There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Katie: Welcome to the Best Metrix podcast. Each episode, we meet with industry experts to discuss how they evaluate financial statements, what metrics they commonly use, and how their clients have improved. We'll also gather suggestions of how you can incorporate the same insights and processes into your own practice. Thanks for listening and enjoy this episode.

Glenn Dunlap: Well, hey there and welcome to another edition of the Best Metrix podcast. [00:00:30] We thank you for tuning in. It's exciting that this is. Today is our first returning guest. We have Catherine Maydew here from Creative Planning. We're excited to have you back. Catherine. Catherine. Last time when she was on, we talked about nonprofits, and this time we're going to talk about government services and just some of the similarities and some of the differences there. And take a deep dive into that. And this is a it's an interesting space to think about the best metrics for for government services. So Catherine, welcome back.

Catherine Demes Maydew: Thank you, Glenn. Thank you [00:01:00] for having me back again.

Glenn Dunlap: Yeah, absolutely. We I think I'm sharing with you beforehand. So you're a first returning guest. And, uh, as of right now, we've got the you've got the most downloaded podcast episode of our of all of them that we've released so far. So you it's great to have you back. We actually scheduled to have you back before we knew how popular the first one was going to be. So, you know, thanks for the home run there. So that was great. Okay.

Catherine Demes Maydew: Well hopefully hopefully this won't be the lowest ratings. That's [00:01:30] right. I hope not.

Glenn Dunlap: So no no no no. I'm sure it won't be. Government services. You know it's an interesting one and one that I'm interested to dive in with you because it's one that it's an area that I don't have a ton of experience in. So I this would be a total learning thing for me. So, um, you're sharing with me about some of some of the things that have been happening within what was the old Burke and Khedive and the new creative planning or, you know, the the new home for some of the accounting space. So, in fact, speaking of new home, you're literally in a new, new [00:02:00] environment. Tell us about what's happening with the new office.

Catherine Demes Maydew: With my clean desk. That's great. So, yeah.

Glenn Dunlap: So we'll come back in about a month and see how clean that desk is.

Catherine Demes Maydew: Right? So. Right. I filled it all over here. Yeah. So Bergen KTV was acquired by Creative Planning on July 1st of 2023. And in the Omaha area and in Kansas City. We originally had two offices, right. So we had the Bergen KTV office and the creative planning. So here in the Omaha area, we moved our Bergen KTV offices to the to the same creative planning [00:02:30] building. So we are right here on Dodge Street in what's considered sort of midtown Omaha right now. So if you're flying by on Dodge Street, you can see our logo out there. And so yes, I was telling Glenn that my pictures are still on the floor. It's very quiet up here, and I don't ever really want to hammer and nail into the wall until everybody's gone. So I'll get my pictures hung. I will move in. But it's been very exciting for us for Bergen KTV, because now we are actually in 50 states. We have the opportunity to work with more clients and [00:03:00] depth depth of bench that we didn't have before. And if I can, I'm going to give a little bit of a plug for all of the services that that we provided in creative planning for business, creative planning, business services. If I get that whole mouthful out there, not only do we prepare to provide the audit and attest services that we always did as Bergen CDB and the taxes that we do for individuals and high wealth individuals, but we also do business taxes.

Catherine Demes Maydew: We do a lot of outsourced accounting and bill pay. And that's the area that I really play in and [00:03:30] work in. So I'm the director of public services in the outsourced accounting and bill pay area. And I am one of the resident CFOs or virtual CFOs in that area. We provide payroll services to our clients. We also have legal services that we didn't have before because of our merger with or acquisition by Creative Planning. We have a great technology department that provides everything from ERP for a new system to back office, to cloud support, to managed it, to voice over IP solutions. I'm reading off the board here. I apologize because I don't know these [00:04:00] by heart. Custom custom software integration development. We can help clients, especially our small governments and our not for profit clients that don't necessarily have a really strong, robust IT department. We can help them be that IT department, help put in their computers and help purchase the the new assets that they need. We provide a risk management solution now that we didn't have before business valuations, which doesn't come into play with my clients because our governments are there for perpetuity. We don't want them to get out of the business, so we're [00:04:30] not helping them value themselves. And then just a general M&A, some mergers and acquisitions and consulting. And so we do that all within the nutshell of creative planning business services. So we're really pleased to be able to provide all that to our clients.

Glenn Dunlap: Yeah. That's awesome. Yeah. Um, government acquisitions look more like hostile takeovers than that's usually that's usually not you know, the and the accountants are not in charge of that. Yeah, right. Well that's great.

Catherine Demes Maydew: Yeah, my [00:05:00] clients would like them. They're their goals. My clients. Right. In the public services sector are for perpetuity. They're there for to provide the services to the public forever and ever. Right. And so that's the beauty of being in the public services environment that, um, um, we're here to provide a service to help them so that they're always constantly looking through the front windshield. Right. And I think I said this before and not behind themselves and worried about what's happening in the past. And so, um, the ability to [00:05:30] educate and, and bring in the new generation of whether they're council members or committee members for the governmental entities and educating them to be able to to read their financial statements like tea leaves and be able to then make the determination and decide what needs to be done in the cities and the communities that they're working in. It's really, really important.

Glenn Dunlap: Yeah, for sure, for sure. Well, let's so let's define this. Make sure that we're all on the same page then. So when we talk about government advisory government services [00:06:00] we're talking about cities, municipalities. You know what what what forms of government are you working with typically.

