long-term financial planning and budgeting: how do we

Financial Planning 1

Running head: LONG-TERM FINANCIAL PLANNING AND BUDGETING

Long-Term Financial Planning and Budgeting:

How Do We Address Economic Growth and Decline?

Mary M. Dalton

Central Yavapai Fire District, Prescott Valley, Arizona


CERTIFICATION STATEMENT I hereby certify that this paper constitutes my own product, that where the language of others is

set forth, quotation marks so indicate, and that appropriate credit is given where I have used the

language, ideas, expressions, or writings of another.

Signed:


Abstract

Central Yavapai Fire District's current long-term financial planning and budgeting process failed

to address economic downturns and had not fully involved all stakeholders. The research

purpose was to develop a fiscal planning process model which would meet the service demands

of our citizens during times of economic expansion and decline. Procedures included literature

review, surveying the District's citizens, and the reviewing of other fire service and

governmental entities practices. Descriptive Research was utilized to determine: the procedures

needed to assess the service expectations of CYFD citizens; the data needed to build a

comprehensive 10-year financial forecasting model; best practices with regards to governmental

and fire district long-range fiscal planning; and the appropriate method to provide an inclusive,

supportive culture for our citizens, Fire Board, Staff, Union, and other key stakeholders in our

long-range fiscal plans. The results showed the importance of amending the District's long-term

financial planning process. Recommendations were made to the CYFD governing board to

adopt a collaborative long-term financial planning process which would combine a revenue

forecasting method capable of accommodating economic growth and contraction with an

expenditure forecasting process containing projections from division heads and project

managers. This long-term financial planning should be coupled with the District's overall

strategic plan in order to consider future scenarios and to help navigate challenges.


Table of Contents

Certification Statement ..............................................................................................................2

Abstract ......................................................................................................................................3

Table of Contents .......................................................................................................................4

Introduction ................................................................................................................................6

Background and Significance ....................................................................................................8

Literature Review.....................................................................................................................11

Budget Process .............................................................................................................11

Long-Term Financial Planning/Forecasting ................................................................16

Transparency/Stakeholder Involvement ......................................................................24

Sustainability/Resiliency..............................................................................................30

Data Collection/Accounting Practices .........................................................................32

Plan Implementation ....................................................................................................36

Procedures ................................................................................................................................37

Definition of Terms......................................................................................................40

Results ......................................................................................................................................41

Table 1: Venues for Key Stakeholder Financial Planning/Budgeting Input...............52

Discussion ................................................................................................................................53

Recommendations ....................................................................................................................60

References ................................................................................................................................62

Appendices

Appendix A – Long-Term Financial Planning Questionnaire .................................................67

Appendix B – Governmental Entities Completing LTFP Questionnaire ................................69


Appendix C – Long-Term Financial Planning Questionnaire Results ....................................70

Appendix D – Stakeholder Input Public Questionnaire ...........................................................74

Appendix E – CYFD Revenue Manual Example ....................................................................76

Appendix F – CYFD 10-Year Revenue Forecasting Spreadsheet ...........................................79

Appendix G – CYFD 10-Year Expenditure Forecasting Spreadsheet.....................................80

Appendix H – CYFD Long-Term Financial Planning Process Map .......................................81

Tables

Table 1 – Venues for Stakeholder Financial Planning/Budget Input ......................................85


Long-Term Financial Planning and Budgeting:

How Do We Address Economic Growth and Decline?

Introduction

"When written in Chinese, the word 'crisis' is composed of two characters. One

represents danger and the other represents opportunity." -John F. Kennedy. On a daily basis we

are reading or hearing about federal, state, and local governments who are challenged with rising

costs and declining revenues in an anti-tax environment (Kinney, 2007). As Janet Wilmoth states

in her Depressing Times editorial, "it's tough not to feel like the country is in a depression."

