Homeland Security & Natural Disasters: Are States Up to the Financial Demands?

By Kinnersley, Randall L.; Shoulders, Craig D. | The Journal of Government Financial Management, Spring 2007 | Go to article overview

Homeland Security & Natural Disasters: Are States Up to the Financial Demands?


Kinnersley, Randall L., Shoulders, Craig D., The Journal of Government Financial Management


Bioterrorism, bombs, unsecured borders, mad cow disease, avian flu, hurricanes, floods, earthquakes, other natural disasters-our newspapers regularly contain stories about the occurrence, prevention or aftermath of such events. Furthermore, the variety and severity of these crises in our country steadily grows. Although the federal government has the most wide-ranging role in preventing, preparing for and responding to these events, state governments play vital roles as well. Are state governments ready to meet these critical challenges now and in the future? Can they do so without compromising education, transportation and more typical public safety roles?

Myriad obstacles face state and local governments as they work to meet these potential challenges. Addressing these challenges in timely and effective ways requires significant financial and economic resources. A state's financial ability to respond to growing or unexpected demands and/or to absorb revenue losses resulting from such events is one key determinant of that state's readiness to fulfill its roles when required.

Understanding the financial ability of states to respond to future resource demands is a complex proposition. Full understanding of this ability requires in-depth study and analysis. However, insight into states' financial ability to meet such demands can be gained through some simple measures that should signal the adequacy of a government's resources.

FINANCIAL INDICATORS

Four measures are reported and analyzed in this article using selected fund-based and government-wide financial statement information (for fiscal years ending in 2005 except for one state). Two of tne measures are traditional, well accepted and fund-based. The other two measures are from the states' government-wide financial statements and do not have the same long-standing history of acceptance and use as the fund-based measures.

Fund-Based Measures

The two fund-based measures are:

* Available General Fund fund balance presented as the number of months of General Fund operating and intergovernmental expenditures that could be financed by that fund balance

* Available General Fund fund balance presented as a percentage of General Fund total revenues

Available General Fund fund balance was calculated as:

* General Fund unreserved fund balance plus

* General Fund fund balance reserved for resources available for homeland security and disaster-related purposes (including "rainy day" reserves and "budget stabilization" reserves) plus

* Fund balances of Special Revenue Funds available for the same purposes. (The denominators of the ratios are adjusted for the expenditures or revenues of these Special Revenue Funds, as appropriate.)

Government-wide Measures

The two government-wide measures are:

* Governmental activities adjusted unrestricted net assets

* Governmental activities adjusted unrestricted net assets divided by governmental activities total expenses

Governmental activities adjusted unrestricted net assets is calculated as primary government governmental activities:

* Unrestricted net assets plus

* Restricted net assets available for homeland security and disaster-related purposes (including net assets restricted as "rainy day" funds and "budget stabilization" funds).

RATIONALE FOR THE FUND-BASED MEASURES

The specific measures used to test the adequacy of state resources were selected for several reasons. First, adequacy of "Available General Fund fund balance" (including appropriate reserves and Special Revenue Funds) reflects most net financial resources available to finance state homeland security, bioterrorism, and disaster avoidance and response initiatives. Other state resources typically are not available for such purposes. Consider, for instance, that:

* Resources of capital projects funds, debt service funds and permanent funds typically are dedicated or restricted to specific purposes and are not available for other purposes. …

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