a majority of county expenses.
36 percent of counties were coping with rises in their health and human services costs above overall inflation between 2007 and 2013.
Provision of community health and human services is another core function for counties. In general, these costs comprised 11 percent of county expenses in 2013, before significant implementation of the Patient Protection and Affordable Care Act — commonly referred to as the Affordable Care Act (ACA). These costs exceeded 40 percent of expenses for a majority of counties in California, New Hampshire and New York. As administrative arms of state governments, counties serve as a safety net for low-income residents and their investment supports education, job training, childcare and housing, among many other programs that reach county residents of all ages. In addition, counties provide hospital care for individuals without any health insurance or ability to pay and they invest in health services for residents including health departments, hospitals, clinical care and behavioral care units. Between 2007 and 2013, 36 percent of counties were coping with increases in health and human services costs above overall inflation. Small counties (with less than 50,000 residents) were more likely to experience these increases. Health and human service costs in the majority of counties in Colorado, Louisiana, Montana, North Dakota and Texas grew faster than overall inflation.
The majority of counties witnessed transportation expenses rising faster than inflation between 2007 and 2013.
Transportation and infrastructure are core responsibilities for many counties, often mandated by the state. Counties cover the entire gamut of infrastructure services, including owning and maintaining roads and bridges, providing public transportation, owning and operating airports and seaports, handling water supply, diverting storm water and waste management. Most often, transportation and infrastructure represent about 16 percent of total expenses for a county, but exceed one third of expenses for a majority of counties in Alabama, Delaware, Iowa and North Dakota. Between 2007 and 2013, transportation expenses rose faster than the inflation rate in more than half (54 percent) of counties; likewise, water, sewage and solid waste costs rises exceeded overall price changes in 44 percent of counties. Small counties (with less than 50,000 residents) were more likely to see an escalation in transportation expenditures. Transportation expenses rose the most in North Dakota counties, driven by oil and gas production needs.
The rising costs of mandated services drive up the expenses for operating county governments. General government activities are essential services, either mandated by the state (such as assessing property values, issuing birth certificates and marriage licenses or collecting property taxes for schools, cities and others) or necessary to operate an organization (having a finance department, for example). As a result of the increasing needs of residents and the pressure to meet state and federal mandates, the general government expenses rose above inflation in about half (51 percent) of counties between 2007 and 2013. Counties are struggling to fund mandated and vital services, while maintaining a high level of service quality for residents.
3. State and federal funding is increasingly insufficient to cover for mandated county services.
No two counties are the same. Most often, states decide the role, structure and responsibilities for counties. As a result, counties differ in regards to the type and volume of services provided to residents. Counties are governed by locally elected officials and, in some instances, operate under home rule authority, which allows for more local flexibility and control with structural, functional and fiscal powers. Even within a state, counties vary in terms of services, depending on the availability of services from other levels of government, population size and density and extent of federal lands.
Many county services are mandated by the states or the federal government. State and federal governments provide different levels of funding to counties to pay for mandated services, frequently in the form of earmarked grants for operational expenses or capital expenditures of specific activities. Most often, about 93 percent of the state and federal funding used by a county is restricted to specific functions (called “dedicated grants” in this study); the remainder is part of general revenues.12
59 percent of counties recorded dedicated grants covering a smaller percent of county expenses in 2013 compared to 2007.
Dedicated grants funded a smaller share of county expenses in the majority of counties (59 percent), as a result of expense growth in excess of the increase in dedicated grants or costs declining less than funding from dedicated grants between 2007 and 2013 (Map 4). A majority of counties in states such as Florida and Tennessee recorded drops in the share of their expenses covered by dedicated grants.
Map 4: Dedicated Grants Cover a Smaller Share of County Expenses
The Growth Rate of County Expenses Relative to Dedicated Grants, Inflation-Adjusted, 2007-2013
Note: The counties marked in grey fit into one of the following categories: do not have county governments, do not report their financials with basic financial statements or their statements of activities for 2007 and/or 2013 were not available. For more on the methodology, see the Methodological Appendix and the report Counting Money: State and GASB Standards for County Financial Reporting.
