Introduction
The State of California has continued to generate enough revenue in order to serve her citizens with various development agendas in the market. The latest 2017 annual financial reports have met all the requirements of Government Code Section 12460 which makes all the accounting reports to be prepared in accordance with international accounting standards. The state financial status has continued to improve since the 2009’s Great Recession whereas per 30th June 2017, the revenue was able to exceed expenses by $ 9.4 billion (Statedatalab, 2019) . The central government activities that require financing include health, education, infrastructure development, recurrent expenditure, and other government expense. California State management has assumed responsibility for accuracy, completeness, and fairness during the presentation of financial information. In addition, the state auditor had issued an unmodified opinion concerning the financial statements for the year ended 2017 June.
Financial Performance
State California has been performing well in the market from a close analysis of the presented financial statements such as balance sheet, income statement and cash flow statements. The overall government combined net position was able to increase by $ 9.1 billion (29.9%) which has indicated strong financial stability in the market. In addition, from the balance sheet, the financial assets have continued to increase such as current assets and fixed assets while other current liabilities have been maintained at a normal rate in the market.
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Liquidity Performance
Liquidity performance of the State of California can be analyzed through a close understanding of various liquidity ratios in the market. First, the current ratio will be used which can be calculated by current assets divided by current liabilities. The current ratio normally measures the ability of a company to pay all the current liabilities within a period of one year using the current assets ( Statedatalab, 2019)
For 2017, current ratio= current assets/ current liabilities.
84127/47837= 1.75
With a ratio of 1.75, it, therefore, means that the company has a higher liquidity position in the region.
Quick ratio= (Current assets-inventories)/current liabilities.
84127-8500)/47837= 1.58
Quick ratio normally measures the company's ability to meet all the short term financial obligations using the best liquids assets in the market which must not include inventories. 1.58, therefore, indicate a high and stronger liquidity position (Statedatalab, 2019)
Performance
A closer look at the financial performance indicates that the state has been performing well in the market net position has continued to increase in the market. Revenue which mainly comes from government funding, charges for services, grants, contributions, and other taxes have continued to increase since 2016. It is a clear indication of the positive increase in revenue generation while most of the expenses from income statement have also been maintained at a stable level in the market. The main expenses include education, health, transport, power, water among others which the government has been able to maintain at a lower rate. Due to the increase in revenue and stable normal expenses maintained, the state government has been able to generate enough excess balance to fund other development activities.
Overall Evaluation
More analysis of revenue generation indicates that revenue going by the source as per June 2017 was mainly from grants and contribution 34.5%, Income tax at 32%, sales 14.4%, charges for services 10.1% and other revenue at 9% ( Statedatalab, 2019) . In addition, the financial position of the State of California has continued to perform better with a combined fund balance $ 70 billion which is a good performance. The government funds therefore mainly depended on taxes levied to all the citizens. The government funds balance in the balance sheet in 2017 was $ 89.6 billion assets while 51.7 billion concerned liabilities and $ 37.9 billion was the fund balance (Statedatalab , 2019).
Major Programs and Functions of a Government Entity
Some of the main programs under the State of California include health and health services which are meant to ensure universal health coverage. It is very important since it has affected many people while still; health has been very expensive to access. The fund set aside for the program is the health fund meant to benefit many people in the region. Education has also been a very important program in order to ensure they region maintain a universal literacy level in the region. Other programs include high-speed railroad which meant to ensure proper development of infrastructure as well as ensuring free and easy movement of goods and services. Finally, other programs include correction and rehabilitation, transport, general government programs and others which are all assigned a specific fund from the government such as federal fund.
Some of the main State of California government roles include the provision of basic services and amenities such as infrastructure and road to ensure better access and trade can be enhanced. The state government is also involved in policy formulation which is the process of policy-making and regulating government rules and regulation to be followed. Some of the policy would be for example in environmental pollution or tax evasion regulations. The state also has the role of collecting and generating the necessary revenue to ensure there are enough funds to fund the development activities in the region. Since the State of California is composed of Government, Lieutenant governor, state controller among others they all work together to ensure the members of public receive the best services.
From the above chart, there are various expenses by programs such as health and human services which is the largest which uses health fund in the region that has been set aside by the government. Next is education expense which is catered by education fund that is also created by the government in order to ensure that all the children gain access to education. General government programs is financed by federal fund while transport program is catered by road and transport fund which all comes from the tax papers. Finally there is other which accounts for 4.9% that is set aside under miscellaneous fund.
Financial Issues Identified In the Financial Report
There are various financial issues that I have noticed from the Annual Report which I believe will be very relevant and significant within the next 10 years in the region. One of the main notable financial issues concerned California’s reported net position which was inflated by $ 16.7 billion since the state defers recognizing losses that are incurred in case the net pension liability was able to increase. This is a very serious financial issue which was raised as the state accounting officer was inflating the net position in order to provide a good public image to various stakeholders. However, the issue can be rectified in an appropriate manner where there should be regular external auditing to verify financial reports.
