Multi-Year Financial Planning Two Approaches For Forecasting the Future

1. Multi-Year Financial PlanningTwo Approaches For Forecasting the Future Brenda West, CPA Government Finance Officers of Texas Spring Institute April 13-15, 2008

2. What is Long-Term Financial Planning? • Strategic process • Outlines economic development & service goals • Uses trends in current operations to forecast future financial condition • Details year-by-year steps needed to preserve the fiscal health

3. Why Do Long-Range Planning? • Guides annual decision making process • Maintain, reduce or increase service • Meet future operating & capital needs • Expand or initiate new programs • Deals with long-term core issues • Maintains focus on key issues of the future • Allows time to act on foreseeable hurdles to come • Basis for evaluating debt capacity

4. Pitfalls to Long-range Planning • Forecasting could be wrong (Really??!) • Educating users • Forcing tough decisions to the forefront • Keeping the benefits ahead of the costs (Time Investment) • Understanding components well enough to forecast

5. Bottom Line • Every government is different • Establish assumptions • Know what you want to achieve • Adapt the long-term financial plan to meet your needs • Recognize the limitations of forecasting • Establish management’s trust and usage of this tool in their decision making process

6. Edmond, OK Approach • Edmond’s goals • Five-year long term forecasting • Incorporate into annual budget process • Require all funds to be balanced throughout the five-year window • Departmental involvement in balancing their budgets • Each line-item was reviewed and forecasted

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8. Edmond, continuedRevenue forecasting

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11. Edmond, continued • Assumptions • High growth city with no current signs of slowing down so revenue forecasts reflected a conservative linear trend upward • Revenues/Expenses based on historic trends • Utility Revenues history long enough to average wet/dry years • Revenue Bonds to pay for utility infrastructure projects

12. Edmond, continued • Pros • Recognized what programs and capital needs were financially attainable • Focused thinking into the future, not just on the next year needs • Budget process easier after 2-3 years when updating is all that departments need to do to their yearly plans • Departmental buy-in and involvement • Cons • Additional work for departments balancing five years at times • Added complexity which was not always understood by Council • Staff frustration if Council ignores the plan

13. Lewisville, TX Approach • Lewisville’s Goals • Financial Planning for the two major funds—General Fund & Utility fund • Available to Council as a tool for planning and direction • Incorporate long-term capital and debt planning • Project expenditures as a whole, rather than line-item • Project revenues by categories based on trends

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19. Lewisville, continued • Assumptions • O&M portion of property tax rate maintained through planning years • I&S portion at levels to support debt service • Total property tax rate never reaches rollback level • FORECAST function for property tax values • Revenue & Expenses based on historic trends • Utility Revenues history long enough to average wet/dry years • Payroll costs are adjustable

20. Lewisville, continued • Pros • Focuses Council on the big picture, course corrections • Ease in forecasting categories of revenues and expenses rather than individual accounts • Highly manageable when detail is left to key areas • Cons • Care must be taken not to over-simplify • Established conservative budget process & long-term financial plan thinking at odds with one another • Frustration when Councils ignore warning signs