(Wilmoth, 2008, ¶ 1). Most recent reports and economic projections indicate that the situation is

unlikely to improve any time in the near future (Byers, 2009; Hoene & Pagano, 2009; Kinney,

2007). The public is frustrated with the price they are paying for government and questioning if

they are getting their money's worth (Osborne & Hutchinson, 2004; Wyland, 2009). The fire

service has not been immune to this dilemma and is becoming increasingly cognizant of the

essential need to become educated and involved (International Association of Fire Chiefs

[IAFC], 2008).

In the emergency arena we often see crisis enabling reform. This happens with financial

management as well. The opportunity to reform status quo management, gain employee

concessions, or restructure revenues seldom occurs and usually requires a compelling situation

that is clearly explainable to the public, media, employees, and other key stakeholders (Kreklow

& Bliss, 2007). Rather than treating the current fiscal crisis as an insurmountable problem, many

organizations have taken the opportunity to plan for the longer term and focus resources on

public priorities (Kreklow & Bliss, 2007). In light of today's economic challenges and current

anti-tax environment, if the fire service does not take this opportunity to develop a long-term


financial planning process for fiscal sustainability and address stakeholder concerns, needs, and

priorities it will be difficult to maintain adequate response capabilities for our communities.

The Central Yavapai Fire District (CYFD) financial planning and budgeting process has

evolved over the past 20 years through a process of trial and error, without any formal guidance

or recommendations. Its foundation has been based on the ever increasing revenues and growth

experienced in the past and the assumption that such growth would continue (CYFD Fiscal Year

2009-2010 Financial/Planning Report, July 2009). The District is challenged with a long-term

fiscal planning process which adequately addresses economic expansion but fails to account for

current and future economic retraction and the interests of stakeholders.

The purpose of this Applied Research Project (ARP) is to develop a process model for

long-range fiscal planning and budgeting which will better account for economic retraction and

involve all key stakeholders and meet the service demands of our citizens. Utilizing a

Descriptive Research Method with interviews and questionnaires of individuals tasked with

fiduciary responsibilities and analysis of literature related to financial planning, the following

key questions will be answered:

1. What processes and procedures need to be implemented in order to determine the

services expected by CYFD citizens and the price they are willing to pay for those services?

2. What type of data and statistics do we need to gather to build a comprehensive

10-year revenue and expenditure forecasting model?

3. What are suggested best practices with regards to governmental long-range fiscal

planning?

4. How have other fire districts addressed long-range fiscal planning?


5. What processes should the District develop in order to provide an inclusive,

supportive culture for our citizens, Fire Board, Staff, Union, and key stakeholders in our long-

range fiscal plans?

Background and Significance

The Central Yavapai Fire District (District) was created on April 5, 1965 by the Yavapai

County Board of Supervisors in accordance with requirements set forth by the Arizona Revised

Statues (Arizona Revised Statutes Title 48, 2009). It is an internationally accredited agency

which provides fire protection, emergency medical, hazardous materials, technical rescue

services, code enforcement, and public education to approximately 67,000 citizens and 2,600

businesses within a 160 square mile boundary of urban and rural areas. The District is funded

primarily through property taxes with a current annual budget of $15.2 million. The growth of

CYFD property valuation, through a combination of new development and increased market

value of existing property, results in growth of the District's tax revenues.

Over the past 20 years, the District's budget process has evolved from a very simplistic

line item budget to a complex integrated budget which utilizes a 5-year capital replacement plan,

long term staffing plan, and a 5-year revenue/expenditure projection. In the 1980's, the Fire

Chief, in conjunction with the Fire Board, would spend numerous hours in work study sessions

developing a budget, without the benefit of a strategic plan or any other long-term planning

documents. Due to the lack of planning, justifiable apparatus purchases and workforce expansion

were delayed by several years. A 10-year capital replacement and acquisition schedule was

developed in the early 1990's which became an integral part of the budgeting process. The

District has continued to improve the financial planning process, integrating strategic plans,

staffing plans, and 5-year revenue and expenditure projections. The District's current long range


fiscal planning is based on a steady growth model with minimal involvement of community

stakeholders and has relied largely on historical data for projections.

