February 14, 2013
The City of Baltimore made news last week by releasing a first-of-its-kind ten-year financial forecast. The report, commissioned from Public Financial Management, Inc. by Baltimore Mayor Stephanie Rawlings-Blake, highlights trends that could cause financial distress over the next decade if nothing is done to change the city’s finances.
Mayor Rawlings-Blake requested the long-range forecast as part of a major ten-year financial planning effort intended to allow the city to address looming financial problems before they become crises. One of the pressures identified in the financial forecast is a structural imbalance between recurring revenues and expenditures that is expected to create ongoing deficits despite past efforts to close budget gaps. Without changes to current assumptions, the cumulative budget shortfall between FY2014 and FY2022 could reach $744.8 million.
In a follow up to the report, the Mayor proposed changes to employee benefits and pensions, the city’s tax structure and city operations intended to overcome the financial challenges outlined in the report. The final ten-year financial plan with additional recommendations to align the budget and promote economic growth is scheduled to be released later in February 2013.
The City of Baltimore’s initiative is unusual and likely the first of its kind for a large city in the United States. It is more common for municipalities to produce one-year, three-year or five-year projections to aid in budgeting and multi-year planning. The Government Finance Officers Association (GFOA) recommends that all governments formally adopt a long-term financial plan as a key component of a sound budget process. A long-term financial plan typically includes the following components:
• A review of historical financial and programmatic trends;
• Multi-year projections of revenues, expenditures and debt;
• An analysis of those multi-year trends and projections; and
• Modeling of options to address problems and opportunities, which helps governments address fiscal challenges before they become fiscal crises.
Over the past few years, the Civic Federation has recommended that Chicago-area governments produce formal long-term financial plans to help identify potential financial challenges in the near future and to align available recurring resources with its long-term service objectives.
Some governments have taken significant steps forward in producing multi-year financial projections and analysis, including the City of Chicago, which now produces an Annual Financial Analysis with three-year forecasts under various scenarios. The Chicago Park District is also working on a multi-year plan to address its structural deficit. The chart below shows which elements of financial forecasting, if any, are made available to the public by each of the nine local governments the Federation monitors. The Federation is aware that some of the governments it analyzes use forecasting internally, but still encourages such reports to be released publicly. (Click to enlarge.)