The City of Bainland has been undergoing financial difficulties because of a decrease in its tax base caused by corporations leaving the area. On January 1, 2015, the city has a fund balance of only $400,000 in its governmental funds. In 2014, the city had revenues of $1.4 million and expenditures of $1.48 million. The city’s treasurer has forecast that, unless something is done, revenues will decrease at 2 percent per year while expenditures will increase at 3 percent per year.
Required
1. Create a spreadsheet to predict in what year the government will have a zero fund balance.
2. One proposal is that the city slash its expenditures by laying off government workers. That will lead to a 3 percent decrease in expenditures each year rather than a 3 percent increase. However, because of the unemployment, the city will receive less tax revenue. Thus, instead of a 2 percent decrease in revenues, the city expects a 5 percent decrease per year. Adapt the spreadsheet created in requirement (1) to predict what year the government will have a zero fund balance if this option is taken.
3. Another proposal is to increase spending to draw new businesses to the area. This action will lead to a 7 percent increase in expenditures every year, but revenues are expected to rise by 4 percent per year. Adapt the spreadsheet created in requirement (1) to predict what year the government will have a zero fund balance under this option.
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