Thursday, June 9, 2011

Milford's, Comprehensive Audits Indicate Excessive Liabilities

The idea of Muni debt came front and center yesterday morning when I tuned in to CNBC and heard Merideth Whitney of the Meridith Whitney Advisory Group. There has been much controversy over the health of Municipal bonds, and Bond defaults. These defaults could total in the 100's of billions throughout America.

There has been talk and concern over our Cities bonding debt, and when the new Woodmont Firehouse was built, there was no groundbreaking ceremony. Some conservatives in town said that the ceremony was skipped because they did not want to "draw attention" to the fact that our Mayor and Democratic Boards agreed to Bond another $4M Dollars to get the site built.

The problem prompted my attention to pull the comprehensive audit reports available on the Milford city website at this link
The sections depicted above come from pages 14 and 15 of the Balance Sheet for the city of Milford. These are the Comprehensive Audited Financial Reports or CAFR's. They are not to be confused with the Mayor's budget presented to the public each year at City Hall. Members of the public are not freely given CAFR's they have to do some work to get them. Thankfully Milford puts them on the Town Website.

The graph below (Double Click to Enlarge) that I constructed for you all today shows a trend that any accountant would be very concerned with. That trend is the one highlighted for you below. It represents annualized growth of our "Total liabilities" at an average rate of 17.5% per year. Should this trend continue into 2011 the total city liabilities can be estimated to top $283M or in other words about 100% of all our assets in 2007.

There is however a paradox, because we have no idea what the city is claiming as "Depreciable assets." What we do know is that they keep growing at a rate of 6.6% Vs. Liabilities growing at 17.5%. The present pace will have the city of Milford Bankrupt, whereby Assets exceed all liabilities, by the year 2014-2015.

Serious attention has to be given to this growing imbalance. The era of of what departments need built and what services must be rendered and the usual way of doing business must be fundamentally changed. The tables presented by our towns comprehensive audits are challenging to deal with to say the least. The proper ratio of assets to liabilities is keenly out of balance and when those liabilities are left unchecked to grow as they have in the last Four years we are headed for some tough times.

Candidates running for mayor especially should address these imbalances and offer solutions that demonstrate a commitment to the future of our city. In the coming years the job of our Mayor will be much more than a Glamor Job, it is going to have more in common with a reign of bankruptcy rather than a keeper of misplaced promises. Video clip below is from CNBC's Kutlow and Kramer. It pertains to the interview of Meredith Whitney who is warning bond holders on the risk of Municipal Defaults.

To Hear The CNBC interview Click HERE

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