Source: NACo analysis of data from the statement of activities in 2007 and 2013 audited county financial statements
The decline in earmarked state and federal grants affected county services to varying degrees. For the majority of counties, dedicated grants covered the highest proportion of costs for transportation, at 43 percent of operational expenses and capital expenditures in 2013. In contrast, earmarked grants funded about 30 percent of county health and human services and 7 percent of justice and public safety. By 2013, dedicated grants funding covered a smaller percentage of expenses for both justice and public safety and community health and human services than six years before. A majority of counties in Virginia experienced declines in dedicated grants for justice and public safety relative to their restricted expenses between 2007 and 2013.
55 percent of counties have general revenues paying a larger share of expenses.
Counties fund mandated services more and more with general revenues and charges to compensate for declining coverage by state and federal funding. By 2013, general revenues funded 62.5 percent of county expenses, an increase of 1.5 percentage points in the funding share from the prior six years. The majority of counties (55 percent) experienced this trend. In states such as Wisconsin, Ohio, Iowa and Pennsylvania, more than 80 percent of counties funded a greater percentage of county expenses through general revenues compared to 2007 (Figure 2).
Figure 2: General Revenues Fund a Larger Share of County Expenses
Percent of Counties with Rising Shares of County Expenses Funded by General Revenues, Inflation-Adjusted, 2007-2013
Notes: Large counties have more than 500,000 residents; small counties have less than 50,000; and mid-sized counties are in between, based on 2015 U.S. Census Bureau population estimates. For more on the methodology, see the Methodological Appendix and the report Counting Money: State and GASB Standards for County Financial Reporting.
Source: NACo analysis of data from the statement of activities in 2007 and 2013 audited county financial statements
Charges, such as water rates, are user fees paid for a specific service and are restricted to fund expenses related only to that service. Most often, they cover about 18 percent of county expenses, mainly expenses for utilities and water, sewerage and solid waste. Between 2007 and 2013, charges revenues funded a higher proportion of county expenses in 45 percent of counties. In some counties, raising user charges is limited by the state. For example, in Iowa, county fees are established by the state legislature and counties do not have the statutory authority to raise them. Service charges are not an option for many counties, as these fees may also be established by the state legislature and counties may not the statutory authority to raise them either. Almost two thirds of counties in North Carolina, Ohio and Tennessee are relying more on service charge revenues to fund their expenses. This trend is most evident in large counties (those with populations higher than 500,000), with 56 percent of them covering more of their county expenses with revenues from service charges.
40 percent of counties had lower ending balances six years after the start of the Great Recession.
The recession and slow recovery affected counties’ bottom line. Fewer counties could cover all their expenses in 2013 relative to before the recession. In 2007, 82 percent of counties achieved an annual surplus (positive change in net position), but by 2013 only 71 percent did so. The ending balances were also lower in 2013. Forty (40) percent of counties had lower ending balances, with the largest concentration in the Northeast.
Counties face a constrained fiscal environment that affects county services and residents. In light of declining federal and state aid, counties increasingly need to find other sources of funding to cover for increased expenses. Six years after the start of the Great Recession, general revenues in many counties were either still declining or just slowly coming back. Further, state limitations on counties’ capacities to raise revenues through taxes and charges impede the recovery of general revenues. In a follow-up study, NACo will explore the constrained fiscal environment many counties face due to the proliferation of state and federal mandates to counties, coupled with state limitations on counties’ abilities to raise revenues. The study will also provide insight into the solutions and innovations that help counties to maintain quality services for residents.
Endnotes
[1] For more on the state of county economies, see Emilia Istrate and Brian Knudsen, County Economies 2015-Opportunities and Challenges, NACo Trends Analysis Paper Series, Issue 5, 2016.
[2] For a detailed explanation of financial terms, how counties report their financials, variations around the country and methods of accounting, see Istrate et al. Counting Money: State and GASB Standards for County Financial Reporting, NACo Policy Research Paper Series, Issue 4, 2016.
