Accounting
Municipal Z-Score: A forecasting tool revisited
Forecasting fiscal stability in municipalities is increasingly critical as public entities face unprecedented financial challenges. Recent research has adapted Altman’s renowned Z-Score model—originally designed to predict corporate bankruptcy — to assess municipal financial health. By recalibrating the model’s metrics to reflect government priorities, the approach now evaluates liquidity, operating efficiency, and solvency in a framework that serves as an early warning system for fiscal distress.
Edward I. Altman is a distinguished finance professor best known for developing the Altman Z-Score, a model introduced in 1968 that predicts corporate bankruptcy by analyzing various financial ratios. His work has had a lasting impact on risk assessment in both corporate finance and, more recently, in adapting financial health models for municipal use.
Altman’s original model combined five financial ratios to predict corporate failures. For government entities, certain ratios have been modified. For instance, while both corporations and municipalities use the working capital-to-total assets ratio to gauge liquidity, municipalities substitute retained earnings with unrestricted fund balances to better represent available fiscal resources. Similarly, operating efficiency is measured by replacing EBIT with operating surplus, and the market value of equity is adjusted by comparing unrestricted general fund reserves with general fund expenditures. Finally, asset turnover is assessed by examining the ratio of revenue to total assets rather than traditional sales figures. These modifications ensure the model captures the unique fiscal dynamics of government operations while retaining its predictive strength.
The adapted model categorizes municipal financial health into three distinct zones. Municipalities scoring above 2.99 are considered to have robust fiscal profiles, with strong liquidity, efficiency and solvency. Scores between 1.81 and 2.99 indicate moderate risk, suggesting that while these entities are not yet in crisis, they warrant closer scrutiny and potential preemptive intervention. Scores below 1.81 signal significant fiscal vulnerability, emphasizing the need for immediate corrective measures to prevent deeper financial deterioration.
Historical case studies lend credence to this approach. The experiences of Detroit, Vallejo and Stockton illustrate how persistent low Z-Scores — often accompanied by declining liquidity and operational inefficiencies — preceded fiscal collapse. Vallejo’s steady decline to a Z-Score of 0.97 and Detroit’s dramatic plunge into negative territory were early indicators of underlying financial problems. Even Stockton, with moderately low scores, demonstrated that even slight deviations from the benchmark could forewarn a fiscal crisis. These examples highlight the model’s value in foreseeing distress well before it reaches a tipping point.
Recent evaluations of six municipalities from fiscal years 2020 to 2024 offer a contemporary perspective. In Connecticut, Bristol exhibits a declining trend in its Z-Scores, signaling emerging risks despite still hovering above the critical threshold. In contrast, Bridgeport and Milford display persistently negative scores, suggesting that both face chronic liquidity challenges and operational inefficiencies reminiscent of the pre-bankruptcy conditions seen in earlier case studies. Meanwhile, cities like Raleigh, Ogden and Gainesville have maintained scores above the distress threshold. Although Raleigh experienced a minor decline in recent reporting periods, its overall financial management remains solid, while Ogden and Gainesville have shown consistent, if cautious, improvement.
This analysis is not merely retrospective. It offers valuable lessons for current municipal financial management. Continuous monitoring of liquidity and solvency is essential, as a gradual decline in these indicators can be an early sign of trouble. The adapted Z-Score model provides a clear, quantifiable method for comparing fiscal health across municipalities. By benchmarking against historical cases, public officials can identify which cities are on a precarious path and require timely intervention.
The implications for policy are significant. Municipalities must prioritize regular and rigorous financial monitoring. Enhancing revenue diversification is also crucial, as overreliance on volatile income streams can exacerbate fiscal instability during economic downturns. Prudent debt management, including re-evaluating existing debt structures and exploring refinancing options, can further reduce long-term pressures. Finally, integrating this model into existing financial reporting platforms — such as those mandated by the Government Data Transparency Act — could streamline the process of identifying potential distress, allowing for more agile responses.
Adapting the Z-Score model for municipal finance represents a promising step forward in managing public fiscal health. By recalibrating traditional corporate metrics to better fit the context of government financial management, this approach offers a proactive, data-driven tool for early intervention. As municipalities continue to grapple with complex fiscal challenges, embracing such innovative analytical frameworks will be vital to safeguarding public resources and ensuring long-term stability.
Cherry Bekaert, a Top 25 Firm based in Raleigh, North Carolina, has acquired Spicer Jeffries LLP, a Denver-based firm with an extensive business in fund audits.
Spicer Jeffries’ clients include hedge funds, private equity firms, venture capital firms, commodity funds, mutual funds, registered broker dealers, investment advisors and other investment entities. The firm ranks among the
The deal, which closed in March but was announced Tuesday, marks a major expansion of Cherry Bekaert’s financial services footprint as part of its private equity-fueled growth strategy.