Catherine Demes Maydew: So typically right now um, cities, um, I also work with um, uh, joint ventures that are a joint venture between a city and a county that has put together a board. So I have a client that's a, um, a building management company for the city and county owned buildings. So it's a public property, basically a public property entity. They are a governmental entity. [00:06:30] Okay. As I said, counties are in there. Um, you'll have some schools that also they have school, but they also fall into the public services domain. So it's a public school. Um, and so your waterways, your sewers, your, uh, water districts, um, ran lake. Excuse me, uh, water reclamation districts that the that just keeps building as you move down. And so that's those are our public entities. And then [00:07:00] the largest one of all your state and your federal governments.

Glenn Dunlap: Okay. So the utilities you're working. Are we talking you're doing the work for the utilities in this as well.

Catherine Demes Maydew: We do. Yes. So we do provide services to utility districts. If they need somebody to to sit in a seat to be a director of finance, to help put together their financial reporting package. When it comes to the end of the year, we have auditors that will audit those utility districts or public utility districts or cuds, as [00:07:30] they're called in some states, and do that auditing and that work. Okay. And then, um, what we'd like to move them to is, is the analytics, the data analysis, so that they can they can say, are we really, um, providing the services at the right cost to the constituents, and where are we going in the future? What should our levy be for next year? As far as as property taxes and things like that. So those kinds of decisions are really important for our cities, and they're really important based on [00:08:00] state by state. So if there's a ceiling on the amount of of debt that a city can, can issue, um, then they may be limited in what they can do as far as building and construction, because they can't come to the table with all of that cash to build a building. But they they build it now and they pay for it over time when they levy debt. So those are all important factors that a city has to be thinking about and working on. Um, and that comes from their finance and their accounting department. And if, um, we are able [00:08:30] to, you know, as creative planning business services to come in and help them find that right number or right number that they're looking for, as to what should the levy be for this year to help us into the next few years, or what number should I be looking for as far as raising in debt or debt offering in the in the next year? We love to help them help, help find that and work with them on that. Work with them. Right. Right.

Glenn Dunlap: Well, so. So this. So. All right, so let's talk about let's [00:09:00] sort of break this down a little bit. So in this role, um, you know you're looking at the financial statements for, you know, a government entity. Um, what is it that you're looking at? Uh, what are these what are the statements telling you as you're looking at it? Sure.

Catherine Demes Maydew: So a really well put together and I'm just going to move a couple of things around here because I have an excellent looking aquifer on my screen that I want to make sure I can look at. So an aquifer is an annual comprehensive financial report and a really well put together aquifer. That's the acronym [00:09:30] really is a wealth of information. Glen. It, um, starts with management's discussion and analysis, similar to what we find in a, in a business statement offering. Right. You'll see what management has decided to say is important. That's happened during the last year. Here's my numbers. Here's how it's increased. Here's my what has what we've paid for. These are these are the changes in the in the government for the last year. So management's decision is this management's discussion and analysis is the first section of the report. Then it goes into your basic financial [00:10:00] statements. And in government we have two different, completely different types of financial statements that you're going to look at. One financial statement is called the government wide financial statements. And that provides both the long term and the short term information about the city and their overall financial status. And then we have a second section of financial statements that are just the fund statements. Those are basically your individual funds within the city, and it really tells you how is the individual or the individual funds doing.

Catherine Demes Maydew: And they provide [00:10:30] a short term as well as what's remaining for for spending in the future. So that's the second set of financial statements. Then of course, in your your your report, you have your typical footnotes that are supporting to all of the numbers on the beginning of the financial statement. So the footnotes are very important, but then we add more to it. So it's like a yeah, it's like a financial report on steroids. We add a supplementary Information section to it, which provides even more detail about the details within the funds and how how dollars were actually [00:11:00] spent within each individual fund. And then a statistical section. And the statistical section gives 910 years worth of statistics for a city that covers the gambit of population. Where are your revenue dollars coming from? What organizations have moved in? So we're getting our sales tax dollars from, um, how many that it can be. How many fires have we put out during the year or how many police officers did we hired during the year? So the statistical section really gives you so much information [00:11:30] about the growth of the city. You can look at it over ten years and you go, wow, we started out with, you know, a police force of five full time officers and now we're up to ten.

Catherine Demes Maydew: Look how we've grown. And the population has done the same thing. And we can draw a correlation and say we've grown our population up, revenue up, police force up. We're providing more and more sewers and waterways. We're providing this. So it really, really tells a wealth of information. It's really it's like a whole chapter book. Some of them are fairly thick. It's a whole chapter [00:12:00] book of what's happened in the city or the organization over the past year. And so it's a it's a very scary looking report. When I, when I teach it, my students are like, wow. And it's like, but if you really look at it and you really take a step back once the finance department has put together their act for their annual report, it just tells such a beautiful picture of the city. Now, if what you want to know what you're looking for, you want to look for everything that's going up, right? Everything that's on a trajectory and moving forward. Right. So that's the question [00:12:30] that you're going to ask. So what do we look for when we look in those financial reports. Well we want to make sure that a couple of things. One is that because we're reporting a city reports or governmental entity reports basically on a cash basis inside their books, they budget on a cash basis and then they have cash to actual.

Catherine Demes Maydew: So budget to actual on the cash basis. You want to see that the sales tax dollars, the property tax dollars that they're collecting from the constituents, what they're going towards and what they're being used for, and that there is some [00:13:00] reserve. But that's not a growing too much of a reserve because taxpayers would like their dollars to go towards services that they want to see in their community libraries, schools, you know, the services that you're expecting, your potholes being fixed, your sidewalks repaired and things like that. You want to see that. And so you can see that in your financial reports for the city, how they're using their dollars. And you can see it because it's a cash basis. You can see these are the services we've provided. [00:13:30] So here's our expenses. Here's how we paid for it. Sometimes we have fees that we collect in construction fees and vendor fees. And people that do business with the city. There may be library fees, swimming pool fees and things like that. So they do collect some revenue. And then how do they pay for it? Well, they pay for it out of the the revenues that they generate from sales tax or property taxes and other intergovernmental revenues that come through.