[3] This report examines data from the statement of activities from the audited county financial statements of 2,112 counties reporting basic financial statements (85 percent of all counties with basic financial statements). The data refer to the primary county government expenses and revenues and do not include the financials of county dependents (component units). All the growth rates reported in this study are inflation-adjusted, using the state and local price index for government consumption expenditures and gross investment from the U.S. Bureau of Economic Analysis. For more on the methodology, see the Methodological Appendix and the report Counting Money: State and GASB Standards for County Financial Reporting.
[4] General revenue data analyzed in this study do not include investment income and revenues for sales of assets.
[5] Property tax revenues is not limited to residential property, but extends to any type of property from which the county collects property taxes.
[6] This study does not examine any changes in property tax rates, because the data from the statement of activities do not provide this piece of information.
[7] Justin Higginbottom, State Provisions for Property Reassessment, http://taxfoundation.org/article/state-provisions-property-reassessment
[8] See the case with Proposition 13 in California- “California Counties: Rising Costs and Caps on Revenue Capacity” in Istrate et al.,” The Road Ahead: County Transportation Funding and Financing,” NACo Policy Research Paper Series, Issue 2, 2014.
[9] For more on the state of county economies, see Emilia Istrate and Brian Knudsen, County Economies 2015.
[10] Counties expenses are primary government expenses, including expenses for governmental activities and business-type activities.
[11] Justice and public safety expenses include expenses related to sheriff, police and related services (impound, patrol, task forces, general law enforcement and patrol); emergency management and medical services; 911 communications; fire protection; detention centers and related commissaries, stores and inmate services. Also included in this class are judicial functions: judges; attorneys; prosecutors; justices; court clerks; probate courts; courthouses; warrant services and law libraries.
[12] Dedicated grants include county operating grants and contributions and capital grants and contributions. County expenses are primary government expenses, including expenses for governmental activities and business-type activities.
METHODOLOGY APPENDIX
This research focuses on recent county fiscal conditions to better understand the challenges and opportunities facing county governments. The analysis uses fiscal years 2007 and 2013 data from audited county financial statements; 2007 was the start of the latest national economic downturn and 2013 was the latest year available for the majority of audited county financial statements. This study uses data on county expenses and revenues from the statement of activities of the audited county financial statements for three reasons: (1) the accuracy of the data (the county financial statements are audited), (2) the certainty of the data (these statements report actual expenses and revenues) and (3) because the data show the relationship between county expenses and dedicated sources of revenue. For an explanation and illustration of a typical statement of activities, see the Appendix of Counting Money: State and GASB Standards for County Financial Reporting.
The analysis covers 2,112 counties that report their financials in the same format – i.e., basic financial statements. These counties represent 85 percent of all the counties that use basic financial statements. The remaining 590 counties report their financials using state specific reporting formats. For more on county financial reporting, see Counting Money: State and GASB Standards for County Financial Reporting. The sample used in this research is large and closely mirrors the population distribution of the universe of counties reporting basic financial statements (Table A1). The audited financial statements for the other 363 counties were not available for both years, 2007 and 2013, at the time of collection.
| Population Size | Total Counties | Counties Reporting Basic Financial Statements | Counties in the Sample |
|---|---|---|---|
| Large | 4% | 5% | 5% |
| Mid-sized | 27% | 29% | 31% |
| Small | 69% | 66% | 63% |
| Total | 3,069 | 2,479 | 2,112 |
Notes: Large counties have more than 500,000 residents; small counties have less than 50,000; and mid-sized counties are in between, based on 2015 U.S. Census Bureau population estimates. This report analyzes only counties with county governments.
KEY TERMS USED IN THIS STUDY
County Government: A county government is an organized entity with governmental character, having sufficient discretion in the management of its own affairs to be an independent government unit and which covers the area of a county or county equivalent. Depending on the state, county governments may also be known as parish governments or borough governments. Most often, a county government provides services to residents in both unincorporated areas and incorporated areas (organized as municipalities) within its boundaries. Three thousand and sixty-nine (3,069) counties have county governments, including city-county consolidations, the District of Columbia and independent cities considered county governments under their state constitution or city charter. For ease of use, this study employs interchangeably “county” and “county government.”