In addition, there is another issue of high-speed railroad and bonds which also raised a lot of issues in the region. Note 16 dealing with Revenue Bonds especially from State Treasurer who was able to authorize the issue of GARVEE bonds also raised serious issues (Statedatalab, 2019) . It was a form of financing tools for the government to support various high transportation projects which were also misused and not accounted for. The state can correct that issue by having strong internal controls in place.
Another financial issue is that the state has a total of $ 100.1 billion of assets available in order to pay $ 369.9 billion of various bills. This is a serious issue since it means that the state does not have any form of security to cover for its both short and long term financial obligations. The issue can be correct through increased management and maintenance of various bills. In such a case there will be enough funds to increase the level of the asset base.
The outcome of the increased level of bills is that the shortfall is $ 269.9 billion while the available taxpayer burden is $ 22000. It, therefore, shows financial challenge in repaying the shortfall available since the revenue expected is way too little. It would be very important to incorporate and bring more people into the tax bracket in order to increase revenue generation. Tax evasion has been a challenge that requires highly trained revenue officers to manage the issue.
Another issue I noticed is that the State of California has reported most of its pension debt while still more than $ 58.4 billion is hidden for its retiree health care debt (Statedatalab, 2019) . Therefore that is a serious financial fraud which is aimed at ensuring that few individuals are able to benefit from the available pension. There is, therefore, the issue of lack of financial transparency and honesty when disclosing available information. The issue can be solved in an appropriate manner where strong internal controls should be put in place when dealing with information disclosure in the region. The management should ensure they are able to oversee the implementation of the controls. Finally, California has received grade F since it needs more than $ 20000 from every taxpayer to be able to pay all the bills.
State of California Financial Viability
Despite the State of California has a surplus budget, the state still faces financial and fiscal risk which makes it not financially viable in the region. First, the state has $ 100.1 billion as available assets that are supposed to pay $ 369.9 billion of financial liabilities (Statedatalab, 2019) . In addition, the pension debt has continued to be hidden from most of the retiree healthcare debt which means that there is huge financial fraud within the state organ. Financial unviability is also seen where it needs more than $ 20000 from every taxpayer in order to finance the budget where it has in fact received grade F.
The State of California despite being hardest hit by the 2009 Great Recession it has been the largest sixth economy in the region with improving GDP growth. Due to high and heavy taxes charged, it has continued to increase the per capita and the employment rate for most of the jobless youths in the region. In addition, the management of the State of California has also continued to market the state in order to receive more investors in the region and growth and increase in the tourism sector. The future outlook is therefore very well viable which is expected to ensure an increase in revenue generation, economic growth and financial stability in the region.
Dealing with financial matters are the main issues that need to have been dealt with in the near future. The main issue about finances which has been affecting the state deals with a low level of financial assets $ 100.1 billion which is expected to cover more than $ 369.9 financial liabilities. In such a case every taxpayer owes the government more than $ 20000 in order to finance the budget (Sco, 2019) . Therefore there is a great issue with revenue generation where the debts are more than the revenue generated. The state, therefore, needs to come up with new and better revenue generation strategies and also provide more measures that would make the state financially stable. In addition, in order to increase revenue and funds for the government, the state needs to seek more funding in form of grants and contributions from various sponsors. Finally, there is also a need to increase private and public partnership in the region which will help in financing various projects.
Conclusion
The State of California has been able to prepare the necessary financial statements such as balance sheet and income statements. All the financial statements have been prepared in accordance with the Government Code Section 12460. Through the intervention of the government, the management has been able to take responsibility for the accuracy and completeness of the financial information presented. Over the years, the state has been able to perform well in the region where the net position has increased by $ 9.1 billion which is a 29.9% increase (Sco, 2019) . Liquidity ratios have been used to understand the liquidity performance of the state where the current ratio is 1.75 which is a clear indication that the current assets are more than current liabilities in the region. The quick ratio is 1.58 which able to provide liquidity performance.
There are various financial issues in the financial statements identified such as net position has been inflated by more than $ 16.7 billion which will affect the state in the next 10 years. The high-speed railroad has also raised a lot of issues in the region which requires strong internal controls. The financial liabilities are also more than the assets where every taxpayer is required to pay $ 20000 to finance the debt in the region. Despite the state being financially not viable, it is expected to have strong financial stability in the near future.
References
Sco.ca.gov. (2019). Comprehensive annual financial report (CAFR). California State Controller's Office: Comprehensive Annual Financial Report (CAFR) . Retrieved on 11 February 2019, from https://www.sco.ca.gov/ard_state_cafr.html.
Statedatalab.org. (2019). California . Retrieved on 11 February 2019, from https://www.statedatalab.org/state_data_and_comparisons/detail/california