Glenn Dunlap: Sure, sure. [00:14:00] So so you're looking for things that are going up. Mhm. What happens when they're not going up.

Catherine Demes Maydew: Well then you ask the question is it a year that we paid off a lot of debt. So maybe it's a year. And that happens right. We decided that we've got enough cash left over, enough reserves left over. We can pay off some of our debt so that we pay down our our debt to equity ratio. And we pay that down because we're getting ready to start another capital expenditure or capital expense that's going to come on. [00:14:30] So maybe we've paid down our debt. Well that's going to use up our reserves. So that's going to show, yes, a deficit right in the year that it occurred. Explainable. Excuse me. Um, is it a year. We had a year of Covid right. Sales tax revenues were all down. Property taxes were still up, but sales tax was down. We all stayed home. We shopped online. We gave our sales tax to to other states, maybe not locally. So sales tax was a year of Covid. That would show a decrease in sales tax that year. Were we able still though [00:15:00] to meet the demand of the expenses coming in? Excuse me, the expenses going out to provide the same services because we had reserves, then you would say, okay, this is an explanation as to why this year we're down, we're dipping into our reserves.

Catherine Demes Maydew: We're still providing the same services to our constituents. And so that's what you would be looking for. Another one would be in a year that we we did just you know, we just raised money. We finished a building. The building was completely paid for the year before. We showed great revenue because we had the bond [00:15:30] offering. Right. All the proceeds came in the next year. We don't explain it's very explainable to the to the numbers and why they're changing. So again, it's you want to look at it and see what the story is. You can't just say, oops, there's an anomaly. The city's in trouble because they've spent they dipped into their reserves. Um, there are some states that require that cities have a minimum reserves, so you can't have more than 2%, say, of your budget sitting in reserves because they want [00:16:00] you to spend the money in the on the constituents and the services that are needed.

Glenn Dunlap: Okay.

Catherine Demes Maydew: Yeah. So it's it's a little bit of it depends based on the, the city or the, the locale and the state.

Glenn Dunlap: How do you do the budgeting in a, in an organization like this where you have, you know, such massive expenses like utilities and things like that? How does that all how does that happen? Yeah.

Catherine Demes Maydew: So our clients have to be, [00:16:30] um, very well versed in what needs to be spent. So they literally start with the expenditures and you build your budget based on your expenditures. What do we need to pay for? What do we have to put into our budget for the year. And so we need to provide public safety. We need to provide culture and recreation. Right. We need to provide general and administration. Those are the services that we need to provide. So they start with the expense side of it. Then they move to the revenue side and then they say what comes [00:17:00] in on our revenue? Well, what can we expect to come in for revenue for property taxes. Let's look at the the assessed property value. Okay. If this if the levy that we have right now is x percentage of the property value, that's the revenue we can expect to come in. Do we have the ability to lift the lid on that levy and go a little higher. Can we not raise property taxes but raise the percentage of of money that comes back into us for the city. Right. By by raising the percentage of their [00:17:30] levy on the the assessed value, as I mentioned. Sales tax I look at sales tax. What are our options for sales tax to come in next year.

Catherine Demes Maydew: Is there something new coming in. Is there an opportunity. And these are things you look down the road. Is there an opportunity that we need to think about having an additional sales tax placed on, um, you know, tourism or we have something that we're building downtown and it's for entertainment. So we have an entertainment district and we can add a little percentage [00:18:00] to the sales tax for the entertainment district to help pay for something that's going to happen in that area. So these are all things that you kind of build your revenue around. And you look at again, you're you're always looking at this into the future, because if you think well assessed property values all went up. So that just raises right the amount that I get back in if I don't lift my levy. Well, what happens when assessed property values maybe potentially go down in the future. Haven't lifted your levy then. Do you then do you lift your levy too high? And then people say, oh, you [00:18:30] raised my property taxes. So there's all of this, um, um, what I want to say, analysis that's done for budgeting that you do build a budget for this year, but you're really looking five years down the road to make sure that you you do what you need now so that later on you don't sock it to people when that's what they always say.

Catherine Demes Maydew: They raised my property taxes and it's like, well, they kept them the same for a very long time and then they raised them. Those are all perceptions that you have to talk about. [00:19:00] So budgeting for for governments is it's so there's two seasons we say in in in governments audit and budget. Right. And then they get a vacation in between. So they're very long processes. And they do take a lot of time because they are public facing. And so they do require meetings with the public. Right. So you do present the budget to the public. The public has a public hearings and availability to come in and ask questions and correspond. You [00:19:30] have obviously your, your, um, your council members that are also a part of the budget. The mayor is part of the budget. And then of course, then the budget has to be approved. Each state has a different budgeting approval cycle, that the budget then goes up to the state to get approved. And then then that's a whole process. And then you hear months down the road, the budget's been approved, the levee's been approved. You can place your budget into actual because now it's time for the year to start.

Glenn Dunlap: Yeah.

Catherine Demes Maydew: Very long answer to your question.