Since 1978, the District's assessed valuation has increased every year. From 2003

through 2007, the Town of Prescott Valley saw substantial residential and commercial growth

with the District's assessed value increasing by 194%. Through this same time frame, the

District's budget increased by 128%. This has given the District the opportunity to grow, adding

more stations, equipment, and personnel, offering additional and expanded services to the public,

and increasing the employees pay and benefits. The voters approved a $17.2 million dollar bond

election authorizing the construction of new fire stations, a new maintenance facility, a new

training center, the development of a new microwave communication system with multiple

communication towers, and the purchase of new fire apparatus.

In late 2007 Arizona was faced with a significant housing supply/demand imbalance, and

property values began to decline. In the Phoenix area, home prices dropped by as much as 50%,

while Yavapai County single family home median sale prices have decreased by 35% (Yavapai

County Assessor's Office, 2009). Arizona saw home foreclosures increase by 62% from January

2008 to 2009 with an 88% increase in bankruptcies between June 2008 and June 2009 (Forum

411, 2009). Like most states, by 2009 Arizona's economic foundation of housing, employment,

and financial services had collapsed. Arizona's property tax valuation process, as defined by

Arizona Revised Statutes Title 42, sets forth a valuation calendar which results in tax property

values lagging the actual market values by two years. Therefore, even though market prices

began to fall in late 2007, the impact of the declining valuations was not seen by Arizona state

and local governments until fiscal year 2010 (Pearsall, P.J. & Gibbs, R.D., 2009).


It has been one of the fundamental purposes of governments to allocate scarce resources

to programs and services through a budget process. With ever increasing revenues, this process

is, by and large, trouble-free. With the changing economic conditions, the District has had to

focus on the strategic financial management methods of long-term financial planning and

priority-based budgeting. Going forward, the District will need to rely on more than historical

data in making financial projections. Now, more than ever, it seems that good communication,

stakeholder involvement, and better prediction models will be an essential component as we are

faced with the difficult possibilities of having to reduce expenses and services, while considering

potential tax increases.

The research of this problem is important to the author, a citizen and chief officer of the

Central Yavapai Fire District, as its conclusion may assist in assuring the long-term viability and

continued delivery of professional fire service in our community. As time passes and personnel

retire, the development of effective long-term financial planning models will provide a defined

process for others to follow. Additionally, this will provide the author, as an Executive Board

member and educator of the Arizona Fire District Association, an opportunity to assist fire

districts through the state of Arizona with long-term financial planning.

This applied research project is specifically related to the National Fire Academy's

Executive Fire Officer Program (EFOP), Executive Development (ED) course (National Fire

Academy [NFA], 2006) goals to "develop and integrate change management and leadership

techniques in complex organizations." This research will assist in developing a new fiscal

planning process which will involve all stakeholders and require utilization of the change

management skills and leadership techniques taught in the Executive Development course for

successful implementation.


This effort relates to and supports the United States Fire Administration's (USFA) goals

two through four as stated in the USFA Strategic Plan Fiscal Years 2009-2013 (USFA, 2008). It

will meet goal two of improving local planning and preparedness through the development of a

long-term fiscal planning process. It will meet USFA goal three of improving the fire and

emergency services' capability for response to and recovery from all hazards by assuring

CYFD's future fiscal sustainability. It will also meet goal four of improving fire and emergency

services' professional status by educating the fire service in regards to effective financial

planning models.

Literature Review

A literature review was conducted to understand and summarize what others have learned

and recommend with regards to long-term financial planning, with special attention paid to

economic downturns. The literature review for this applied research project contains general

information about fiduciary recommendations for governmental entities. This review also

examines the need for stakeholder involvement in organizational decision making. The body of

this literature review is divided into subsections in order to organize this broad research topic for

reader clarity and simplification. These areas include the budget process, long-term financial

planning and forecasting, transparency and stakeholder involvement, sustainability and

resiliency, data collection and accounting practices, and plan implementation.

