University-local government collaboration to study fiscal health.

• Author: Honadle, Beth Walter
• Position: Swift County, Minnesota

Swift County, Minnesota, (population approximately 11,000) is a county in transition. Historically an agriculturally dependent county, it had been losing population and jobs steadily until 1995, when the trend began reversing. Recently, it has diversified its economy with a new private prison, several agricultural processing plants, and other businesses, which helped stem the decline. The county commissioners, concerned about the county's finances, asked the University of Minnesota for help in understanding their financial condition and for advice on how to keep the county in sound fiscal health.

Two researchers in the University of Minnesota's applied economics department worked with the county's finance committee (two county commissioners, the treasurer, and the auditor - all elected officials in Swift County) to develop a study of the county's finances and to make recommendations for improvement. The faculty member who worked on the project had been interested in testing several methodologies for analyzing financial health or condition of local governments; this was an ideal opportunity for piloting those tools because the county was willing to have "outsiders" study their finances. The county benefited from the university group's desire to conduct the research and simultaneously provide a service - at no charge to the county - with the understanding that it would be a learning experience for both parties. Expenses were defrayed through grant funds from the University of Minnesota Extension Service and the Hubert H. Humphrey Institute of Public Affairs.

The project relied on the three financial-analysis tools: 1) a 10-point test of financial condition, 2) a trend analysis, and 3) a financial trend monitoring system. These are described briefly in the following paragraphs.(1)

First was a 10-point test of financial condition, developed by Professor Ken Brown of Southwest Missouri State University, which was originally presented in the December 1993 Government Finance Review. Brown's test uses 10 ratios, or indicators, that are designed to pinpoint particular problems and then compares them to the ratios of other similar communities. The database used for the comparisons is the Government Finance Officers Association's Financial Indicators Database, which contains data from the comprehensive annual financial reports of more than 1,000 jurisdictions in a historical series covering 1989-1995. Brown's test is easy to apply and requires the...