Glenn Dunlap: Well, no, [00:20:00] it's good, it's good. I, I'm one of the things that I'm remembering from my childhood. My grandfather was my grandpa was, was elected to the town council in my tiny little town in Indiana. And the very first meeting that they had, they explained to them that all of the city infrastructure was falling apart and that they had they hadn't budgeted for holding, you know, to doing the repairs. And so literally, I can I can remember my grandpa went door to door in my little town and sat down with anybody that would sit down with him and talk to them about what was happening [00:20:30] and told them what they needed to do and what took what was, what was probably going to be one of the most difficult conversations to say we're going to be raising. But he's like, you know, here's here's what we inherited and here's what's going on. And here's, here's what us and I just think, you know, imagine somebody doing that today just going door to door and having the conversation. But 50 years ago, in a small town in Indiana, that's what happened.

Catherine Demes Maydew: They couldn't tweet it. They couldn't put.

Catherine Demes Maydew: It on Twitter. You couldn't put it on the website. They couldn't have a virtual town hall [00:21:00] meeting. So they did. They took it to the people. And that's basically when you say public services, it's providing a service to the public. And that's the beauty of working with, I want to say, public service clients. I think I mean, I think it's for me it's I have the best job, right? Yeah. Because I'm working for services that provide to the public that I am the end user of. Right. So I can drive by and say, oh yeah, they're going to put a new stoplight in here. [00:21:30] I know that's.

Glenn Dunlap: That's right,

Glenn Dunlap: I know this I saw it in the this is.The most dangerous intersection in the city, right.

Catherine Demes Maydew: Yeah I read.

Glenn Dunlap: About it where all the accidents happen, right. Yeah, yeah.

Glenn Dunlap: That's right. Yeah.

Catherine Demes Maydew: You learn. You learn a lot about mill and overlay and and and what, what that is. Right.

Glenn Dunlap: Yeah. That's. Yeah. That's right. Yeah.

Glenn Dunlap: That's right. Streets and roads and all the streets and roads.

Glenn Dunlap: That's right. Yeah, yeah.

Glenn Dunlap: Um. Yeah. Well, that's that's pretty interesting. I'm sure you do get into a bunch of things that you hadn't really thought about, I mean, and also get into the, into [00:22:00] some of the most intricate parts of the, the municipality because not it's not just where you live. It's going to be in a bunch of other locations as well. So. Right. That's that's got to be pretty interesting to know those, those facts about those, those locations too.

Catherine Demes Maydew: It's fun because we so I am in currently I have clients in three states right now. So Iowa, Nebraska and Minnesota and laws and rules and everything are just a smidgen different. So it's kind of fun to say, well, that's not how we do it in Iowa, how we do it. [00:22:30] Right. But you follow the the laws and regulations of the, of the area. And so it's. Yeah. Yeah.

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Glenn Dunlap: So we talked about the financial statements a little bit. I mean the things. So you're looking at you're looking for trends. You're looking for things that are going up or explain. Explain. You know, identifying why something might be going down or something might have changed. Um, so makes. Makes perfect sense on that. Are there things that you think about you talked about the financial analysis? [00:24:00] Are you looking for certain ratios, metrics, things that that sort of stand out to you, that are sort of the most important elements when you're looking with, you know, the financial statements in the government sector.

Catherine Demes Maydew: So it's really important, obviously, that they have the right asset to liabilities ratio. Right. And so you want to make sure that they can meet the needs of the liabilities that they have on their financial statements. So you look for really positive and a good um current current ratio there. Um, you also want to look for um, uh, [00:24:30] the debt to equity ratio or the debt to, to net assets in the case of a government because they leverage debt in order to pay for stuff, but debt has a long term tail on it, right? So you may you may raise $116 million to build a building, but you're going to pay for that over 30 years. So you want to see that, okay. Over the 30 years we're going to be looking at this debt. What's our debt to equity ratio. Well what if we need to build something else in you know. Right. [00:25:00] We can't just build one thing and spend it all on one thing. So it's always been watching that to see. And like I mentioned earlier, maybe there is surplus cash in a year and they can pay down on their debt and get rid of it or refinance and, and lower their, their interest rate on it. So that's a constant there, that debt to equity ratio or debt to net assets. And you don't want anything over a two because you want to be you want to be solvent. So you want to be able to to ability to issue more debt in order to pay [00:25:30] for stuff because the the taxpayer dollars don't come in necessarily to pay for capital improvements. Not always. We want those taxpayer dollars to come in and go immediately out into services. And so when the budget is put together, they do have a division of some of my property taxes come in and go to general operations, and some of my property taxes go in to pay for debt service.

Glenn Dunlap: Right.

Catherine Demes Maydew: So there's that split and they're splitting it as it's coming in each month as they're [00:26:00] receiving their property tax payment. So it's a really key to make sure that they're in the right ratio balance there. So that either A they don't run out of the ability to raise money to do anything new. So like you just said, your grandfather walked around and said, you know, we have all this infrastructure that's falling apart. If they had if they had no ability to to levy any more bonds or increase the, the, the levy of the property taxes, you'd all just be sitting there watching [00:26:30] everything fall apart. And so there's that balancing act there. So I think it's always important to look at that. And then also another thing too is to look at capital outlays. So how have capital outlays right. The spending of capital expenditures. How have those kept up over the past five years. So um, that's going to tell you, have they been have they been redoing the roads when they need to. Potholes are just maintenance. But have they been reinvesting in reinvesting into the infrastructure. So [00:27:00] that's so you can also look at that too. The big thing that everybody has been talking about for like at least 10 to 15 years is the underfunded employee pension plans that are on the that are now on the books that we didn't record before, but are now on the books of the city, and those relate to employee employer benefit plans. I can't get those words out.

Glenn Dunlap: So yeah, right.