Basic Financial Statements: Accounting reports compiled in conformity with the provisions of GAAP issued by GASB. For governments, these reports consist of government-wide financial statements, fund financial statements and notes to the financial statements.
Government-Wide Financial Statements: Presentation of a government’s financial information; include all governmental and business-type activities without displaying individual funds or fund types. The information is presented in two statements, the statement of net position and the statement of activities.
Statement of Activities: Financial statement within the government-wide financial statements that demonstrates the gross and net costs by function of the primary government and component units, which are supported by general and program revenues.
Primary Government: A local government with independent authority to determine its own budget, levy taxes and issue bonds.1
Component Units: Legally separate entities for which the primary government is fiscally accountable.2 Examples include school districts, sanitary commissions and housing authorities.
Data Collection. Between August 2014 and January 2016, NACo collected the fiscal years 2007 and 2013 audited county financial statements and entered the data from the statement of activities into tailored spreadsheet templates. These templates allowed for quality control checks on the inputted data and created a format that could be compiled across counties. Many county financial statements were collected individually from counties due to the absence of financial reports on county or state websites.
The data collection had a goal of gathering 75 percent of county basic financial statements from each state. In the 32 states requiring counties to follow GAAP, this goal meant collecting financial statements from 75 percent of all counties in those states. For more on state requirements for county financial reporting, see Counting Money: State and GASB Standards for County Financial Reporting. In states where counties are not required, but can still follow GAAP, the number of reports collected depended on the number of counties that report basic financial statements. For example, only 19 of Washington’s 39 counties follow GASB standards. Of the 32 states requiring counties to report according to GAAP, the 75 percent threshold was achieved for 30 states. Only five of seven (71.4 percent) county financial statements from Massachusetts and 69 of 95 (72.6 percent) county financial statements from Tennessee were collected. Some county governments in another 13 states choose to follow GAAP and this report includes data from all of the 13 states. In nine of the 13 states where counties have the option to follow GAAP, this research collected 75 percent or more of the county basic financial statements. This report does not include any county data from three states (AR, NJ and VT), because none of the counties in those states report basic financial statements. Counties in Rhode Island and Connecticut do not have county governments; therefore, they are not included in this study.
Analysis. This research examines the individual performance of counties between 2007 and 2013 and uses counts of counties that had the same growth trajectory or medians of the growth rates across counties. Because the 2,112 counties analyzed in this report use different methods of accounting, this study does not show combined revenues or expenses of counties, report aggregate dollar amounts or compare the reported revenues and expenses across counties. The overwhelming majority of counties (90 percent) use an accrual basis of accounting, following GAAP standards. For more on variation in the methods of accounting used by counties, see Counting Money: State and GASB Standards for County Financial Reporting. Another five percent of counties use a cash basis of accounting and the remaining counties follow a modified cash basis of accounting. All the growth rates reported in this study are inflation-adjusted, using the state and local price index for government consumption expenditures and gross investment from the U.S. Bureau of Economic Analysis. This study uses the median of county growth rates given the skewed distribution of the values.
The analysis focuses on general revenues, main sources of general revenues (property taxes and sales taxes), total expenses, expenses by activity, program revenues (charges, operating and capital grants and contributions) and the relationship between operating and capital grants and contributions and expenses (total and by activity) of the primary government. While some counties include investment income and income derived from the sale of property in their general revenue, this study excludes these sources of income from the general revenue analysis. The financials of the county component units are not included.
KEY TERMS USED IN THIS STUDY RELATED TO COUNTY REVENUES
General Revenues: Unrestricted revenues generated by taxes, unrestricted grants and contributions and in some counties, transfers and special items.
