Multiyear Financial Planning
Now you can begin to assess your municipality’s overall fiscal health. The simplest measure of this is the difference between its revenues and expenditures each year, otherwise known as your annual operating surplus or deficit. Persistent deficits usually indicate a problem, but if your municipality has large fund balances or reserves from previous years, it may choose to spend these down purposefully over a period of time. However, be sure to track reserves and not overspend.
Also useful is the concept of fund equity, which represents the total of your municipality’s assets. This includes reserved and unreserved fund balances.
In fact, you may wish to maintain a reasonable fund balance as insurance against unanticipated expenditures or revenue shortfalls. State law allows most local governments to do this, and NYS GFOA suggests aiming for an unreserved fund balance. The New York State Government Finance Officers' Association recommends that municipalities maintain a budget reserve of at least two months of annual total expenditures as insurance against unanticipated expenditures or revenue shortfalls. School districts are limited by law to an unresereved fund balance of no more than 4 percent.