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Local Government and School Accountability

Multiyear Financial Planning

A Tutorial for Local Government Officials

Module 1: Elements of a Successful Plan

A multiyear financial plan helps policy makers assess expenditure commitments, revenue trends, financial risks and the affordability of new services and capital investments. By projecting revenues and expenditures for several years into the future, it illustrates what will happen to a government's ability to pay for and provide services, given a set of policy and economic assumptions. Unlike a multiyear budget, a multiyear financial plan does not authorize expenditures (although it should be linked to the current budget).

Although the size, complexity, narrative and level of detail can vary widely from one multiyear plan to the next, certain elements are essential to a good plan, including the following:

  • Revenue Projections: These demonstrate trends in existing revenue streams to illustrate the level of available resources given current policy and projected economic assumptions. Projections can be done in the aggregate by major revenue type, or they can be very detailed to show variations in individual revenues.
  • Expenditure Projections: These estimate the future costs of current services adjusted for inflation and known obligations (such as collective bargaining increases or lease escalations). Projections can be done by budget line item, object of expense (i.e., personal services, equipment, contractual services, etc.), by program or function (i.e., public safety, recreation, etc.), or some combination.
  • Annual Deficits/Surpluses: The comparison of total projected revenues vs. total projected expenditures shows the bottom line impact of all assumptions in the plan. Recurring and growing deficits indicate structural imbalance.
  • Reserves/Fund Balances: These reflect the fund balance (both dedicated and unspecified) available to municipalities over several years. Unreserved fund balances, in particular, can help local governments endure short-run fiscal pressures such as revenue shortfalls or unanticipated expenditures, but should not be used to fill long-term structural budget gaps. A multiyear plan can show when fund balance would be exhausted in a plan with recurring deficits.

  Next: The Process of Multiyear Financial Planning - Step 1