Tax revenues: Revenue generated by the taxes levied by the county. Most common are property taxes (assessed ad valorem on property within county borders), sales and use taxes (imposed on sales of goods within the county, or on the use of personal property not subject to a sales tax; also includes taxes related to hospitality), other taxes (include specific ownership taxes, severance taxes, transfer taxes, litigation taxes, inheritance taxes, insurance premium taxes and others). Less common county taxes include excise taxes (levied on goods/services for the purpose of controlling their provision (e.g., motor fuel taxes)), licenses and permits (taxes which may be imposed by a county on a given class of business type or occupation; includes business license taxes and professional taxes), franchise taxes (imposed on public utilities, or for the use of public rights-of-way) and income taxes (based on income earned within county borders).
Transfers: The movement of financial resources between governmental and business-type activities, as well as the primary government’s component units. The statement of activities reports transfers within the general revenues section.
Investment income: Earnings from interest of county financial investments.
Financial revenue: Generated by the sale/disposal of capital assets, insurance recoveries and investment income.
Program Revenues (Dedicated Funding): Fees or charges to the customers who use a specific government service and grants and contributions restricted for specific program use, for operational or capital purposes.3
Capital Grants and Contributions: A type of program revenue encompassing grants and contributions from other governments or organizations restricted for capital purposes (construction, purchasing or renovations for capital assets) associated with a specific program. The statement of activities reports capital grants and contributions.
Operating Grants and Contributions: A type of program revenue encompassing multi-purpose grants and contributions from transactions with other governments or organizations restricted for specific program use for operating expenses or capital assets. The statement of activities reports operating grants and contributions.
Dedicated Grants: Operating grants and contributions and capital grants and contributions.
Charges for Services: Government entity charges for services provided or for the use of government assets, such as road tolls, park entry fees and parking charges.
This research analyzes an activity’s revenues and expenses (for example, transportation) including flows related to both governmental activities and business-type activities. While the main funding structures differ, combining them shows the full extent of county expenses in a specific function. All counties report governmental activities and about half report business-type activities. Further, both types may receive restricted funding (charges and operating/capital grants). For example, a third of counties in the sample receive restricted grants for their business-type activities.
KEY TERMS USED IN THIS STUDY RELATED TO COUNTY EXPENSES
Governmental Activities: Services primarily funded through a dedicated tax revenue stream.
Enterprise (or Business-Type) Activities: Services funded mainly by user fees (such as road tolls, park entry fees and parking charges).
Expenses: Includes expenses for primary government activities (such as judicial and public safety programs) and business-type activities (such as waste disposal and collection services).
Change in net position: Shows how the financial position of the organization has changed over the fiscal year.
Ending net position (ending balance): Shows the financial position of the organization at the end of the fiscal year.
County Functions. The functions of a county differ across the country, depending on the primary government’s functions and programs, as well as the county’s business-type activities. Counties usually report generic functions in their statement of activities and do not provide detail of what comprises that activity. For example, the fiscal year 2013 statement of activities of Prince George’s County, Md., presents seven primary governmental activities, such as “health and human services,” “public safety” and “infrastructure and development.” Alternatively, Calvert County, Md., financial statement for fiscal year 2013 listed 11 different primary governmental activities and reported separately “social services” and “health and hospital,” instead of “health and human services.” In both cases, the statement of activities does not provide detail of what is included in the “public safety” function. Because of the lack of detail in reporting, the amounts of expenses and restricted grant revenues reported for each category are not comparable across counties.
This research creates overarching categories of functions for ease of analysis of the expenses and restricted funding of main county services. It uses the definitions and explanations of classification from the U.S. Census Bureau’s “Government Finance and Employment Classification Manual” as a guide to group the reported functions in audited county financial statements. For example, the functional class “transportation” contains all items pertaining to mass transit including public transportation, roads, highways, streets, airports, bridges, waterways, ports and docks. Due to the nature of financial statements, there is limited information on what services or activities are represented in functional groups listed in the basic financial statements. Not all counties in the sample report all these functions. For example, only 1,192 counties report any expenses and restricted funding related to any activities that would qualify under “transportation.” The analysis by county service in this research limits itself to the number of counties that report financials for activities that qualify under that service. In the “transportation” case, this research analyzes growth rates of the transportation expenses for the 1,192 counties.
