By Dave Callister
As an elected official, you play an important role in ensuring tax dollars are spent wisely and that your city is able to continue providing services and infrastructure taxpayers expect. Financial planning is the cornerstone of a successful city, so you need to make it a priority.
Arm yourself with baseline knowledge about your city’s finances, so you can ask key questions and make sure your city is making sound financial decisions.
Financial planning is essential to a strategic, long-term approach to financial management. It may help your city avoid costly or ill-timed investments, reduce its reliance on debt, and maintain stability in the face of economic uncertainty.
A good long-term financial plan should help you adopt a big-picture perspective and prepare for a variety of future scenarios and outcomes. It should include an analysis of the city’s finances, reliance on debt, revenue and operating expenditure trends, capital improvement plans, tax base growth, staff additions, key initiatives, and financial strategy. As summarized by the Government Finance Officers Association (GFOA), long-term financial planning is important because it can help:
Most long-term financial plans cover five to 10 years, but some plans forecast as far as 20 years into the future to help the city better project infrastructure or facility needs. The range of time will fluctuate depending on the city’s priorities and key financial issues. You can always start small and expand your time horizon.
Your city should update its financial plan annually—it can serve as an important forecasting tool and resource during the budget process.
While a variety of factors affect a city’s financial health, developing a suitable combination of planning tools allows elected officials and staff to better manage financial impacts. Financial plans, projections, forecasts, and studies are tools that can help evaluate a city’s current position and identify trends to develop a proactive long-range approach.
Some key documents include:
Understanding these documents will help ensure your city’s fiscal stability. Also keep these tips in mind:
While debt should be minimized as much as possible, sometimes it is necessary to issue debt. Debt management is a vital part of a city’s financial strategy.
Debt is an important and flexible revenue source that may allow your city to complete necessary capital improvement projects sooner. Debt can also reduce long-term costs due to inflation, prevent lost opportunities, and equalize the costs of improvements to current and future residents.
One of the primary goals in debt management is to stabilize the overall debt burden and future tax levy requirements to ensure that issued debt can be repaid. A high level of debt places a financial burden on taxpayers and can stress the local economy.
Encourage your staff to talk to your city’s financial advisor about looking for ways to pay off debt early to eliminate future debt levies, refinancing for a lower interest rate, or restructuring debt repayment schedules.
Maintaining high bond ratings is beneficial in keeping interest rates low and demonstrating sound financial stewardship to potential investors. Top bond ratings help cities achieve the best possible value for residents because they reduce the amount of interest paid, which directly affects the amount of property taxes required to pay off the debt.
High bond ratings also demonstrate competency to residents and businesses, and are indicative of a city’s financial health and reputation. Rating agencies look favorably on cities with long-range financial plans.
As an elected official, you won’t know the ins and outs of the city’s finances like your staff does. So, throughout the financial planning and budgeting process, be sure to ask questions. Here are some specific questions you can ask:
To learn about the city’s financial health, ask these questions:
By getting answers to these questions, along with becoming familiar with key documents, you will have a good start on doing your part to make sure your city is financially stable.
Note: See this related story to see how focusing on cash reserves and debt can help you gauge your city's day-to-day financial stability.
The City of Plymouth began a much-needed expansion project at the city’s maintenance facility in 2016. The last time the facility was expanded was in 1990, and more space was needed to allow the city to better protect and maintain the millions of dollars in equipment and vehicles stored at the site. This project is an example of how long-term financial planning helped save taxpayer dollars.
Because the expansion project was anticipated as part of the city’s long-term financial plan, and thanks to the prudence of past and present City Councils and staff who were judicious with spending and had the foresight to plan ahead, Plymouth was able to use reserves created from several budget years to cover this $10 million, 46,000-square-foot capital improvement project without the need to issue debt.
How was Plymouth able to amass $10 million in reserves? Whenever possible, Council and staff conservatively budget revenue. They also look for opportunities to realize cost savings to fall under budget. For example, they try to maintain or repair equipment, software, and infrastructure to prolong their useful life, rather than purchasing a replacement as a standard practice.
If Plymouth had issued debt, the city would have been paying interest for 15-20 years at market rate, in addition to incurring issuance costs. Long-range planning helped minimize the tax impact on residents and businesses, and helped avoid spikes in the annual levy.
Dave Callister is the city manager of Plymouth. Contact: email@example.com or (763) 509-5301.
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