Budget Process

The National Advisory Council on State and Local Budget [NACSLB] (1998) asserts that

a budget should be more than a document which appropriates funds for a series of items and that

the process should be more than annual exercise of balancing revenues and expenditures. The

broad scope of a good budgeting process should include a long-term perspective, establish


linkage to the organization's goals, provide incentives to government management and

employees, and be focused on results and outcomes (NACSLB, 1998).

Governments should identify and assess the programs and services offered, their intended

purposes, and factors which could impact them in the future (NACSLB, 1998). The NACSLB

(1998) points out programs or services may need to be modified or deleted due to changes in the

community or the service that have been impacted due to the cost or effectiveness of service

delivery. A process should be developed for inventorying and evaluating programs based on the

needs and priorities of the community (NACSLB). The review should assess the programs'

purposes, beneficiaries and needs served, goals achieved, and issues, challenges, or opportunities

which may affect the program in the future (NACSLB). A community consensus on local

priorities can then be developed (Kreklow & Bliss, 2007). This service planning can be linked to

financial planning so elected officials can focus on balancing staffing, facilities, and service

outcomes against long-term sustainability, debt, and community tax burden to provide quality

public value (Kavanagh, 2007b). Fire service budgeting should follow a systematic decision

making process wherein budget cuts are made in terms of impact on service levels, starting with

those with the least impact moving towards those with the greatest impact (IAFC, 2008). If

budget cuts must be made it is recommended that all options be outlined, the pros and cons of

each option be clearly identified, and policy direction be sought prior to making a final decision

(IAFC, 2008). "This requires that fire and EMS chiefs understand the nature of services, the

costs of services and how changes in service levels will often have multiple, perhaps unintended

consequences (IAFC, 2008, P. 7)."

When all stakeholders are involved in the budget process and the end product reflects

their needs and priorities, the newly developed budget will serve as a positive force in


maintaining good public relations and enhance the overall impressions of the organization

(NACSLB, 1999). During a collaborative budgeting process, the following tasks should be

accomplished: (a) identify stakeholder issues and concerns; (b) obtain stakeholder support for the

overall budgeting process; (c) achieve stakeholder acceptance of decisions related to goals,

services, and resource utilization; and (d) report to stakeholders on services and resource

utilization (NACSLB).

In the Rhetoric of Budgets, Thomas Roach (2009) recommends a variety of budgeting

approaches. He feels that the golden rule for budgeting should be to never accept across the

board cuts, such as 10%, but instead to select a service or capital item equal in value to the 10%

cut (Roach). Osborne and Hutchinson (2004) agree that across the board cuts weaken every

program equally and do not take into consideration the impact on citizens. If the financial

reductions are focused on specific items or services, then fire and police will have an advantage

as they address community needs and reductions in those areas could be a matter of life and

death (Roach). Roach advises the preliminary budget development process should be to create

service-based line items wherein, for example, the costs of replacing computers would be

divided among all services offered rather than in a single computer replacement account. His

next step includes first anticipating budget reductions which may be requested and making the

depth of the cuts the target (Roach). Once this step is completed, Roach suggests creating a bare-

minimum budget which includes the most-needed services, then adding in next-most-needed

services, followed by increasing the budget with a wish list. Roach goes on to explain, "When

the cuts are requested, start with the wish list and work towards the most-needed services kicking

and screaming every inch of the way" (2009, ¶12). Roach states, "the larger the budget request,


the more will be left when budget negotiations are finished" and "if it is possible to make a case

for a budget increase, make it" (¶12).

Osborne and Hutchinson (2004) rail against some of the above recommended practices

when they speak of the tidal wave of red ink triggering accounting gimmicks worthy of Enron

and shortsighted or thoughtless tactics being utilized to solve the current fiscal storm problems.