Catherine Demes Maydew: And so we're always looking at that. So that's a liability that's on the books. And do they have the cash to pay for [00:27:30] that over the next. However many years. It's it needs to get paid out. So that right?

Glenn Dunlap: Yeah.

Glenn Dunlap: Because that's conceivably if it's like every other sector, there's going to be a bunch of retirees coming up here. Right. So that's it's going to be hitting the books here. Right.

Catherine Demes Maydew: Right.

Catherine Demes Maydew: And for a long time governments weren't required to list that as a liability. So we didn't see that. Mhm. Government reporting has become more like a business now. So [00:28:00] again let's go back to government's accounting is on the cash basis. Cash in cash out. We budget on the cash basis when we move to actual financial reporting to give our information to, you know, in a financial report, we move it to modified accrual. So we are bringing on to the books than the liabilities that are outstanding to the government to show. So if you only looked at the internal financial reports of a city and you look at the cash to budget, you won't see.

Glenn Dunlap: Right.

Catherine Demes Maydew: You won't see the stuff that you expect there. So. [00:28:30]

Glenn Dunlap: Right.

Glenn Dunlap: With modifications. Now you're seeing those liabilities get added. And that's a more true, truer report of what's happening there. Right.

Catherine Demes Maydew: Of the of.

Catherine Demes Maydew: The of the general liabilities for the whole organization.

Glenn Dunlap: So when you said so, a lot of times you're talking about the cash that comes in from the the citizens is coming in and it's expected for that to get spent. Um, do they ever do kind of a campaign or capital campaign or a capital [00:29:00] assessment, but instead of doing a debt raise, do they, you know, hey, we're going to need to re do x, Y and Z. So let's just put that money aside and restricted funds or what however they look at it. Okay. Because when you're talking about that, I was just thinking about whether it's if you've got a surplus coming in it, sometimes instead of just spending it, it may may be wise to set it aside. Right.

Catherine Demes Maydew: Set it aside.

Catherine Demes Maydew: Yeah. And so yeah. And that happens. So sometimes um, the amount that's coming in to service your, your, your bond [00:29:30] may be different if you've gone out and refinanced it and your interest rate is a little lower and you have a little left over at the end. So that has to go to to fund the bonds. But then, you know, it's like it's like, okay, so, um, um, if our, our general, our general fund has a as a surplus at the end of the year, what are our intention to do with that? What would we like to do with it. So yes. Yeah. They can't go out and do capital campaign fundraising like my other group of clients in the not for.

Glenn Dunlap: Profit, not [00:30:00] for.

Glenn Dunlap: Profit space.

Glenn Dunlap: Yeah.

Glenn Dunlap: But with they've got cash coming in the capital that they can use that and they can earmark it as you said.

Catherine Demes Maydew: So, so for example, um, uh, during the last 4 to 6 years, we had COVID dollars coming in that were helping. We had um, um, American, uh, era monies. I get the acronym wrong, but dollars coming in to help fund the government to make up for the lack of, of, um, property tax, not necessarily property tax, but sales taxes and in other ways for [00:30:30] them to to raise the revenues needed to support the the cities. So they did have sometimes a surplus of that. And then they were able to say, okay, this is what we're going to use it for. We're going to use it for X, or we're going to use it to hire more police officers. We're going to use it for something so that we did have that opportunity. Um, in the last, like I said, 6 to 8 years. We also had the shovel ready money that came in. Um, has it been 12 years ago that came in for infrastructure? Um, so if you had a project that was ready to go, the federal government [00:31:00] was giving you money to start that project because we wanted to get infrastructure back up again. So, yeah.

Glenn Dunlap: Was that was that on the tail end of the 2008.

Catherine Demes Maydew: 2008 I think? Yeah. 810 yeah. They had the shovel ready because it was it was interesting because here in Nebraska, literally, it looked like the trucks were all lined up ready to go. We're waiting for that arrow money to come in. It's like boom. And all the trucks went out. So yes, um, that was one. But another prime example and I can't speak [00:31:30] to it very well. Is the WPA that happened right when we put everybody to work a long time ago inside of communities to build, and the money came in, then went right into the, into the, the workers that needed to build. So that was another example.

Glenn Dunlap: So yeah, sure. It's a good um, yeah. Economic. Right. When you need the when you need the hit, when everybody's out of work.

Catherine Demes Maydew: Right.

Glenn Dunlap: Government invest in that [00:32:00] stuff.

Catherine Demes Maydew: Yeah. Government is investing. Yes.

Catherine Demes Maydew: Yeah. And that's and that's um, that's the other um, I always look at, you know, your taxpayers hard at work. So what I always say your taxpayer dollars are hard at work to see that what you've, what you've paid in is, is coming out again. Yeah. The roads are repaired. There's the potholes are repaired, the library is open. We don't have to close the library, you know, the federal or the county city buildings are open.

Glenn Dunlap: So [00:32:30] yeah, we have some potholes so big here in Indianapolis. They actually moved the library into one of them. No. I'm kidding.

Glenn Dunlap: We just. Yeah, we.

Glenn Dunlap: They're not that big. Um. That's good. Um, other things in terms of ratios and metrics that we would look at and, you know, because so we've talked about some of the debt to equity ratios and current ratios. So what else what other things are you looking for.

