1

Financing the Future

Long-Term Financial Planning for Local Government

2

Agenda• Part I – Introduction to Financial

Planning

• Part II – Overview of Planning Process

3

Part I – Introduction

4

What is Long-Term Financial Planning?

• A combination of technical analysis and strategizing– Forecasting & strategy development

• A collaborative and visionary process– Elected officials, staff, & public

• An anchor of financial sustainability– Changing mindsets– Institutionalize long-term thinking

5

What is a Financial plan?• Essential characteristics

– What is the time horizon? – What funds are considered?– How often is a plan done?– What is in it?

6

Coral Springs’ Business Model

Strategic Plan

Business Plan

Budget

Output to Citizens

Data Analysis Citizen Input

7

So, Why Financial Planning Now?

• Determine financial position & condition

• Build case for action

• Develop mix of strategies for financial health

• Prioritize goals and services

• Build trust with citizens!

8

What Financial Planning Has Done for Coral Springs

• Focus on key indicators of financial health– Bond rating (AAA) – save money– General fund balances

• Data-based, evidence-driven decisions – Business survey reveals demand for planning help– City provides planning assistance

• http://www.csbizassist.org/

• Results– No layoffs, no service reductions– Millage rate has remained low

9

Trust

Citizens with a Great Deal or Fair Amount of Trust in Government

Federal State Local 2005 53% 67% 70% 1998 65% 80% 77%

10

Trust• Preliminary Findings of “Choice Works

Dialogues”

“We are prepared to pay more in taxes if that is necessary to realize the future we

want, but only if steps are taken to increase accountability and trust.”

11

Business Perception of Property Taxes

0

10

20

30

40

50

60

2004 2005 2006 2007 2008

Too high

High but quality ofservices is high

Taxes/service leveljust right

12

Trust Leads To Loyalty Recommend City to Friends, Family, Co-Workers

82

76

8890 89

65

70

75

80

85

90

95

2004 2005 2006 2007 2008

% V

ery

Lik

ely

13

Five Pillars of Planning• Long-Term Service Vision

• Financial Policies

• Technically Sound Analysis & Forecasting

• Collaborative & participative process

• Connection to other plans

14

Long-Term Service Vision• Define the future the community wants

– Great opportunity to engage elected officials and the public

– Makes planning more meaningful for participants

– Key for aligning finances with service levels

15

Financial Policies• Define standards for stewardship of

public’s tax dollars– Define financial future community wants– Forms basis for accountability and increasing

trust in government– Another crucial point of elected official

involvement

16

Analysis and Forecasting• Sound analysis and forecasting provides:

– Credibility– Scenario analysis capabilities– Adaptability

17

18

Collaborative & Participative Process

• Process must engage different groups to– Gain different vantage points– Increase plan quality– Build a wide basis of support for strategies

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Connection to Other Plans

Strategic plan

Long-term financial plan

Budget Results evaluation

Capital Planning

20

Part I – Take-Aways• LTFP is a strategic and visionary process

• LTFP is part of a complete planning portfolio

• LTFP provides benefits across a spectrum of concerns

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Part II – Overview of the Planning Process

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Four Major Phases

Mobilization

Analysis

Decision

Execution

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Mobilization Phase• Align Resources

– Identify participants– Design a process

• Preliminary Analysis– Initial SWOT analysis– Other analyses, like forecasts

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Mobilization Phase• Service level preferences

– Strategic priorities and objectives

• Financial policies– Self-assess compliance with policies– Identify new policies

• Define purpose and scope– Consensus on problems planning is to solve– Limit scope of planning to those issues

25

Example of Policy Self-Assessment

Policy Statement Status Comment Utility Rates & Fees. The City will set fees and user charges for each utility fund at a level that fully supports the total direct and indirect cost of the activity. Indirect costs include the cost of annual depreciation and overhead charges.

An annual review of the utility rates was completed.

Accounting. Maintain a liquidity ratio of at least 1:1

Reserves. The City will establish a Golf Course Improvement Reserve for costs associated with capital improvements budgeted in the Golf Course Fund. The reserve will be maintained at a level at least equal to the projected five-year costs.

--

Reserve = ($510,000) for FY 2005-06

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Align Resources With Strategy

Resource Allocation(Budget & CIP)

Measurement(Quarterly Performance Reports

and State of the City)

Feedback(Surveys, Town

Meetings, Focus Groups, and Citizen Committees)

Strategic Alignment(Business Plan)

Policy Deployment(Strategic Plan)

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Mobilization Phase Take-Aways• Preparation is key to financial planning.

• A clear “roadmap” increases confidence in the planning process

• Financial policies are crucial

• Mobilization must identify service priorities

• There must be consensus on the purpose of planning

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Analysis Phase• Environmental Analysis

– Objective and subjective sources– Build expertise for analysis & strategizing– Examine variety of factors, not just financial

• Revenue and Expenditure Forecasting– 5 to 10 year forecasts are typical– Hybrid techniques are the most common &

powerful– Revenue modeling is a key practice

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30

Sales TaxRevenue

Amount of TouristConsumer Purchases

Proclivity forSpending

Job/IncomeGrowth

ConsumerConfidence

Number of PotentialConsumers

ConventionsAttendees

Strength ofTourist Season

SpendingAbility

Spending on Taxable Goodsand Services in Virginia Beach

Debt/Savings

Spending on Non-Taxable e-Commerce

National MacroeconomicCausal Factors

InflationInterestRates

FiscalPolicy

StockMarket

HousingValues

Shopping Trends& Preferences

LocalEconomic

Forces

HouseholdFormation

Local ShoppingEnvironment

MilitaryDeployments

Local ConsumerSpending

Amount of Area ResidentConsumer Purchases

Number ofTourists

Spending on Taxable Goods and Servicesin Neighboring Communities

Spending on Non-Taxable Goods &Services

Leakages

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Goo

d

Crime Rate

5,093 5,1684,886

4,391

3,507 3,3903,001 3,194 3,085

2,7312,259

2,501

3,988

0

2,000

4,000

6,000

8,000

10,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Coral Springs Broward County State National