Traditional budget cutting does little to improve the effectiveness of the 90% of the tax dollars

remaining as it focuses entirely on what is cut, while it ignores what is kept (Osborne &

Hutchinson). Fundamental questions of how citizens can get the most value for the taxes they

pay and how governments can maximize the value of collected tax dollars must be asked

(Osborne & Hutchinson). This question will be critical to begin the Budgeting for Outcomes

process (Osborne & Hutchinson).

In order to focus attention squarely on buying better results for citizens, Osborne and

Hutchinson (2004) recommend a budgeting process that involves five critical challenges:

1. Getting a Grip on the Problem: Is it short or long term? Is it driven by revenue or

expenses, or both?

2. Setting the Price of Government: Determining how much citizens are willing to pay.

3. Setting the Priorities of Government: Deciding which results citizens value most.

4. Setting the Price of Each Priority: Deciding how much the government will spend to

produce each of these outcomes.

5. Purchasing the Priorities: Deciding how to best produce the desired results at the

price citizens are willing to pay (p. 13).


When these questions have been answered, the governing entity can begin the process of

producing the desired results at the set price and increasing the value of each tax dollar spent

through smarter sizing, spending, work processes, and management (Osborne & Hutchinson).

According to Osborne and Hutchinson (2004), too many federal, state, city and county

politicians have had a shortsighted approach and relied on deadly deceptions. When the general

fund gets in trouble, political leaders often look to money saved in special accounts such as

pension funds or building funds. While "robbing Peter to pay Paul" can make the budget look

better in the short-term, the same hole will appear next year with both Peter and Paul being

worse off (Osborne & Hutchinson). A similar situation occurs when times are tight and surplus

buildings, land, or other assets are sold with the income being treated as normal revenue and the

budget shortfall simply appearing again next year (Osborne & Hutchinson). Another deadly

deception mentioned is the symbolic political response to budget problems which Osborne and

Hutchinson refer to as "nickel and dime employees." Leaders may order coffee pots unplugged,

travel budgets slashed, light bulbs unscrewed, warmer offices in the summer and cooler offices

in the winter, and even outlaw potted plants. While these actions may send a message, they don't

save much money and kill morale (Osborne & Hutchinson). Lastly, the problem of delaying

maintenance and replacement of assets, while relying on hope, can result in serious

consequences (Osborne & Hutchinson). Osborne and Hutchinson state:

Using accounting tricks and onetime money in the face of long-term deficits is a recipe

for disaster. Quick fixes plug budget gaps without actually solving deeper structural

problems. They allow politicians to avoid painful measures such as raising taxes or

cutting popular government services. But avoidance becomes addictive, and the real

problems fester and grow, ultimately requiring even more painful solutions. (p. 29)


Long-term Financial Planning/Forecasting

According to Kavanagh (2007a), "Long-term financial planning combines financial

forecasting with financial strategizing to identify future challenges and opportunities, causes of

fiscal imbalances, and strategies to secure financial sustainability" (p. 9). In the face of today's

ever increasing structural deficits, public entities are attempting to create and maintain fiscal

sustainability, and realizing that long-term financial planning is a critical element (Kavanagh,

2007b; Kreklow & Bliss, 2007; Osborne & Hutchinson, 2004). The basic benefit of long-term

financial planning is its' ability to assist with the navigation of complex long-term challenges

and opportunities, to assure the ability to provide essential services over a multi-year period, and

to manage crisis (Kavanagh, 2007a). Some of the other important benefits include the

incorporation of financial planning into the organization-wide planning processes, its move to a

long-term thinking perspective, its ability to encourage governments to step back from the detail

endemic in annual budget processes and stimulate "big-picture" thinking, its highlighting of

problems which may be minor today but could escalate if not addressed, its reinforcement of

following sound financial management practices by demonstrating the cumulative efforts of poor

decisions, and the broad easily discernable overall financial picture it provides the organization's

stakeholders (Kavanagh, 2007a). Long-term financial planning is important at all growth stages

as it ensures limited resources are well-managed during periods of low-growth or contraction. It

makes certain new revenues are put towards sustainable purposes. It verifies the ability of the

organization to meet increasing service demands (Kavanagh, 2007a).