Catherine Demes Maydew: Um, so you look to see if there's any deficits in the funds. So [00:33:00] why would there be a deficit of funds? So here in Nebraska we have something called Keno, which is a gaming, a gaming. Um, what does Keno. It's gaming. Right. So you can play keno at the bars and stuff. So we have keno dollars that come into the local communities, into the local cities. And and keno is an example of a fund, right? Hardly ever. Keno is in a deficit, but that was a fund that I threw out there. But so do you want to make sure that the fund isn't in a deficit? If it is then then we need to transfer some money from [00:33:30] the general fund into that fund to make sure that we don't have a deficit. We look at the budgetary comparison. So in the in the financial reports, there is the actual cash to the budget. It shows up in the financial reports. And you look at that to make sure that there's very few revenue variations. Occasionally a city will budget for an expectation of a lot of dollars coming in for a project, and it may not happen that year. So there is an explanation as to why the budget was much higher than actual [00:34:00] revenues. But you kind of want to go in there and say, okay, why did they budget more than the revenue came in? Or why did more revenue come in than they budgeted? Maybe they didn't do a very good job of budgeting. So you want to look at that. You want to make sure all your expenditures are either on budget or less than budget. So you're looking at the expenditures versus budget, and you want to look at that to make sure that that's that's healthy, right.

Catherine Demes Maydew: So they were pretty close on their budgeting. And um, what else. Oh general fund and restricted. So you talked about putting money aside. So restricting it or earmarking [00:34:30] it for certain things. So when we have general unrestricted fund balance, we want to look at that based on the percentage of annual expenditures we have. Again this goes back to if we're amassing too much in the unrestricted and we're not spending enough, then we're not really doing a good job as stewards to the dollars that are coming in and turning around and spending them on the programs that we should be. So you want to look at that ratio. You don't want to have the unrestricted general fund more much [00:35:00] greater than your your annual expenditures. Okay. Um, could be a reason. But if it's like on a consistent basis and that's growing and growing, you want to have a plan to how to spend that, to turn around and give it back to the constituents. Um, the net position for governmental activities. Right. So that should always be positive, right? You want to really make sure that that it's in the positive favor. You don't want to be in a deficit. Now, [00:35:30] when a city excuse me or an organization and it is in a deficit situation, then there's there's questions and then there's a plan put forth, and you hope that you could find that in the mDNA. As to we have a deficit. We know, like your grandfather, we are going to be raising we're going to be raising our levy. Property taxes will go up. This is how we're going to pay for it. We're going to refinance our bonds. This is you know, sir, have a plan for that. So that's that's something that you're looking for also. [00:36:00]

Glenn Dunlap: Catherine what is define net position for me. What does that mean.

Catherine Demes Maydew: So net position is basically on your fund financial statement. It's your net assets plus your liabilities.

Glenn Dunlap: Oh.Oh yeah okay.Okay.

Glenn Dunlap: Now what I was thinking of uh, net position. I wasn't sure if that was the. Because you said you want it to be positive. So I want to make sure that we weren't I wasn't thinking from a cash perspective. We're alone, so let's make sure. So.

Glenn Dunlap: All right.

Catherine Demes Maydew: Yeah, yeah.Um, yeah. I mean, [00:36:30] yeah, we look to make sure they don't have too much debt. There is a schedule that's in in the aquifer that shows I'm going to kind of scroll to it that shows the overlapping debt. So it kind of gives a taxpayer the idea of how much of their tax dollars goes to pay debt for a school district, a city county, all of the constituents that they're bundled inside of. And so there is a report that in the aquifer that the that the constituent [00:37:00] does do overlapping debt, direct and overlapping. And so it kind of shows that that percentage and it kind of gives you a talk through about what what that is. So it's the it measures the ability to repay the debt. So there's a report that's in there that talks about that.

Catherine Demes Maydew: So it's.

Catherine Demes Maydew: Kind of a quirky little statement that I like because it's.

Catherine Demes Maydew: Like, yeah, it's.

Catherine Demes Maydew: Wow, we got a lot of debt out there. We [00:37:30] all, as taxpayers approved those bonds as they come before us, and we approve them in our when we vote on them.

Glenn Dunlap: So okay, any other ratios or metrics that that you would.

Glenn Dunlap: You would.

Catherine Demes Maydew: I mean you do you do your your typical um you look at, you know, the long term financial health again so that that's where you're really looking at. Do they have enough money to cover expected expenditures that are sitting as liabilities on their books? So the long term liabilities and their short term liabilities. [00:38:00] So you kind of kind of do a judge and make sure that that's pretty good. Um, again they operate lean right. They should be operating lean. They should be pretty much taking the revenue that comes in, at least in the bond fund and paying that directly out again. So the bond fund revenues that come in should go directly out to pay the the debt expenses that come in, that principal and interest payments. Um, and then on the general operation fund, um, they, you know, a little bit of reserve rolling [00:38:30] over year after year, but really taking your taxpayer dollars and reinvesting them back into the community. So that's really what you want to be seeing.

Catherine Demes Maydew: So.

Glenn Dunlap: That's great.Is there anything you can do about our federal government?

Catherine Demes Maydew: I wish I could.

Catherine Demes Maydew: And it's interesting because because we're we're very attuned as constituents to our state and local government. And then and then we look at the, the, the federal government. And it's just it's [00:39:00] bigger, right? It's just a it's a bigger question. And and I do know that I have friends in the in the GAAP Gao General accounting office. And it's a it's a massive undertaking.

Catherine Demes Maydew: So yeah.

Glenn Dunlap: It would have to be.

Catherine Demes Maydew: Yeah.

Catherine Demes Maydew: Much more digits on their financial reports.

Glenn Dunlap: Yeah.

Glenn Dunlap: And maybe not as lean as as you were mentioning in these.

Catherine Demes Maydew: No. They run deficits.

Glenn Dunlap: Yeah. [00:39:30] Uh.

Catherine Demes Maydew: Yeah.