KEY TERMS USED IN THIS STUDY RELATED TO COUNTY SERVICES4
Administration: includes general governmental staff, services and functions such as county commissioners; treasurers; auditors; county clerks; councils; tax assessors, collectors; record and deed preservation; as well as financial and legislative departments. This category excludes functions that are specific to other categories such as courts (Justice & Public Safety); education and school boards (Education); and public works (Other); but otherwise encompasses all other central, legislative and executive activities and staff of the local county government.
Education: Refers to county expenses and restricted revenues with regards to a school district; school board; a particular secondary school or institution of higher education (including community colleges); and various extension programs (agriculture, university programs).
Financial: Includes activities related to financing (debt payments; interest payments; expenses/revenues related to bonds; general debt servicing); tax collections and revolving tax funds; investing activities; sale/disposal of assets; and joint ventures. County finance departments are omitted, as they are included in the administration category.
Health and Human Services: Includes services related to healthcare (hospitals; mental health services; services for the physically disabled; indigent care; nursing, assisted living homes); veteran’s aid and services; pest, rodent, animal and weed control; animal shelters; environmental protection and improvement for purposes of public health; air pollution; welfare services; and child care and support.
Housing, Community and Economic Development: Includes services that provide housing support and development (housing authorities, building services, low-rent, zoning activities). This category also includes services provided to help advance, develop, and support the community (planning, promotion, enrichment), as well as the economy (economic development, tourism/promotion activities).
Justice and Public Safety: Includes sheriff, police and related services (impound, task forces, general law enforcement and patrol); emergency management and medical services; 911 communications; fire protection; detention centers and related commissaries, stores and inmate services. Also included in this class are judicial functions: judges; attorneys; prosecutors; justices; court clerks; probate courts; courthouses; warrant services and law libraries.
Other: Includes general government buildings and related maintenance and operations; general capital assets and outlay; employee benefits including post-retirement; insurances; activities related to voting and elections; public works departments; fiber optic, broadband, wireless and other communication networks; and items designated as “other” or “miscellaneous” by the county.
Public Amenity: Includes both free and paid facilities for public use: parks; golf courses; conference, civic and community centers; stadium and event centers; libraries; museums; aquariums; recreational docks; marinas and harbors; campgrounds, zoos. Public amenity also includes environmental conservation efforts; agriculture and livestock; natural resources (minerals, natural gas, forestry); recreational activities; cultural activities; fairs; and farmer markets.
Transportation: Includes activities pertaining to mass transit and public transportation; roads, streets, highways, toll roads, maintenance and operation of roads; bridges; airports; parking facilities; ports, docks, waterways which include commercial use; bridges; and parking facilities.
Utilities: Includes electric and gas utilities, as well as power services and gas pipelines.
Water, Sewage and Solid Waste: Includes county water management (storm water, municipal water treatment and supply); drains and sewers; solid waste; recycling; disposal sites and landfills; trash collection; and waste to energy conversion programs.
Comparing Census of Governments Finance Data to the Data from Basic Financial Statements.
Since 1957, the United States Census Bureau has distributed a Census of Governments to the entire universe of governments – states, counties, municipalities, townships, special districts and school districts – in years ending in “2” and “7.” In other years, the Bureau surveys a sample of the nearly 100,000 governments across the United States.5 The Census of Governments’ detailed finance data for each county are released with at least a two-year delay.
The Census surveys governments to report finance information on revenues, expenditures, debts and financial assets. When responding to the Census, counties report all funds and accounts except for any employee retirement funds administered. Governments do not report refunds and transfers between funds or accounts of their own government. Governments responding can report their finances on a cash or accrual basis, but the released data by the U.S. Census of Governments do not report the method of accounting based on which the data has been calculated. The Bureau also makes an effort to report funds on a cash basis, contrasting with the 90 percent of counties in this sample which use an accrual method of accounting.
