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Financing the Future

Long-Term Financial Planning for Local Government

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Agenda• Part I – Introduction to Financial

Planning

• Part II – Overview of Planning Process

• Part III – Financial Planning in the Recovery Process

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Part I – Introduction

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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

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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?

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Coral Springs’ Business Model

Strategic Plan

Business Plan

Budget

Output to Citizens

Data Analysis Citizen Input

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So, Why Financial Planning Now?

• Determine financial position & condition

• Build case for action

• Develop mix of strategies for financial health

• Create financial resiliency

• Build trust with citizens!

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What Financial Planning Has Done for Coral Springs

• Focus on key indicators of financial health– Bond rating (AAA) – save money– FTMS and 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

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Trust

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

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

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Citizen Perception of TaxesTax Statements 2004 2005 2006 2007 2009

Taxes are too high for the quality of City services that I am receiving

32.0% 23.4 26.5 41.8 23.4

Taxes are high, but the City is Providing more services at a higher quality than I expect

25.0 29.9 38.2 24.0 19.7

Taxes are just right for the amount and quality of City services that I am receiving

42.0 46.4 34.2 31.4 53.7

Taxes are too low for the amount and quality of City services that I am receiving

2.0 0.3 1.1 2.8 3.2

Total: Acceptable Level (bottom three boxes)

69.0 76.6 73.5 58.2 76.6

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Highlights

Similar percentages believe “it is okay to collect the same amount of property taxes to preserve current levels of city services” (44.3%) as who agreed “the City should reduce taxes with an associated reduction in City services” (44.7%).

Statement

2009

It is okay to collect the same amount of property taxes to preserve current levels of city services

44.3%

The City should reduce taxes with an associated reduction in City services.

44.7

Don’t know/ unsure 11.0

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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.”

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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

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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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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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Crime Rate Comparisons

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Coral Springs Broward County State National

Fiscal Year

per 100,000

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Drill Down…

0

500

1,000

1,500

2,000

2,500

3,000

2001 2002 2003 2004 2005 2006 2007 2008

Murder Forced Sex Robbery

Agg. Assault Burglary Larceny

Motor Vehicle Theft

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…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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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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$3.8

866

$3.3

651

$3.3

651

$3.8

715

$3.8

715

$3.8

715

$3.8

715

$3.8

715

$3.8

715

$3.8

715

$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 2009 2010

Coral Springs Fort Lauderdale Hollywood

Pembroke Pines Pompano Beach County Average

Goo

d

Getting the Right Tax Rate/Service Level Mix

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$0.0000

$0.1000

$0.2000

$0.3000

$0.4000

$0.5000

$0.6000

$0.7000

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2009

FY2010

$13.5 million bond approved by voters

Debt Service Millage Rate is Unchanged Despite Decline in Property Tax Base

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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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Coral Springs’ Key Intended OutcomesFinancial Health & Economic Development Goals

Key Intended Outcome 2007 2008 2009

Bond Rating AAA AAA AAA

Resident’s Value Rating (Citizen Survey) 70% 72% 72%

Non-residential Value as % of Total Taxable Value

20% 20% 22%

Percent Plan Reviews Completed Within 15 days

91% 95% 95%

Customer Service Rating (Citizen Survey) 91% 93% 95%

Customer Service Rating (Business Survey)

90% 91% 92%

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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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Part III – Financial Planning and Recovery from Financial Distress

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Dis

tres

sF

inan

cial

Hea

lth

Decline Distress Recovery Financial HealthStabilization

Financial Resiliency

Financial SustainabilityRelapse

Recognition

Initial Diagnosis

Fiscal First Aid

Longer-Term Therapies

Long-Term Financial Planning

Political Management

Detailed Diagnosis

Recovery Plan

Bankruptcy, Receivership

Monitor and Adjust Treatment

Band-Aids

Stages of Financial Condition

Bridging TransformReform

Time

Stages of Financial Recovery

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LTFP’s Role in Recovery• Recognize financial condition• Identify & implement long-term strategies• Institutionalize good long-term financial

practices• Sustainability versus Resiliency

– A sustainable system is potentially brittle– A resilient system is regenerative and

adaptable

• Go beyond sustainability to resiliency

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Surviving and Thriving• Recently, LTFP leaders have…

– Reached or maintained AAA bond ratings– Made believers out of skeptics– Prepared for the future

• Investing in infrastructure• Implementing labor saving technologies

– Improved collaboration

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Features of a Resilient System• Diversity

• Redundancy

• Decentralization

• Collaboration

• Fail gracefully

• Flexibility

• Foresight

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Diversity

Avoiding a single point of failure

• Multi-faceted perspective on financial health– Diversity of land-use

• Enlarge base of supporters

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Redundancy

Avoid having one path of escape or rescue• Reserves

– A policy to prevent use for recurring expenses– Create reserves for specific purposes

• Governance– Policies– Citizen engagement

• Multiple Financial Strategies

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Decentralization

Centralized systems look strong, but when they fail, the failure is catastrophic

• Engage depts in financial management– Make managers manage budgets– Actively engage depts in financial strategy

• Joint approach to forecasting– Promotes accuracy and understanding

• Long-Term Planning Framework

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Collaboration

Working together to become stronger

• Elected officials– Engage by building in their priorities– Orient new council members

• Create peer pressure for new council members

– Use key indicators to get officials on board

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Fail Gracefully

Failure happens. Make sure a failure state won’t make things worse

• Recognize changing conditions to make a soft landing

• Promote credibility and open dialogue

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$24.90

$35.41$33.74

$31.39

$27.13

$10

$15

$20

$25

$30

$35

$40

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Pro

jec

ted

Ph

ase

I o

f T

ax R

elie

f

Do

ub

le

Ho

me

stea

d

Exe

mp

tio

n

Act

ua

l

Mill

ion

s

Act

ua

l

Bu

dg

et

Pro

jec

ted

-$1.67chg

-$2.35chg

-$2.23chg

-$4.26chg

Eco

no

mic

R

eces

sio

n*Preliminary Estimate as of June 1

Eco

no

mic

R

eces

sio

n

Tax reform plus an economic downturn eroding revenue

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Flexibility

Be ready to change when plans aren't working

• Constant environmental scanning – Know when flexibility will be called for

• Financial Modeling

• Evolve the planning process

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Foresight

Think and prepare • Forecasting

– Identify the parameters within which to develop and execute strategies

• Environmental scanning• Complement financial planning with other

long-term plans

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$0.0

-$8.7

-$10.0

-$11.6

$0.0 -$1.9

-$14.0

-$12.0

-$10.0

-$8.0

-$6.0

-$4.0

-$2.0

$0.0FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Def

icit,

Mill

ions

($)

Remaining Deficit After Financial Strategy

This chart is for planning purposes and illustrates the potential shortfalls the General Fund could face if no positive action is taken. By Florida law, the proposed budget will be balanced. Financial Strategies will be formulated to address future year shortfalls and will be included in the Fiscal Year 2010 Business Plan.

General Fund 5-Year Forecast

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Take-AwaysDon’t be satisfied with sustainability…

…Go for resiliency!

If you aren’t doing long-term financial planning, get started – even now

If you are, assess your process against the resiliency characteristics

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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