Catherine Demes Maydew: We don't have the ability to print money. So that's the difference in the federal government.

Glenn Dunlap: That's right, that's right.

Catherine Demes Maydew: Mhm. Yeah. So.

Glenn Dunlap: Well we occasionally you see cities and towns and that, that are, you know, really in in trouble. Like I am trying to remember. Was it Orange County or what county. There was a county in California that really got sideways. I think there have been some, some places in Florida even [00:40:00] that got, you know, like what causes that? Is it just a bunch of mismanagement for a long period of time, or is it they got really wrong on their forecasting or budgeting got over, you know, extended on debt. What is it? Is it you know what? What?

Catherine Demes Maydew: All of the above.

Catherine Demes Maydew: Um, but I don't know if your your viewers have heard or you heard of the wonderful documentary about Dixon, Illinois.

Glenn Dunlap: Um, no I haven't.

Catherine Demes Maydew: Yeah, all the Queen's horses. It was produced. It's a documentary produced by a great professor [00:40:30] from DePaul University. I show it to my my students and my government and nonprofit accounting class. Um, it's about a city administrator who embezzles about $50 billion from a very small city. And what can go wrong if nobody's paying attention to the financial reports? And so I bring that up as because it's our job as constituents. It's our job. We pay our property taxes. We and we pay our, our our taxes at the end of the year. And our state [00:41:00] taxes are allocated back to everybody. And it's our jobs to to be paying attention and to be watching, not to necessarily, um, accuse anybody of anything but to be paying attention and to reading financial statements. Um, this was a case where somebody embezzled money from from the city and they couldn't figure out why they had no money. Um, but in the case of I think it was even, uh, you're right. It was a couple counties and a couple cities. Um, it was lack of funding. [00:41:30] So I would probably say that it was it was lack of good financial foresight in the prior years, maybe many years back, to make sure that you were building for lean times, to make sure that you were you were taking care of that. If you have a lot of of movement out of your your population, and all of a sudden you're building your, your budget based on having, you know, 50,000 people living in your community, and all of a sudden you're down to 20,000 people.

Catherine Demes Maydew: That's a much smaller base of property tax and revenue that's [00:42:00] going to be coming in as you as you go forward. So it's it's building for the those lean years and being prepared. Some of that also happened because they had to report and pay on, um, this opeb as we call it. So the other employee in employee benefit Benefits, employee benefits that had to get paid out, that they came out and and just, you know, devastated. Some of the communities took up all of their reserves. So they weren't well funded in that case and stuff. And so [00:42:30] again, it's it's being attentive now and looking at everything now and building for the future. It's having really, um, I want to say smart and dynamic financial analysts in cities. It's not in this day and age, you really do need to have a financial analysis team. If you don't, then you need to find the software that can help you do that so that you can plan for it and build it, because it is running like a business and being prepared for the future and not just looking at today and [00:43:00] yesterday, but further down the road so that those things don't happen and then having a plan. So if we have, you know, this is our rainy day fund. It's called a reserve. This is our water.

Glenn Dunlap: So, you know, if we've got people listening out there that have not worked on an engagement like this with the government services, and they're really curious about it and want to do it. Talk. Walk us through what is what is a typical engagement look like for you when you're working with a, you know, with the city, for instance? What? Sure. How do you how do you get involved? And what's that look [00:43:30] like?

Catherine Demes Maydew: Sure.

Catherine Demes Maydew: Um, as as we say internally, our clients never call us when it's everything's roses and peaches and everything's going great unless they call to say thank you. Um, but usually they're called because they lost their director of finance or, um, the they, um, lost somebody in their accounting department, and they need somebody to come in and help them either shore up the the financial reporting internally and get ready for something. Usually it's the audit, audit or budget, one [00:44:00] of those two. And so we get called in to help. And so when it's when it's budget time we come in we help look at the budget from previous year. We sit down and work with the treasurer or the city administrator, the mayor have those conversations, look at what the budget can be. We go through all of the analysis, that sort of what I've just laid out, it's like, okay, where is our revenue coming from? What can we expect? What can we what do we need? What's our expenses? How do we put this together and put the puzzle together for them and help them with their budget? Um, help them get that prepared on time and submit it [00:44:30] to their state auditors and their state departments on time. So like everything else, there's a due date for everything. And we want them to stay current with their their reporting that they need to be reporting on if it's the audit coming in and helping them with the audit, it's helping put the work papers together for their external auditors.

Catherine Demes Maydew: It's helping come in and, um, put together the acfr, which is as as in any audit, the response, the financial reports are the responsibility of management. And sometimes our cities just don't have the depth of staff [00:45:00] and the time to prepare a report of the size of a of an Acfr and they outsource that, and they hire somebody to come in and do that. So I've come in to, to, to put Acquifers together. Um, I've come in and I've said as a, like a virtual CFO, I've sat in a director of finance seat, keeping it warm until the next person was hired and brought on and trained and brought up to speed. So it's a variety of different ways that we can service clients. Um, auditors provide a great service, [00:45:30] although they think, well, by the time we get in there, it's six months past the date and nobody's paying attention to the numbers. And actually, that's yes and no. But you can make the numbers pretty exciting when you talk about it. And then you say, okay, here's what, here's what you got. Here's what you could be planning for for the future. So auditors can actually, um, provide a great service as a trusted advisor to cities and then step in and say, hey, you know, it looks like you need a little help. Can we help find somebody to help you get through this so they can provide [00:46:00] a great service in that way, too?

Glenn Dunlap: So yeah. That's great.

