Fiscal Indicator Score Explained
The fiscal indicator score is a high level, single digital metric designed to give a quick look at how a community is faring fiscally considering changing economic climates. The lower the score the more fiscally stable; as the score increases, the probability for fiscal stress increases.
The system is digital in nature, a pass-fail with ten categories. If a community “passes” a given metric, or beats the trigger, they score a zero in that metric. If they fail, they are assigned a one. Add up the ones in all ten categories and that is the fiscal score for that unit of government. It’s that simple.
Originally developed by the Michigan Department of Treasury and Michigan State University in 1992 as part of Public Act 72(1) the scoring system has evolved over time. First updated in 2002, the scoring measures were again improved in 2013 based on a Michigan Government Finance Officers Association subcommittee’s work and recommendation following several requests to the Michigan Department of Treasury. Their work has been incorporated into Munetrix and is what drives the current algorithms.
In an effort to offer a consistent look and feel, the core elements of the State of Michigan’s municipal Fiscal Indicator Scoring system were adapted to local school finance in 2012 with a partnership between the Michigan School Business Officials, and a team of 12 school finance and business management professionals. Now both measures are set up to look for chronic fiscal problems while not penalizing the entities for managing fund balances effectively.
Besides building the algorithms and embedding them into the database, Munetrix added the color scheme to the score as a means to make it easier for the average citizen to understand. Green = good. Red = bad. Citizen’s and Policy Makers get that – since they are really one in the same anyway.
The scoring is not all encompassing by its nature and is not intended to be the end-all fiscal health or stress determination for a community or school district. We liken the fiscal score to a trip to your doctor for a check-up. If your vitals are good and your overall appearance is fine, you get a low score. If your blood pressure is up, you’re running a fever and look pale, you get a higher score and your doctor may want to run more tests. If your vitals are off the charts, you’re hospitalized. If used effectively, Munetrix’s can help local governments avoid Hospice.
But the real benefit is not with historical information. Who cares how sick you were two years ago? Instead, Munetrix promotes current and predictive aspects of finance. How healthy are you today, and how healthy are you likely to be in the future based on your lifestyle or budget assumptions. Testing future assumptions against the algorithm allows local governments and schools the ability to quickly build financial plans using real data while basing decisions on desired levels of service against available resources.
Daniel Howes from the Detroit News labeled Munetrix as the equivalent of a “Fiscal Radar” for local governments in April of 2011. We like to refer to it as night vision for Finance Directors and Policy Makers. Whatever you call it, Munetrix promotes the concepts of: Seeing is believing; Using data to make decisions; and No surprises.
(1) Fiscal Distress Indicators: An assessment of current Michigan law and development of a new “early-warning” scale for Michigan communities. Institute for Public Policy and Social Research at Michigan State University. Authors: Robert Kleine, Philip Kloha and Carol Weissert.