The acquisition expands Cherry Bekaert’s geographic coverage to the Rocky Mountain region, including Denver. It also provides Cherry Bekaert the ability to audit funds registered with the Cayman Islands Monetary Authority through Spicer Jeffries’ affiliated firm, Spicer Jeffries (Cayman) Ltd.
“This is a transaction that we’re super excited about,” said Scott Moss, leader of private equity advisory services at Cherry Bekaert. “It’s a little bit different than some of the other transactions we’ve done, but it very much fits within our overall growth strategy. What makes it different is this is a core audit and tax firm, but they have been almost exclusively focused on a single industry: the asset management or fund audit and tax world, which includes things like hedge funds, private equity funds, venture capital funds, credit funds, broker dealers, family offices and the like.”
Financial terms of the latest deal were not disclosed. Cherry Bekaert ranked No. 20 on
“They’ve been around for roughly 30 years,” said Moss. “The original founder is still active in the firm, so we looked at it as a great opportunity to combine our talents and our practices in our broader financial services arena, which for us will include financial institutions, banks and credit unions, insurance entities, the asset management sector, and our private equity space.”
The two firms have been working on the transaction for the past 10 to 12 months. “Joining Cherry Bekaert is a significant step forward for us,” said Spicer Jeffries founder and managing partner Robert Yurglich in a statement Tuesday. “We are thrilled to bring our specialized industry knowledge to a firm that values growth and investor confidence. This partnership presents exciting growth opportunities for our people and enhances the value and services we provide to our clients.”
As is typical for private equity funded accounting firms that operate in alternative practice structures, the transaction consists of two acquisitions: Cherry Bekaert Advisory LLC acquired Spicer Jeffries LLP’s non-attest assets, which includes its tax team, while Cherry Bekaert LLP will acquire Spicer Jeffries LLP’s attest assets, which includes its audit team.
“This acquisition underscores our commitment to the financial services industry,” said Cherry Bekaert Advisory LLC CEO Michelle Thompson in a statement. “We value the relationships Spicer Jeffries has built with their clients, fund administrators, attorneys and other members in the investment community. We are excited to grow together.”
Moss sees it as an outgrowth of the PE-fueled growth strategy. “It’s really the culmination of some initiatives that we put in place about four years ago, when we looked around and said, we built a heck of a firm, very successful in serving private equity funds, but heavily focused on the advisory side,” he said. “We looked at our competition in the marketplace. A lot of the competition was trying to get into the advisory side, but they had built their success in the fund audit and tax arena. We look at this as a balancing out of the service lines within our overall fund and financial services sector.”
Artificial intelligence is actually boosting productivity and wages, a new report found.
PwC’s 2025 Global AI Jobs Barometer report, released today, analyzed nearly a billion job ads across six continents. It found that AI is making workers more productive, valuable and able to demand higher wage premiums.
“This research shows that the power of AI to deliver for businesses is already being realised. And we are only at the start of the transition,” Carol Stubbings, global chief commercial officer at PwC, said in a statement. “As we roll out Agentic AI at enterprise scale, we are seeing that the right combination of technology and culture can create dramatic new opportunities to reimagine how organisations work and create value.”
Surprisingly to some, the data does not show job or wage destruction from AI. Job availability actually grew 38% in roles that were more exposed to AI, although that figure remains below the growth rate in less exposed occupations (65%). And wages grew twice as fast in AI-exposed industries, reaching 56% growth in 2024 versus 25% the previous year. Jobs that require AI skills have also continued to grow faster than all jobs, rising 7.5% from last year while total job postings fell 11.3%.
“In contrast to worries that AI could cause sharp reductions in the number of jobs available — this year’s findings show jobs are growing in virtually every type of AI-exposed occupation, including highly automatable ones,” PwC’s global chief AI officer Joe Atkinson said in a statement. “AI is amplifying and democratizing expertise, enabling employees to multiply their impact and focus on higher-level responsibilities. With the right foundations, both companies and workers can re-define their roles and industries and emerge leaders in their field, particularly as the full gambit of applications becomes clearer.”
In addition, industries the most exposed to AI saw three times higher growth in revenue per employee (27%) versus those less exposed (9%). And skills sought by employers are changing 66% faster in the most exposed jobs.
“AI’s rapid advance is not just re-shaping industries, but fundamentally altering the workforce and the skills required,” PwC’s global workforce leader Pete Brown said in a statement. “This is not a situation that employers can easily buy their way out of. Even if they can pay the premium required to attract talent with AI skills, those skills can quickly become out of date without investment in the systems to help the workforce learn.”
In light of its findings, the report recommends five actions for businesses:
- Use AI for enterprise-wide transformation;
- Treat AI as a growth strategy, not just an efficiency strategy;
- Prioritise Agentic AI;
- Enable your workforce to have the skills to make the most of AI’s power; and,
- Unlock AI’s transformative potential by building trust.
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