How Sustainability Challenges in Local Governments are a Going Concern

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Everything we need for our survival depends on the sustainability of the environment. How we work to maintain our environment and economy will directly affect our future generations and their ability to meet essential needs. Developing green initiatives, such as replanting trees and protecting clear water sources, or investing in our children’s education are all sustainable activities. However, a large government deficit is unsustainable and continues

Currently, local governments are struggling to preserve their fiscal sustainability, as many can only raise their revenue to the extent that the state government allows them. Over the last five years, the equalized assessed valuation has continued to decline to levels some cities have not seen for almost 12 years. What does this mean for local governments?

From a revenue standpoint, many governments are at their line-item levy limits and are unable to raise revenue from an operational position, yet their costs grow on an annual basis. If the equalized assessed valuation continues to decline for another year or two, local property tax revenue goes down, and governments are unable to pay their bills, which may result in organizational layoffs and even closures. As governments continue to struggle in sustaining their districts, the ability for numerous organizations to continue in the foreseeable future becomes a going concern.

In August, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40). In the updated statement, the financial reporting standard defines management’s responsibilities for evaluating and providing footnote disclosures on whether there is substantial doubt about an organization’s ability to continue operating. Under the new standard, management is required to evaluate the going concern for each reporting period. If considerable doubt is found, management must then determine if the uncertainty can be alleviated.

Embracing sustainability is crucial for local governments and should be incorporated into the principals of their long-term strategic planning processes. When a government is sustainable, it attracts families and businesses that will build roots within the community, thus creating jobs, saving resources and building a solid foundation for future generations.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.


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