Planning a Financial Future: How long-term analysis can benefit local government By Kris Sikes
A long-term financial analysis (LTFA) is intended to provide insight into how financial conditions are likely to appear in the future, which in most cases consists of the next five years, so that appropriate planning can begin in the present. The overall objective of LTFA is to assist local managers and leaders in crafting a plan that meets the needs of a community without sacrificing its financial future.
Local governments understand the value of looking at historical trends in revenues generated from such various sources as taxes, fees, and fines to project expected future revenue levels. It can also be important to understand how these revenues are tied to community factors that include population, inflation, and income level.
Understanding the relationship between how a community has changed over time and the revenues that have resulted from those changes gives governments a sense of how much money they can expect to have in the future to support government operations.
28
Governments also understand that it can be beneficial to then compare those revenue trends to the historical trends of the expenses incurred in providing the services their residents desire. Again, it may be useful to relate those expenses to the community’s profile and how that profile has changed over time. Understanding the drivers behind revenue and expenditure streams and planning for potential gaps allows governments to develop a game plan to ensure there is sufficient funding to operate the government in the future. Yet, many communities also think it can be difficult or expensive to develop and use forecasting tools in their budgeting process and therefore forgo this forwardlooking approach to budgeting.
This article discusses the benefits of forecasting, provides some important drivers that communities need to think about when planning for the future, and gives examples of two types of governments that have used long-term financial analysis to help solve budgeting problems. This should give small- to medium-size communities the
SOUTH DAKOTA MUNICIPALITIES
