Long-Term Financial Planning – Benefits, Purpose, and Policy Sample

In its Best Practices, the Government Finance Officers Association recommends:

“…that all governments prepare and maintain a long-term financial plan that projects revenues, expenses, financial position, and external factors for all key funds and government operations at least five years into the future. Governments that utilize debt financing and/or utility rate setting should consider a long-term financial plan greater than five years. The plan should be reviewed on an annual basis and updated as needed or as major assumptions change. Long-term financial planning should be the starting point for capital planning, developing operating budgets, estimating revenue, and other planning processes.”
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(Source: https://www.gfoa.org/materials/long-term-financial-planning) 

Long-Term Financial Planning – The Benefits

The GFOA lists the benefits of long-term financial planning as:

• Creating a long-term outlook into other planning processes like budgeting, capital planning, and revenue forecasting
• Helping to diagnose potential risks and causes of fiscal distress
• Stimulating “big-picture thinking”
• Providing a tool for evaluating long-term compliance with financial policies
• Allowing for pre-emptive action to mitigate forecasted financial distress
• Defining parameters for decision-making
• Communicating long-term financial position to residents and other stakeholders, including rating agencies and bond investors

Long-Term Financial Planning – The Purpose

The purpose of the long-term financial plan (LTFP) is to take a forward look at the government’s revenues and expenses; to identify financial trends, shortfalls, opportunities and issues so the government can proactively address them. It does so by projecting the future revenues and expenses assuming the government continues the current service levels and policies. The LTFP lays the foundation for the budget, aiding senior management and elected officials in establishing priorities, allocating resources appropriately, and keeping expenses within the financial capacity of the government. The LTFP should be updated annually.
 
In order to prepare and maintain an effective LTFP, it is important for the government to determine how it will prepare, maintain and utilize the LTFP. Accordingly, the government should document these decisions in a Long-Term Financial Planning policy.
 
Such policy should include:

• The purpose of the long-term financial planning process, including how the plan will be used.
• How the plan will be prepared, including what analysis will be performed and what data collected.
• The level of detail and the length of time the projected revenues and expenses will be estimated.
• How the plan will be documented and reviewed, and how often it will be updated.

To view and download a Long-Term Financial Planning Policy Sample, which can be tailored to your government’s circumstances and priorities, please click here (sample will download in editable Word format).

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For any questions about your government's long-term financial planning, feel free to reach out to kevin directly:
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Kevin Harper, CPA
kharper@kevinharpercpa.com
(510) 593-503