While local governments may forecast their revenues and expenditures for one or two

years for budgeting purposes, this is not enough information to complete long-term financial

planning or assess fiscal sustainability (Kirn, 2007). Cities, counties, and other local entities have


discovered, after the fact, how essential it is to have a realistic forecasting model which projects

and quantifies potential revenue deficits and increased liabilities well into the future (Swanson,

2008). Short-term budgeting is an invitation to long-term deception since the last year in a

budget estimate is a corner that can't be seen around (Osborne & Hutchinson, 2004). The

importance of combining the forecasting of revenues with the forecasting of expenditures into a

single financial forecast has been recognized by the Government Finance Officers Association

[GFOA] (1999). A key component in determining future options, potential problems, and

opportunities is a financial planning process which assesses the long-term financial implications

of current and proposed programs, policies, and assumptions (GFOA, 1999).

Kavanagh (2007b) instructs, "Ideally, financial planning will become a standard feature

of the organization's financial management and governance" (p. 13). The NACSLB (1998) and

Reddick (2004) maintain that prudent fiscal management requires governments to have a multi-

year financial planning process which determines the fiscal impact of current and proposed

policies and programs, analyzes financial trends, assesses problems or opportunities facing the

jurisdiction, includes a long-term forecast of revenues and expenditures, and determines

appropriate strategies or actions needed. A five year forecast is the minimum, with some of the

best-managed organizations projecting every budget line out 10 years (Osborne & Hutchinson,

2004). A financial plan is not a definitive forecast but rather a tool to highlight issues or

problems that must be addressed (NACSLB; Osborne & Hutchinson; Swanson, 2008). It is an

estimate; an economic model allowing governmental entities to reality-test budget assumptions

(Osborne & Hutchinson). Long-term financial forecasting can bring credibility to an organization

(Kavanagh, 2009). Properly prepared and managed forecasts help public officials to evaluate the

long-term effects of proposed initiatives and to educate constituents about present and potential


capabilities, particularly when well-designed visual aids such as charts and graphs accompany

the models (Swanson). Current economic times will require fire and EMS leaders to adopt a

strategic planning process for long-term sustainability of fire and EMS service levels (IAFC,

2008). Hanover County moved from a historical data forecasting procedure to a more qualitative

judgment process. The county formed cross-departmental teams to assist with the review of

revenue sources and development of key forecasting assumptions (Kavanagh). "When caught in

a financial decline, resilient governments quickly recognize it and react by updating forecasts,

modeling new scenarios to define the financial parameters within which they must develop

strategies, continually monitoring the environment for change, and maintaining open

communication with departments so they can take corrective action" (Kavanagh, p. 10).

"Financially resilient governments are careful not to position forecasts as a 'prediction' of

future financial position, but rather as a tool to: 1) recognize longer-term issues that require a

strategic approach; and 2) establish financial parameters within which service strategies must

operate" (Kavanagh, 2009, p. 10). Kavanagh (2007b) reminds readers to frame long-term

financial plans as a way to create the future, not forecast it. When presented with revenue and

expenditure forecasts, board members can become distracted with questions of forecast precision

and assumption validity instead of focusing on strategies to achieve and maintain financial

sustainability (Kavanagh, 2007b).

Financial models need to be flexible with the ability to be modified on a regular basis to

demonstrate the impacts of the changing environment and financial conditions (Kavanagh,

2009). Financial models should be developed with best and worst-case scenarios to demonstrate

the widest range of possible forecast outcomes (Swanson, 2008). In particular, determining

unfavorable scenarios allows for early implementation of thoughtful contingency plans rather


than taking reactionary measures after the shortfall is discovered (Swanson). The City of San

Clemente, California, recently shifted the focus of their financial plan away from studying and

updating issues the city had previously addressed to capital planning, gap analysis, and debt

analysis in order to move their focus to future challenges (Gudgeirsson, 2007). Kavanagh (2009)

suggests financial planning processes will evolve over time to accommodate new issues, best

practices, new stakeholders, and changes within the organization.

