LongTerm Financial Planning

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Long-Term Financial Planning

• Thomas Judy, CPA
• Assistant City Manager
• City of Sidney, OH

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• By failing to prepare,
• you are preparing to fail.
• Benjamin Franklin
• Few people have any next, they live from hand
  to mouth without a plan, and are always at the
  end of their line.
• Ralph Waldo Emerson

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Typical Local Government Financial Planning
Model
Capital Planning
Strategic Plan
ANNUAL BUDGET
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Deficiencies of Typical Model

• 1-Yr Operating Time Horizon
• Short-term politically expedient decisions
• Reactive rather than Strategic
• Lack of Financial Policies
• Poor communication of organizational direction
• No link between Capital Operating plans
• Insufficient life cycle costing
• Debt affordability is difficult to assess

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• A good hockey player plays where the puck is. A
  great hockey player plays where the puck is going
  to be.
• Wayne Gretsky

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• Adopt a planning process that assesses the
  long-term financial implications of current and
  proposed policies and programs and that develops
  strategies to achieve the goals
• Recommendation of the National Advisory Council
  on State and Local Budgeting

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• The GFOA recommends that all governments
  regularly engage in long-term financial
  planning
• GFOA Recommended Practice

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Why Long-Term Financial Planning?

• Brings financial perspective to planning
  processes
• Stimulates long term and big picture thinking
• Decisions based on sound financial policies
• Aligns ST actions with LT financial strategies
• Prioritizes services
• Builds case for action
• Streamlines annual budget process

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Why Now?

• Sluggish economy
• Murky employment outlook
• Reliance on Income Tax creates financial
  volatility
• Difficult housing market
• Reduced state-shared revenues
• Rising employee benefit costs
• Citizen initiatives (e.g., TELs)

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In the headlines

• State, City Layoffs 45,000 and Counting
• Budget Problems Lead to Fewer Police Officers
• State Budget Problems Lead to Renewed Interest
  in TELs

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What is a Long-Term Financial Plan?

• A strategic and visionary process
• Discipline to stimulate Big Picture, long range
  thinking
• Resulting in financial strategies
• To align financial capacity with the
  organizations service vision

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What is a Long-Term Financial Plan?

• Collaborative participative process
• Communication device
• Builds public confidence
• Is NOT a precise financial projection

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Financial Planning Model - Sidney
GOALS PRIORITIES Strategic Plan Council
Strategic Planning
LONG-TERM FINANCIAL PLAN Trend
Analysis Financial Forecast Critical
Issue Analysis Debt Analysis Capital Analysis
Financial Strategies
ANNUAL BUDGET
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Sidney Experience

• Circa 2000
• Economic Storm Clouds on horizon
• Some financial policies but few written
• Five-Year financial plan but
• No linkage to policies
• Mainly a capital plan Little emphasis on
  operating funds
• Annual budget was still primary financial
  planning process

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Sidney

• First Priority Establish Policies
• Council
• LTFP was a key to Councils understanding of
  emerging threats
• Early successes enhanced credibility
• Timely Corrective Actions
• Increased General Fund revenue by 10
• Decreased Gen. Fd. expenditures by 5

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General Fund Balance What-If ?
A
B
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Long-Term Financial Plan Elements

• What is the Time Horizon?
• 5-10 yrs.
• What funds are included?
• Ideally, all appropriated funds
• How often is the plan updated?
• At least annually
• Whats in it?

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Whats in a LTFP?
Long-Term Service Vision

• Financial Policies

Financial Trends Projections
Capital Project Analysis
Debt Analysis
Financial Strategies
Executive Summary Narrative
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Long-Term Service Vision

• Existing strategic plans
• Usually do not consider financial capacity
• Elected officials priorities
• Publics priorities
• Long-term financial plan aligns financial
  capacity with this vision

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Financial Policies

• Establish boundaries (Decision Guardrails) for
  staff and elected officials
• Basis for accountability and trust in govt.
• Policies must be owned by elected officials
• Enhance Continuity as legislative body membership
  changes
• LTFP must demonstrate the organizations
  compliance with financial policies

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Some Key Financial PoliciesCommitment to
Long-Term Planning

• The City recognizes the importance of long-term
  strategic planning, as evidenced by its
  Comprehensive Plan. Similarly, it recognizes that
  prudent financial planning considers the
  multi-year financial implications of decisions.

