City of Tucson 2009 Audited Financial Statements
“Breaking out the green eyeshades”
 
 
The FY 2009 Comprehensive Annual Financial Report (CAFR) was recently released.  I have been working my way through the 170+ pages of dense financial reports.  A couple of items may be of interest.
 
Let’s give credit where credit is due. 
 
The City of Tucson has been awarded the “Certificate of Excellence in Financial Reporting” for its Comprehensive Annual Financial Report (CAFR for FY 2008.  Tucson’s CAFR has been adjudicated by its peers as representing the highest standards. This is the 27th consecutive year Tucson has received this award.  While most constituents may not be especially familiar with this award, Rating Agencies and institutional investors place great value on this award.  Congrats!!  (FY 2009 CAFR, Page xiii)
 
Oops!!
 
Several accounting restatements can be found in the footnotes.  Perhaps the most significant is a big hit to Rio Nuevo.  ‘Capital Assets, Net of Related Debt’ was revised from $57 million to $27 million – $30 million of assets.  What does this really mean?  “$30 million of stuff we were told Rio Nuevo owned, is really not owned by Rio Nuevo.”  The building, land, and equipment is still there but, as it turns out, Rio Nuevo does not own it – accounting was a little off.  This does not instill confidence in the financial reports we receive on Rio Nuevo.  (FY 2009 CAFR, Page 40-41)
 
This can be very important to lenders.  The City has utilized “Certificates of Participation” (COP’s) as one of its primary financing vehicles.  COP’s involve a sale-lease-back arrangement where the City pledges specific assets.  A lender may not be very happy if they lend you money secured by assets that you do not own. 
 
There are those who believe that the accounting for Rio Nuevo has been haphazard and may not have followed all the policies and procedures.  This restatement adds fuel to this fire.  Many have been asking for an audit of Rio Nuevo; this restatement is a clear signal that something unusual may really be there.
  
Audited Financial Statements
 
The City of Tucson is a $1.3 billion/year business entity with thousands of employees and vast real estate holdings.  Elected officials act as the board of directors of this large business entity.  The best board members understand that effective decisions are backed up by a solid grasp of the financial statements.  Not everyone has the inclination to pour over 170+ pages of audited financial statements and 150+ pages of the budget.  Elected officials should make sure someone on their staff invests the necessary time to digest these critical statements or they should reach out to someone who does.  Perhaps my small contribution to our community is that I read all these pages of balance sheet, income statements, and cash flow statements and try to distill the information into ideas that are effective, useful, and actionable.

Why Should You Care?
 
All this accounting and green eye shade stuff is incredibly boring – so why should you care?  These accounting screw-ups may be costing you millions of dollars per year – leaving less money for police, fire, pot holes, parks,…
 
At least one academic study has found that cities with accounting restatements make it more expensive to borrow money – somewhere around 3-tenths-of-1-percent (see reference below).  This may not sound like much, but the City of Tucson and Rio Nuevo have about $700 million of bonds outstanding (CAFR FY ’09; pg 53, 59).  This adds up to about $2 million/year of additional interest we may be paying – ouch!