Posted: December 2nd, 2013
Fiscal Administration 4
The issue of bonds is aimed at raising the much-needed capital for infrastructural and other developmental programs planned by the city. It is evident that the city council of Hewitt is responsible and transparent in terms of planning, budgeting and actual incurrence of expenses in the programs undertaken by the city. Creditworthiness is usually evidenced by the actual observance and adherence to the legal framework available in terms of expenditures and other financial particulars necessary in the city council affairs. The city council indicates that it has adequate machinery to ensure responsible use of the funds, which could be accrued from issue of bonds to investors.
The issue of bonds could be actualized though underwriting. This is whereby the council would undertake contracts with securities or financial firms to make a purchase of the bonds and resell the same to investors in smaller portions. There are two main features for identification of a good bond for purchase by the investor. This includes the credit quality of the entity issuing the bonds and the duration of returns accrued from the bond. These elements usually determine the interest rates accrued to a bond hence the actual returns expected from a bond (Lee, & Ronald, 23).
The necessity of the $2 million is the main determiner if the city council should issue the bond. Other sources of funds could be explored by the city council. However, bonds are elaborate as they are favored by investors because of their fixed rates of return and low susceptibility to market changes and fluctuations in terms of values and the expected returns. As a municipality, it is able to issue a bond because of the access to revenues, which could be used to service the interest rates probably from projects initiated with bond funds. In addition, the entity has a healthy cash flow, which is an indication of the presence of transparency, and adequate transactions, which could provide investors with the much-needed increase in the value of the bonds and their interest rates.
The entity also demonstrates a healthy balance between its assets and liabilities, which is an express indication of quality management in the city in terms of its finances and other assets of the city council. The city council provides funds, which are useable for control and management of particular bonds and ensuring that such bond funds are used for appropriate and intended purposes. Additionally, the city council recorded an increase in the net assets and their respective values. On the other hand, there was also a significant increase in the liabilities accruable, which might be reflective of the increase in activities in the organization in its bid to increase revenues accruable. However, there were slight increases in capital expenditures accruable to the city council. This is because of the lack of adequate funds for initiation of capital projects such as infrastructure and other developmental programs (Lee, & Ronald, 33).
Hence, the $2 million bond is necessary to ensure that the city council is provided with the much-needed capital assets for initiation and continuation of ongoing projects, which could result in an increase, in revenues, and subsequently ensuring that the investors attain the value for their bonds. Revenues accrued by the city council are used to ensure that investors are availed with the much-needed returns (Lee, & Ronald, 49).
In conclusion, the city council indicates a healthy financial performance over the two previous financial periods. This is an indication of the presence of stability in terms of revenues accruable to the city council. Stability is one of the main aspects for attracting the investors as they are guaranteed with the safety of their funds and the presence of adequate returns irrespective of the prevailing market conditions.
Lee, Robert D, & Ronald W. Johnson. Public Budgeting Systems. Baltimore: University Park Press, 1977. Print.
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