Describing the process for forecasting revenues and expenditures in the September PM article “Planning a Financial Future,” author Kris Sikes of the Carl Vinson Institute of Government, University of Georgia, writes that the overall objective of a long-term financial analysis (LTFA) is to help managers “craft a plan that meets the needs of a community without sacrificing its financial future.” Understanding what is behind revenue and expenditure streams ensures there will be sufficient funding to operate in the future.

Two case studies in the article back up the LFTA objective. Leaders of a medium-size city (population approximately 30,000) felt that the best picture of their city’s financial condition would be revealed by analyzing 16 revenue sources, whereas a small city (population approximately 5,000) felt that revenue forecasts for four distinct categories would provide the needed information.

Sikes also advises that “A forecast model does not need to be overly complicated to inform a locality on where it is headed.”

The article delivers these key lessons:

1. Incorporate forecasting into the budgeting process. Know the trends that are driving revenues and expenses so there can be realistic expectations of any budget shortfalls.
2. Forecast revenues and expenditures at the level of detail that provides the information required to make necessary decisions.
3. Update the forecast each year, incorporating any changes, including legislative, that will have an impact on a local government.