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Some Key Financial Policies Rainy Day Funds
Policy
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Some Key Financial PoliciesSelf-Support Policy
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Some Key Financial PoliciesDebt Policy
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Some Key Financial Policies

• Balanced Budget policy
• Fee-setting policy
• Revenue Diversification policy
• Use of One-time Revenues policy
• Internal control policies

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Financial Policies

• Sources
• Unwritten policies
• GFOA Recommended Practices
• Borrow from others
• Experts role eg., financial advisor for debt
  policy
• Legislative body adoption

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Analysis and Forecasting

• Confess limitations of LT forecasts
• Link to Service Planning
• How do financial strategies affect services?
• Communicate role of forecasts
• Present plausible scenarios for discussion
• Reveal future imbalances and trends
• Stimulate big picture strategic thinking
• Lead to financial strategies for timely
  corrective actions

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Analysis and Forecasting

• Assess the Environment
• Involve other departments
• Identify resources needed to carry out vision
• Use staff expertise for projections
• Assist with critical issue planning
• Use outside resources as necessary
• Scenario analysis capabilities
• Adaptability (what-if?)

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Analysis and Forecasting

• Confidence in forecasts
• Build credibility via accuracy of short-term
  forecasts
• Gain consensus on assumptions
• Consider monthly or quarterly updates to mitigate
  speculative nature of long-term forecasts
• Celebrate successes often

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Financial Strategies

• LTFP process leads to strategies that
• Are based on input from variety of sources
• Consider long-term impacts
• Are based on sound financial policy
• Are implemented timely

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Financial Strategies (examples)

• Selectively use temporary labor in lieu of
  permanent staff
• Implement a vehicle pre-funding program
• Fund a Water Source reserve fund to accumulate
  cash to fund future debt service
• Privatize yard waste program
• Increase ambulance fees for BLS and ALS to..
• Sources City of San Clemente, CA City of
  Glendale, AZ City of Sidney, OH

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Collaborative Participative Process

• CFO and CEO provide leadership
• CFO facilitates
• CEO manages relationship with governing board and
  gets buy-in from key staff
• Governing board
• Set Standards, casts Vision
• Key staff
• Public
• Surveys, focus groups, public hearings

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Getting Started

• Prerequisite Governing boards trust
• Leadership
• CFO
• CEO
• Recruit a Champion on governing board
• Set the rules of the game before you play
  Policies First

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Elected Officials Get their Buy-In

• Recruit Advocates on governing board
• Discuss consequences of not planning
• Extol virtues of long-term planning
• Focus on impact on citizens / service delivery
• Prudent stewardship
• Run govt. like a business
• Demonstrate inclusion of elected officials
  priorities in the plan
• Acceptance greater with 2nd generation

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Elected Officials Role

• Select Planning Horizon appropriate for terms in
  office
• Get their involvement early
• Review and update Financial Policies
• Determine Service Level preferences
• Set strategic Priorities
• Discuss Financial Issues facing organization
• Suggest financial Strategies
• Remind them of past successes

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Document Keep it Simple
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Document

• Keep It Visual Lots of graphs Illustrations
• Keep it Transparent Disclose Major Assumptions

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Document

• Demonstrate compliance with
• Strategic plans and elected officials priorities
• Financial policies
• Governing board adoption

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The Role of the Annual Budget

• Extension of long-term financial plan
• Business plan that puts the long-term
  strategies into action
• Annual budget will become de-emphasized

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LTFP Points to Ponder

• A LTFP is a Discipline an Ongoing Process
• Plans are nothing
• Planning is everything.
• Dwight D. Eisenhower
• Getting organizational buy-in will be a test of
  your Leadership

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Resources

• Financing the Future Long-Term Financial
  Planning for Local Government
• by Shayne C. Kavanaugh
• www.san-clemente.org
• www.gfoa.org
• www.sidneyoh.com/departments/finance.htm