Catherine Demes Maydew: And then the I go back to financial analysis. Cities are finding themselves wanting to be smarter, sharper, quicker. And they want to have financial analysts on their team. Sometimes they can't afford it, sometimes it's just a matter of comparing themselves to another city and looking at it and saying, okay, what's the right metrics that I should be at if I want to be like this city who's got ten times the population and I have the ability to grow [00:46:30] because I'm not landlocked and things like that, and this is the city I want to be like.

Glenn Dunlap: Right, right.

Catherine Demes Maydew: So what's the metrics that I need to be looking at and how do I build it? And so that requires financial analysts that are kind of outside of my purview. Right. But um, uh, those individuals coming to the table provide a wealth of experience and analysis. And so, I mean, I haven't had a city that said, do you actually it was utility company that said, should we build it, um, a wind farm, [00:47:00] buy the land, build a wind farm, do all that? Should we just invest in our coal burning plant? And I brought somebody in from the team who could do an analysis of the two, and they played with the numbers and they decided what to do. So a lot of times it's it's again, it goes back to thinking like a business and um, and uh, but again, I think as constituents, we need to be not asleep at the wheel, but paying attention and being aware and and helping where we can. So if you have [00:47:30] a talent and you're great with finances and your, your city or local community that you have are in, has a finance committee, go to the mayor and ask to be on the finance committee. Bring your talent to the to the Finance Committee because they have outside constituents that are on the finance committees that help cities be better, right. And have that. So run for council, be involved. I mean this is it's it's our country, right? It's our [00:48:00] city. It's our local it's our communities. So be involved. It's an opportunity to participate in any way, shape or form to bring your skills to the table.

Glenn Dunlap: Yeah that's.

Catherine Demes Maydew: Great. Not a political ad.

Glenn Dunlap: No. And it's, um. I mean, those things are bipartisan. It doesn't really matter. And I think when you get to the local level, it's hardly, you know, blue and red hardly matter if that's, you know, it's your neighbor at that point. It's it's, um, you're going to have a lot more in common than you're going to have differences. So it's easier.

Catherine Demes Maydew: To share [00:48:30] a lot lines.

Glenn Dunlap: Yeah, exactly. Although I've had some neighbors I really wish I hadn't shared lunch with and they probably felt the same about me, so that's fair. So. Oh that's good. Um, well, Catherine, this was this was, um, you know, sort of outside of what I typically think of. So I think this has been great just to to think that through. It's definitely been a learning experience for me. And I don't know how many people are. What portion of [00:49:00] the accounting profession are focused on on this, would you say on governments?

Catherine Demes Maydew: We have a very strong governmental team, and it came from Bergen and CTV's original founders said that they were going to provide services. So we have a very strong team, significant portion. I have some really, really smart if they're going to listen, really smart audit partners.

Catherine Demes Maydew: Governmental.

Catherine Demes Maydew: Team, one of them who's retired. If I can give a shout out to him who who has come and spoke at my class and has to help [00:49:30] teach us internally what we call the Blue Book so that we are better, smarter and sharper for our clients? Um, I would say that unfortunately, there's not a lot of accounting firms that are staying in the governmental realm to provide governmental auditing services. So that realm is getting smaller. Um, I.

Catherine Demes Maydew: Do know that.

Catherine Demes Maydew: They don't have the expertise coming up. So people aren't trained in that. People don't want to mess with it. They don't want to learn that there's five financial reports that [00:50:00] we have to put together and that they they, they do this on the cash basis, and then they have accrual entries. And then we have, you know, modified accrual entries. And then we have all of these reports. And then there's a reconciliation that goes with it, and there's a lot of work to it. And oh, and by the way, we may have to, you know, spend more time testing transactions and stuff. So I mean, it's a, it's a, it's a, it's work. Um, and if you don't have, uh, this is just a little bit of a shout out, if you don't have the pipeline of accountants coming forward, enticing [00:50:30] them to get into the less sexy, glamorous public services side of the house is a little bit harder to do.

Glenn Dunlap: So sounds like a great opportunity.

Catherine Demes Maydew: It's a great opportunity. So anybody who's listening.

Glenn Dunlap: It's the blue.

Glenn Dunlap: Ocean, right? It's where everybody's so. Yeah, right. No. That's great. That's great. Well, it's, um it's been enlightening. So I would imagine anybody that's listening that's not in this space would be, you know, have the opportunity to consider it. And if Catherine, [00:51:00] if they wanted to reach out to you, how would they do that? How do they get Ahold of you?

Catherine Demes Maydew: You can find me at Catherine Mayhew at Creative Planning planning.com.

Glenn Dunlap: Excellent. I'm also.

Catherine Demes Maydew: On LinkedIn.

Glenn Dunlap: So on LinkedIn. And you'll see this episode and portions of it there. And we'll have links to to Catherine and and to Creative planning and the good folks over there. So we'll be we'll be happy to do that. And um, next time we have you on, we'll, we'll see your pictures on the wall. We'll see stacks of work on your desk. [00:51:30] Okay.

Catherine Demes Maydew: I'll get to work.

Glenn Dunlap: That's right. No, no, it's not that you're not working. It's just that you got a new office, so that's awesome. Catherine, thank you so much. I always enjoy our conversations, and I really hope that, uh, you know, that this becomes, uh, something that people, you know, dive into and learn more about. So it's fantastic. So thank you. Appreciate you sharing your insights.

Catherine Demes Maydew: And we'll see you again soon.

Catherine Demes Maydew: Glenn. So maybe in Chicago.

Glenn Dunlap: That sounds great. Yeah.

Glenn Dunlap: Thank you.

Catherine Demes Maydew: Okay. Thank you.