Census data is collected from a survey via mail, the web and centrally from state sources. In slightly more than half of states, local government data is reported by state agencies. The remaining local governments respond via the mailed questionnaires or the Internet. In cases when data are questionable or incomplete, Bureau analysts obtain data from Comprehensive Annual Financial Reports (CAFRs) or through supplementary secondary sources. Census analysts edit data which appear inconsistent. When unresolved, contact is made with respondents about the data. For values that are missing, data is imputed using historical values and growth rates. If historical data do not exist, a randomly selected similar government’s data value is selected and adjusted based on the population ratios of the two. Census flags imputed data made public. For small counties, these imputations can vary widely from the county situation.
While both the U.S. Census of Governments finance data and the audited county financial data are released with a delay, the sample of counties used in this research is the largest for the latest year available (2013). Further, it includes the financials for 63 percent of small counties, a much larger sample than the U.S. Census of Governments (32 percent of small counties). The data used in this analysis come directly from the audited financial reports, whereas county employees or in many cases state agencies report the data to Census. The finances reported for each functional group by Census’ respondents can differ from those reported under the basic financial statements. While respondents to Census are to report funding based on the functional groups established by Census’ questionnaire, these can differ from the functional groups reported in a county’s financial statement.
County basic financial statements and the Census of Governments also differ in how they report the transfer of funds to and from component units and other governments. The Census of Governments finance data reports expenses and revenues in aggregate for counties and their component units and does not report county transfers to county component units. Unlike the Census of Governments, basic financial statements record transfers between the county government and its component units and document expenses and revenues for them separately. In this way, basic financial statements allow for an analysis on the county government’s core functions and the component units separately. In addition, the Census of Governments finance data do not allow for analysis of dedicated revenue sources, those passed through the state and federal government, for specific services. Through the program revenues reported by activity, the data from the statement of activities allow for this analysis and for trends in the coverage of specific expenses from earmarked grants.
[1] Michigan Department of Treasury, “Definition of the Local Government Financial Reporting Entity” (November, 1993) available at http://www.michigan.gov/treasury/0,4679,7-121-1751_2194_3449_3464-7611--,00.html (January 19, 2016)
[2] Governmental Accounting Standards Board, “GASB Statement Concludes Review of Standards Defining the Financial Reporting Entity” (March, 2011) available at http://www.gasb.org/cs/BlobServer?blobkey=id&blobwhere=1175822186077&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs (January 19, 2016)
[3] Commonwealth of Puerto Rico, “Basic Financial Statements and Required Supplementary Information” p. 57 (2013) available at http://emma.msrb.org/EA614904-EA481549-EA878168.pdf
[4] This list is not comprehensive, as there are reported categories in county financial statements that did not fit into any of these categories. For example, a number of Texas counties reported “infrastructure and environmental services” together, which could not be grouped in any of the major categories.
[5] For more on the Census of Governments finance data methodology see U.S. Census Bureau, 2012 Census of Governments: Finance Methodology available at http://www2.census.gov/govs/local/2012_local_finance_methodology.pdf
Acknowledgments
Within the National Association of Counties, the authors would like to thank Michael Belarmino, Matt Chase, Joel Griffith, and Kathy Nothstine for their helpful comments and contributions. For their substantive comments on a draft of the report, the authors thank Emily S. Brock, Director, Federal Liaison Office of the Government Finance O cers Association (GFOA); Veronica Ferguson, County Administrator, Sonoma County, Calif., and President-elect of the National Association of County Administrators (NACA); David Douglas Lasher, County Treasurer, Clark County, Wash., and National Association of County Collectors, Treasurers and Finance Officers (NACCTFO) representative on NACo Board of Directors; William R. Peterson, Robin Harlow and Lucas Beenken from the Iowa State Association of Counties (ISAC). We are indebted to Tadas Pack for his assistance along every step of the way from data collection through analysis. A big thanks goes to all the interns who collected the audited county nancial statements over the years, without which this research would not have been possible. The authors also express their appreciation to their Public A airs colleagues for the graphic design, the interactive maps and the website of the report.
For More Information, Contact:
Dr. Emilia Istrate
Director of Research and Outreach
research@naco.org
Daniel Handy
Research Assistant
research@naco.org
