Government Finance Series: How to Create and Implement a Long-Term Financial Plan
Once you buy into the rationale that every governmental entity (and every other organization, for that matter) should have a long-term financial plan, your first question will most likely be how to kick-start such a big project and keep it moving forward.
It’s not as simple as gathering organizational leadership around a conference table with a whiteboard. To develop an effective long-term financial plan, you’ll need deliberate preparation so that when the time comes to make decisions – not just in a crisis, but in times of surplus, too – you’ll have the right people at the table with the right data.
This white paper provides a framework to help you think about the four phases of long-term financial planning and what information, people and other resources are needed along the way. We’ve drawn extensively from Shayne Kavanagh’s book Financing the Future: Long-Term Financial Planning for Local Government, which I’ve seen validated by my years of experience as a large-government CFO and government auditor and consultant. The Government Financial Officers Association also offers useful resources for this topic.
Preparing for Long-Term Financial Planning
The four phases of long-term financial planning are:
Mobilization is preparing yourself and your organization for a successful planning process. During this phase, you’re laying the groundwork by getting the appropriate people involved and helping everyone understand the goals, timeframe, roles and responsibilities, expected outcomes, and process that will take place. This includes clearly identifying a leader for the process – typically, the CEO or CFO of the organization. In essence, you’re providing a roadmap for the group to get from where you are now to the end product: a long-term financial plan ready for execution.
Mobilization is an easy step to overlook, since “planning for planning” may seem like a waste of time. But building stakeholder consensus on goals, roles, timeframe, and process up front helps prevent conflict about these matters further down the road and keeps the process on track.
During mobilization, you may also:
- Conduct some preliminary analyses by scanning the financial environment to increase the visibility and awareness of key issues that could arise during planning. This may include a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, an environmental scan of the community, and a review of other planning processes that may have taken place. It also may include preliminary revenue and expense forecasts as well as debt analysis.
- Identify service-level policies and priorities. This fundamental definition of what expectations a governmental entity should or will fulfill is a key driver for how the entity will need to budget and spend its resources. If there’s a mismatch between the community’s service-level preferences and the entity’s resources to fulfill those preferences, it’s critical to resolve that issue before long-term planning can continue.
- If the organization doesn’t already have a comprehensive set of fiscal policies in place, it’s timely to consider drafting and adopting them at this point. Fiscal policies help an organization by setting priorities, freeing up leadership by empowering staff, and supporting strategy (see our white paper on fiscal policies).
Analysis: During this phase, the planning team gathers and reviews the information that will support the next phase: decision. In the analysis phase, the team builds on the preliminary analyses performed during mobilization to conduct a fiscal environment analysis. Planners look at topics that may include legislative issues, the political environment, economic growth areas, and service demand. In other words – what are the environmental factors that may affect the government’s financial condition, and what are their likely effects?
After gathering and analyzing data on the current environment, the next step is to evaluate what’s likely to happen in the future through trend projections. Are the current trends in revenues and expenses likely to continue, or would changes be likely? Are the current debt levels likely to continue, and are they sustainable with the current revenue projections?
Last, in financial balance analysis, the planning group looks for gaps between what a desired financial position for the long term would be, and what it’s likely to be, based on the current long-term projections. A gap, or financial imbalance, can then be addressed proactively with changes in the long-term financial plan, rather than waiting until a crisis occurs.
Decision: Once the data and analysis is completed, it’s time for decisions. What should be done if a financial imbalance is identified? What strategies should the group recommend? How will you rectify an imbalance? Are changes to financial policies needed? Are new revenue sources needed? Should expenses be reduced? Are the service-level preferences still valid?
As might be expected, the decision phase often includes elected officials and, potentially, citizen input, although governmental staff members typically provide the data, analysis, and recommendations. Particularly if large-scale changes are required due to significant financial imbalances, citizen input may be critical to build political support for decisions such as tax increases, service reductions, or changes. Communication of the long-term financial plan can be an effective way to educate citizens and engage them as stakeholders.
Execution: After the decisions are made, implementation typically falls to entity staff to implement – a job made easier with the discussion, buy-in, stakeholder involvement and data analysis that preceded the decisions. A governmental entity which periodically communicates the status of its long-term financial plan to its citizens increases transparency, trust, and perceived accountability – all good measures of stewardship.
Need more information?
For more information about the long-term financial planning process for governmental entities, register for my webinar on Sept. 28, or contact me directly using the information below.
Ben Hart brings the dual insight of a governmental entity chief financial officer combined with the hands-on experience of governmental auditing for a public accounting firm. Following four years’ specialization in governmental auditing with a CPA firm, Ben was named the first chief financial officer of the newly joined Unified Government of Wyandotte County / Kansas City, Kansas. There, he directed the integration of two large, complex entities’ systems and personnel as well as selection and implementation of a new enterprise resource program.
In 2005, Ben’s responsibilities expanded to include human as well as financial resources when he became director of resource management for the City of Olathe, Kansas. Ben brings extensive expertise in governmental budgeting, performance management, financial and internal controls, debt and risk management, economic development and public sector leadership.
During his financial leadership with these sizable governmental entities, Ben’s Comprehensive Annual Financial Reports (CAFRs) consistently earned the Government Financial Officers Association (GFOA) Certificate for Excellence in Financial Reporting. He is a certified public accountant and an active member of the national GFOA, serving as a GFOA reviewer for the CAFR certificates. A past sub-chair of GFOA’s national committee on economic development, he is also a past president of the Kansas GFOA and a member of both Kansas and Missouri GFOA who frequently teaches for GFOA chapters and the national organization. He is also a member of the Kansas and Missouri Society of CPAs and the American Institute of CPAs.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.