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Drill Down…

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Murder Forcible Rape

Robbery Aggravated Assault

Burglaries Larceny

Motor Vehicle Theft

Goo

d

33

…and Down

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Analysis Phase• Debt Analysis

– Analyze impact of current obligations– Examine capacity for future indebtedness

• Financial Balance Analysis– Consider all different types of imbalances

• Data visualization helps communicate imbalances

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Fund Balance

1.34%

Unreserved Fund Balance as a % ofAnnual Operating Expenditures

Goal Range

CurrentYear 5 ofForecast

Goal: 12.5% - 17.5%

25%

20%

15%

10%

5%

0%

15.2% 11.0%

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5 x 5 Table

This Year Next Year Year 3 Year 4 Year 5 Starting Balance $100 million $100 million ($1.1 billion) ($2.8 billion) ($6.4 billion) Revenues $18 billion $19.8 billion $21.8 billion $23.9 billion $26.2 billion Expenses $18 billion $21 billion $23.5 billion $27.5 billion $31 billion Surplus/(Deficit) $0 ($1.2 billion) ($1.7 billion) ($3.6 billion) ($4.8 billion) Ending Balance $100 million ($1.1 billion) ($2.8 billion) ($6.4 billion) ($11.2 billion)

Taken from The Price of Government by Osborne and Hutchinson

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Environmental FactorsIndicator 2002 2003 2004 Progress

Tax Collection Rate NA 96.47% 96.82% Expenditures Per Capita NA $379.31 $379.21 Primary Tax Rate $1.18 $1.21 $1.21 Moody's Bond Rating Aa3 Aa3 NA Fitch Bond Rating AA AA+ NA % Increase in Operating Expenditures vs. Increase in Population and Inflation NA 3.1% 3.1% Mean Family Income $67,137 $67,624 NA Home Value to Income Ratio 2.23 2.32 NA

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Revenue Trend Will SlowAssuming No Additional Property Tax Reform

$5.0

$15.0

$25.0

$35.0

$45.0

$55.0

$65.0

$75.0

$85.0

$95.0

$105.0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Property Tax Revenue Total Revenues

Projected

Millions

Recession

Tax Reform

39

$3

.36

51

$3

.87

15

$3

.87

15

$3

.87

15

$3

.87

15

$3

.87

15

$3

.87

15

$3

.87

15

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

2001 2002 2003 2004 2005 2006 2007 2008

Coral Springs City 32 City 27

City 33 City 35 County Average

Goo

d

Operating Millage Rate

Getting the Right Tax Rate/Service Level Mix

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5.9 5.8 5.9 5.9 5.8 5.7 5.8 5.7 5.9 6.0 5.8 5.9 6.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Coral Springs City 32 City 27 City 30 City 34

City 28 City 33 City 31 City 36 City 35

Goo

d

A Measure of Productivity Employees per 1,000 Residents

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$593$636$662$703$661$780$0

$500$1,000$1,500$2,000$2,500$3,000$3,500$4,000

2001 2002 2003 2004 2005 2006

Coral Springs, FL City 25 City 26

City 21 City 22 City 1

City 24 City 9 City 5

Goo

d

The City’s Financial Policy is Focused Long-Term

Direct Net Long-Term Debt per Capita

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Analysis Phase Take-Aways• Environmental analysis is the foundation

of planning – invest in it!

• Hybrid techniques are the most effective

• Debt analysis varies in importance with local circumstances

• Consider multiple types of imbalances

• Develop effective presentation techniques

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Decision Phase• Develop Financial Strategies

– Match strategy to size of imbalance– Find the right mix of strategies– Correct decision-making processes that led to

imbalance

• Plan Conclusion and Transition to Action– Design a clear culminating event– A public meeting to approve the plan is common– Gain formal commitment to financial strategies

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Coral Springs Business Plan

• Translates the Strategic Plan into action

• Develop initiatives to support Strategic Priorities

• All resources are allocated within the Business Plan

• Financial strategy aligns short-term objectives with long-term financial health

• Performance monitored via review of KIOs and process-level performance measures

• Focuses budget decisions on strategic

priorities instead of line items

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Decision Phase Take-Aways• The means by which strategies are

developed is as important as the strategies themselves

• Redressing a fiscal imbalance almost always requires a change to decision-making processes

• A culminating event is a mandatory part of the planning process

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Execution Phase• Executing the Plan

– The budget is the most important execution tool– Other tools include performance measurement, action

plans, and participant commitment

• Monitoring– Updates– Scorecards

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Sustainable Results

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007

ResidentialBuild-Out

Property Tax

Reform

Economic Recession

September11th

HurricaneWilma

Cu

sto

mer

Sat

isfa

ctio

n

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Financial Planning Delivers Results customer service satisfaction households94%

96%97%

AAAbond ratings from all three agencies

employee satisfaction

customer service satisfaction business

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Execution Phase Take-Aways• The budget and LTFP must be linked

• Participant commitment is crucial for execution

• Develop on-going monitoring mechanisms to keep the plan at the forefront

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The End• For more information …• Get on our mailing list (email ltfp@gfoa.org

)• E-mail us

– skavanagh@gfoa.org

• Visit our websites– www.gfoa.org/ltfp– www.coralsprings.org/quality

• Read our book Financing the Future