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.”
Long-Term Financial Planning – The Benefits
The GFOA lists the benefits of long-term financial planning as:
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:
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).
For any questions about your government's long-term financial planning, feel free to reach out to kevin directly:
Kevin Harper, CPA
The Government Finance and Accounting Blog
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Kevin W. Harper is a certified public accountant in California. He has decades of audit and consulting experience, entirely in service to local governments. He is committed to helping government entities improve their internal operations and controls.
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