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T4 City's Financial Assessment Guide
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The City's Financial Assessment serves as a comprehensive financial management tool designed to evaluate the fiscal health and sustainability of the municipality. It can be adapted to each particular local context and aims to provide an in-depth analysis of revenue streams, expenditures, cash flow, debts, and investments. The tool assists in making informed decisions for budget allocation, long-term planning, and policy formulation.

Its purpose is to allow municipal authorities to have a preliminary picture of the state of their municipality's finances so they can start thinking about the actions to be taken in order to guarantee the financial sustainability of their future projects.

This assessment enables the city to make data-driven decisions for its annual budget; ensures transparent financial governance by detailing revenue and expenditure sources; identifies financial vulnerabilities, such as arrears or unsustainable debts, and assists in aligning financial resources with strategic priorities, such as healthcare, education, and infrastructure.

The tool is designed to capture historical and current data, offering a longitudinal view of the city's finances. It includes clarifying graphs that are critical for evaluating financial health. The assessment can serve as a basis for internal reports, stakeholder communications, and grant applications. Regular updating is necessary for accurate tracking and for adapting to changing financial environments.
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Shared taxes (City share): The percentage of various state-level taxes allocated to the municipality. E.g., VAT, personal income tax, corporate income tax, etc.
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% indicates the percentage of that tax type allocated to the municipality from the state government.
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Unconditional transfers: Funds from the state government that are not earmarked for specific uses.
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Operating transfer: For day-to-day expenditures like wages.
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Investment grant: For capital expenditures like infrastructure development.
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Conditional transfers (pass-through): Funds for specific purposes like wages or social policy programs.
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Local taxes and levies: Taxes collected solely by the municipality like property tax and business taxes.
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Local fees: Revenue from issuing permits, licenses, or other administrative services.
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Local asset proceeds: Revenue generated from municipal assets like rent from municipal properties, sales, etc.
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Dividends, funds, assets from PUCs (Public Utility Companies): Any financial contributions transferred from the public utilities to the municipal budget.
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EXPENDITURES
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Expenses on Delegated Functions: Expenditures on functions that the municipality is required to provide.
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Own Expenditures: Costs for services that the municipality chooses to provide.
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Cash Balance & Arrears Table
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I CASH BALANCE
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Cash receipts: Money received during the month.
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Cash payments: Money paid out during the month.
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Cumulative inflow: Total money received up to that month in the year.
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Cumulative outflow: Total money paid out up to that month in the year.
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Net change in the stock of cash: The net flow of cash for the municipality.
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II ARREARS
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Public stakeholders: Unpaid dues to public organizations.
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City dues to private contractors: Unpaid dues to private service providers.
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Labor arrears (wages, salaries): Unpaid labor costs.
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Indebtedness Table
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I MEDIUM & LONG TERM DEBT
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On-lending loan: Loans given to the municipality by the central government.
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Direct Loan: Loans obtained directly from a financial institution.
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Municipal Bond: Bonds issued by the municipality to raise funds.
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II SHORT TERM DEBT
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Treasury facility: A short-term loan from the central government.
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Facility from Commercial Bank: A short-term loan from a commercial bank.
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Capital Investment Table
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Delegated investments: Investments in sectors managed by other governmental layers or agencies.
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Municipal investment: Investments directly managed by the municipal government.
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Investment into PUC: Investment into Public Utility Companies.
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Earmarked grants: Grants meant for specific projects or sectors.
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Own budgetary revenue: Revenue generated by the municipality itself.
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Loans or municipal bond: Funds obtained via loans or bonds.
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Equity from PUC: Financial contributions from Public Utility Companies.
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Tax Potential & Performance Table
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Number of taxpayers: The total number of individuals and businesses that are taxpayers.
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Theoretical collection: The estimated amount expected to be collected based on the base and tax rates.
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Base: The tax base, for example, the property value for property tax.
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Exemption: Cases where tax is not applicable.
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Rate: The rate of tax applied to the base.
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Tax collected: The actual amount of tax collected.
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Graphical Representations
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Revenue vs. Expenditure Over Time
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Interpretation: This graph showcases whether the municipality is running at a surplus (revenues exceed expenditures) or a deficit (expenditures exceed revenues) in any given year.
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Significance: A consistent deficit could signal the need for increased revenue mobilization, expenditure cuts, or both. A surplus might indicate room for more investments or savings for future large-scale projects.
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Theoretical vs. Actual Collection Over Time
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Interpretation: Compares the potential tax revenue (based on the tax base and rates) to the actual revenue collected.
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Significance: A large gap between theoretical and actual collections can signal inefficiencies in the tax collection process or issues with tax compliance.
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Capital Investment vs. Financing Over Time
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Interpretation: Delineates how capital investments have been financed over time, breaking down between loans, grants, and other sources.
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Significance: A balanced mix of financing sources is ideal. Over-reliance on loans, for instance, may increase long-term financial risk.
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Delegated vs. Own Expenditures Over Time
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Interpretation: Represents the proportion of money spent on responsibilities handed down by higher government levels (delegated) versus local, autonomous responsibilities (own).
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Significance: A large proportion of delegated expenditures can signal limited financial autonomy.
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State vs. Local Revenue Over Time
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Interpretation: Illustrates the ratio between revenues provided by the state government and locally generated revenues over time.
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Significance: A higher dependency on state revenues may indicate limited local revenue mobilization capabilities, and could make the municipality vulnerable to changes in state policy.
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