Why Municipalities Need Long-Term Financial Plans
July 3, 2014
When it comes to an organization’s finances, planning is never a bad thing. And that goes for municipalities, too.
Most municipalities are very adept at accounting, which is largely historical in nature. The challenge, then, for many municipalities is to leverage the accuracy of past reports to create a clear picture of the future. The advantages of financial planning are plentiful, and extend far beyond promoting responsible fiscal practices. Here are four reasons why all municipalities—regardless of their size—should have a long-term financial plan in place.
1. Provides a roadmap for future projects
Many municipalities have capital improvement plans in place for the next five to ten years, but find it challenging to tie it into their organization as a whole. Integrating the capital improvement plan into a long-range plan will help identify funding and gauge its overall impact, including the affect it may have on tax and utility rates.
Making these projections via a long-term financial plan is key to helping council members see how projects will affect their constituents. Plus, it provides information on the affordability and sustainability of the municipality’s needs, and is a great way to manage total tax levy, including general and debt levies.
2. Identities areas of opportunity and risk
Strategic planning is a powerful tool that can help municipalities forecast the future. A long-term financial plan gives municipalities the chance to conduct a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. This critical planning exercise can help municipalities evaluate potential opportunities and risks—and operate more proactively.
3. Gives direction to city council members
A long-term financial plan should include input from council members and department heads. Getting their buy-in serves to establish a solid foundation of goals, which can help the council efficiently evaluate annual budget needs. When presented properly, an established plan allows for continuity—and prevents a lapse in focus on key goals—as municipal councils change.
4. Positively affects bond ratings
Financial management is an important variable used by bonding agencies in determining a municipality’s bond rating. Having a long-term financial plan in place speaks to the municipality’s knowledge of reserves, its commitment to future debt management, and its forward-thinking approach—all of which score points during the bond-rating process.
Taking time to prepare a long-term financial plan is key to any municipality’s success. And it’s important to note: Rate and debt management studies can also be useful when planning and determining a municipality’s future needs.
Each and every municipality should consider developing a long-term financial plan that best fits their needs.
Andy Berg, CPA, is AEM’s Government Segment Leader. When he’s not fishing for ways to help governments boost efficiency, he’s casting lines for whopper muskies. You can reach Andy at 952.715.3003 or at email@example.com.