Minnesota’s Most Fiscally Sustainable Cities

A California based non-profit has attempted one of the most ambitious - and undoubtedly eyeball taxing – efforts ever to advance the cause of local government transparency and performance benchmarking.   Based on a review and evaluation of their Comprehensive Annual Financial Reports and related documents, the organization, United States Common Sense, has ranked over 13,000 local governments around the country on their fiscal sustainability.

Founded at Stanford University in 2010, United States Common Sense describes itself as a “non-partisan non-profit policy group dedicated to opening government data and resources to the public, developing data-driven policy analysis, and educating citizens about how their governments work.  (As a general rule, when a group uses the term “common sense” in its name, it triggers a red flag of someone working a little too hard to mask an agenda.  But from our quick review, these folks appear to have both the independence and the chops to do this well.)

Their new “Nationwide Fiscal Sustainability Platform” can be found at GovRank.org.  United States Common Sense considers a government fiscally sustainable “if it can meet the service needs of its current population without jeopardizing its ability to meet the service needs of its future population.”  The more than half-million data points and the 100,000 financial audits from which US Common Sense extracted them “comprise the largest freely accessible public finance database and financial records repository in the nation.”

To derive their rankings, the organization calculated three financial indicators or ratios: a budget balance ratio; an asset flexibility ratio; and a pension funding ratio.  A fiscally sustainable government overall maintains a generally balanced budget balance ratio (total revenues/ total expenses) , a positive and relatively high net asset ratio (net assets / total liabilities) and a low per capita unfunded liability associated with retired public employees’ pension benefits.

All factors are weighed equally to calculate a city’s overall national performance rank since “there is no consensus on which factors define fiscal health: whether short-, mid-, or long-term view; budget balance, debt burden, or retirement fund status; fairness to future generations, service provision, or tax burden for current tax payers.”  A city’s national performance rank is based on averaging multiple years of city performance data rather than using any single year.

So how do Minnesota cities come out?  We checked into 96 Minnesota cities with populations over 10,000.  Of that total, 2 had no information available while 10 others had incomplete data preventing the calculation of their overall national performance rank.  Overall, the results from the remaining 84 cities convey a Lake Wobegon-like impression: 

  • Average Minnesota city percentile ranking (unweighted for population) is 64.4
  • 59 cities place above the 50th percentile nationally while only 25 cities fell below the 50th percentile
  • 16 Minnesota cities placed in the top decile in the nation (see below); six in the top 1% in the nation
  • Only 3 Minnesota cities placed in the bottom decile nationally

Minnesota Cities Ranking in the Top 10% Nationally on Fiscal Sustainability

How robust is the methodology?  That’s an important question.  Summarizing the fiscal existence of local governments in three rather basic ratios seems rather simplistic to us (but undoubtedly necessary given the sheer ambition and scope of this effort).  We have been doing our own investigation into similar benchmarking methodologies published in professional government finance journals and elsewhere.  In most of these approaches, a larger and more finely tuned dashboard of 8-12 measures grouped around more categories and subcategories appears to be the norm.

But that shouldn’t take away from the spirit and intent of this effort.  Government transparency initiatives are hot, and performance benchmarking like this is clearly the wave of the future.  Doing it right and doing it well offers tremendous opportunities for citizens to constructively engage with government to improve both its efficiency and effectiveness.  As we continue to study and evaluate efforts such as this, look for much more from us on the “state of government transparency” in the year ahead.