The City of Bainland has been undergoing financial difficulties because of a decrease in its tax base caused by corporations leaving the area. On January 1, 2020, the city has a fund balance of only $400,000 in its governmental funds. In 2016, the city had revenues of $1.4 million and expenditures of $1.48 million. The city's treasurer has forecast that, unless something is done, revenues will decrease at 2 percent per year while expenditures will increase at 3 percent per year. Required 1. Create a spreadsheet to predict in what year the government will have a zero fund balance. 2. One proposal is that the city slash its expenditures by laying off government workers. That will lead to a 3 percent decrease in expenditures each year rather than a 3 percent increase. However, because of the unemployment, the city will receive less tax revenue. Thus, instead of a 2 percent decrease in revenues, the city expects a 5 percent decrease per year. Adapt the spreadsheet created in require- ment (1) to predict what year the government will have a zero fund balance if this option is taken. 3. Another proposal is to increase spending to draw new businesses to the area. This action will lead to a 7 percent increase in expenditures every year, but revenues are expected to rise by 4 percent per year. Adapt the spreadsheet created in requirement (1) to predict what year the government will have a zero fund balance under this option.
The City of Bainland has been undergoing financial difficulties because of a decrease in its tax base caused by corporations leaving the area. On January 1, 2020, the city has a fund balance of only $400,000 in its governmental funds. In 2016, the city had revenues of $1.4 million and expenditures of $1.48 million. The city's treasurer has forecast that, unless something is done, revenues will decrease at 2 percent per year while expenditures will increase at 3 percent per year. Required 1. Create a spreadsheet to predict in what year the government will have a zero fund balance. 2. One proposal is that the city slash its expenditures by laying off government workers. That will lead to a 3 percent decrease in expenditures each year rather than a 3 percent increase. However, because of the unemployment, the city will receive less tax revenue. Thus, instead of a 2 percent decrease in revenues, the city expects a 5 percent decrease per year. Adapt the spreadsheet created in require- ment (1) to predict what year the government will have a zero fund balance if this option is taken. 3. Another proposal is to increase spending to draw new businesses to the area. This action will lead to a 7 percent increase in expenditures every year, but revenues are expected to rise by 4 percent per year. Adapt the spreadsheet created in requirement (1) to predict what year the government will have a zero fund balance under this option.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please help with 1,2,3
Transcribed Image Text:**Educational Resource: Analyzing Financial Challenges in Municipal Governance**
**Background**
The City of Bainland has been experiencing financial challenges due to a declining tax base resulting from corporations departing the area. As of January 1, 2020, the city holds a fund balance of merely $400,000. In 2016, Bainland had revenues of $1.4 million against expenditures of $1.48 million. Without intervention, the city’s treasurer predicts a yearly revenue decrease of 2% and an expenditure increase of 3%.
**Required Analysis**
1. **Spreadsheet Creation for Zero Fund Balance Prediction**
- Develop a spreadsheet model to predict when the city's fund balance will reach zero, based on the current trend of decreasing revenues by 2% annually and increasing expenditures by 3% annually.
2. **Expenditure Reduction Scenario**
- Consider a proposal to reduce expenditures by laying off government workers, resulting in a 3% decrease in expenditures annually instead of a 3% increase. However, this will trigger higher unemployment, reducing tax revenues, amounting to a 5% reduction in revenue annually. Modify the spreadsheet to estimate when zero fund balance will occur under these conditions.
3. **Revenue Increase Scenario**
- Analyze a strategy to enhance spending to attract new businesses, leading to a consistent 7% increase in expenditures while boosting revenue by 4% annually. Modify and utilize the initial spreadsheet to forecast the year the fund balance would deplete to zero under this strategy.
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**Note:** This exercise aims to teach students how to model and analyze the financial sustainability of local governments using spreadsheet-based simulations.
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