March 24, 2015
Short-term or current liabilities are financial obligations that must be satisfied within one year. They can include short-term debt, accounts payable, accrued payroll and other current liabilities.
This blog post presents 12-year trends for 1) total short-term liabilities in the Governmental Funds and 2) short-term liabilities as a percentage of operating revenues for the three largest local governments the Civic Federation regularly monitors and evaluates: the City of Chicago, Cook County and Chicago Public Schools (CPS).
The data for these trends was found in the Governmental Funds Balance Sheet in each Government’s annual Comprehensive Annual Financial Report (CAFR) for FY2013, which is the most recent financial statement available. More detailed explanations of five-year short-term liability trends can be found in the Civic Federation’s annual budget analyses of these and other major Chicago area local governments.
Total Short-Term Liability Trends FY2002-FY2013
The three governments report different types of short-term liabilities on their Governmental Funds Balance Sheets. They are described below.
City of Chicago
- Voucher Warrants Payable: Monies owed to vendors for goods and services carried over into the new fiscal year (called accounts payable by most other local governments);
- Accrued Interest: Includes interest due on deposits payable by the City in the next fiscal year;
- Due to Other Funds: These are monies owed to other funds for services that have been rendered that are outstanding at the end of the fiscal year;
- Accrued and Other Liabilities: Includes self-insurance funds, unclaimed property and other unspecified liabilities; and
- Claims Payable: Monies owed for claims against the City.
Chicago Public Schools
- Accounts payable: Monies owed to vendors or employees for goods and services;
- Accrued payroll: Employee pay carried over from previous years; and
- Amounts held for student activities: Deposits held in custody or funds that belong to individual school accounts.
- Accounts payable: Monies owed to vendors for goods and services carried over into the new fiscal year;
- Accrued salaries payable: Employee pay carried over from the previous year;
- Amounts held for outstanding warrants: Cash balance maintained to offset claims made by the State Treasurer pursuant to the Illinois Uniform Disposition of Unclaimed Property Act. The County disputed these claims;
- Due to other funds, others or other governments: These are monies owed to other funds for services that have been rendered that are outstanding at the end of the fiscal year;
- Notes payable: Short-term loans due within the next fiscal year;
- Arbitrage Liability: The Tax Reform Act of 1986 requires issuers of state and local government bonds to rebate to the federal government arbitrage profits earned on those bonds under certain circumstances. There was no arbitrage liability as of November 30, 2013; and
- Other liabilities: Include self-insurance funds (the County is self-insured for various types of liabilities, including medical malpractice, workers’ compensation, general automobile and other liabilities), unclaimed property and other unspecified liabilities.
12-Year Trend Summary
- Chicago short-term liabilities rose by 20.9% between FY2002 and FY2013. This was a $307.4 million increase from $1.47 billion to $1.77 billion. The largest driver of the increase over that period was a $130.7 million increase in accrued interest.
- Chicago Public Schools (CPS) current liabilities rose by 52.8% in the 12-year period analyzed, rising from $718.0 million to $1.1 billion. A 78.1% or $184.8 million increase in accounts payables was the largest driver of the increase.
- Cook County short-term liabilities fell by 40.8% or $102.0 million between FY2002 and FY2013. This was a decrease from $249.9 million to $147.9 million. The major reason for this decline was a 97.9% or $110.8 million decrease in the “due to other funds” category.
Short-term Liabilities as a Percentage of Operating Revenues Ratio
Increasing current liabilities in a government’s operating funds at the end of the year as a percentage of total operating revenues may be a warning sign of a government’s future financial difficulties. This ratio indicator, developed by the International City/County Management Association (ICMA), is a measure of budgetary solvency or a government’s ability to generate enough revenue over the course of a fiscal year to meet its expenditures and avoid deficit spending.
- Between FY2002 and FY2013, Chicago’s current liabilities to operating revenues ratio fluctuated from a low of 21.7% in FY2005 to a high of 31.8% in FY2013. Overall, it rose slightly from 31.7% to 31.8% over the 12-year period of this review. Chicago’s ratio averaged 27.0% over the 12-year period.
- The Chicago ratio was consistently higher than the corresponding ratios for CPS or Cook County.
- Cook County’s ratio of short-term liabilities to total operating revenues has declined over time, falling from 15.0% in FY2002 to 7.5% in FY2013. The County’s average ratio over the 12-year period was 12.8%. The decline over time is a positive sign.
- The Chicago Public Schools short-term to operating revenues ratio fell slightly between FY2002 to FY2013, from 9.0% to 8.8%. The ratio has remained relatively stable over time, averaging 9.7%