With regard to expenditure projections, the NACSLB (1998) recommends a multi-year

projection for each fund and for existing and newly proposed programs. The multi-year

expenditure planning should encompass long-range operating expenditure plans, including the

operating impacts of capital projects, which are linked to governing board goals and community

expectations (Clifford, 2007). These will provide decision-makers and stakeholders with

information about the sustainability, affordability, and acceptability of a program when weighing

its current and future costs against the benefits and revenue availability (NACSLB). This multi-

year approach will also provide staff an opportunity to move the expenditure paradigm from

"what do we need or can get this year" to "how do we accomplish our service objectives over

time given our financial capacity?" (Clifford, 2007, p. 48). Expenditure projections should be

linked with the accounting system an integrated into the long-term financial projections with

forecasting variance analyzed to improve projection methodologies (NACSLB). When creating

a baseline expenditure projection, first identify recurring expenses then analyze the historical

trends (Swanson, 2008). When positive and negative trends are identified, solutions can be

developed for the negative trends while positive trends can be recognized and enhanced

(Gudgeirsson, 2007). From these baseline forecasts, best and worst-case scenarios can be built

to capture the full range of probable outcomes (Swanson).


Revenue projection is critical to understand the level of funding available for services and

capital acquisition (NACSLB, 1998). Future budget period projections help determine service

sustainability and highlight future financial issues to be addressed (NACSLB; Reddick, 2004).

Failure to plan for periods longer than the traditional budget year often results in "management

by crisis" and hasty decisions, such as emergency expenditure cuts and/or tax increases

(Reddick). Revenue projections should extend typically from five to 20 years to understand the

impact over time (Kirn, 2007; NACSLB). Short-term revenue projections cannot provide early

warning of potential problematic revenue sources such as those that will be adversely affected by

changing economic conditions (Kirn). Projections should be available to all budget participants

prior to budgetary decision-making, with one or more updated projections during the budget

period (NACSLB).

According to NACSLB (1998), forecasting methods include trend analysis, econometric

modeling, and qualitative, with the decision of which type to use varying depending on the type

of revenue and availability of data. Reddick's (2004) assessment of revenue forecasting found

more advanced casual forecasting methods to be more accurate than expert judgment and trend

forecasting. Despite this finding, there appears to be limited use of deterministic and econometric

forecasting at the local level (Reddick). Reddick recognizes the economy from which revenue is

derived has become increasingly complex and revenue forecasters are expected to provide

increasingly sophisticated techniques for accomplishing this. Yet, most decision makers rely on

judgmental or nonextrapolative processes such as intuition, past experience, expert opinion, or

guesswork (Reddick). The judgmental or expert revenue forecasting method which relies on the

advice of someone familiar with the revenue source is generally the most simplistic and least

expensive method (Reddick). If the expert forecasters know their system extremely well and


know where to obtain additional information, they may be able to develop an accurate guess

(Reddick). The downside to this type of forecasting is: (a) the accuracy is almost always inferior

to more rigorous quantitative methods; (b) they are difficult to use for long-term projections; and

(c) if the expert forecaster leaves the model is lost (Reddick). According to Reddick, the

extrapolative or trend forecasting methods which rely on formulas that weigh values from a

historical series to predict future values are simple and straightforward and the least costly of the

quantitative forecasting techniques. Extrapolative techniques do not provide accurate forecasts

for highly volatile revenue sources as history does not always repeat itself, recessions are not

predictable enough, and the local economic profile and tax base may change (Reddick). Many

experts recommend causal modeling such as deterministic and econometric forecasting which

are strategic and look at the long term (Reddick). Econometric and deterministic forecasting are

based on one or more related underlying factors which have a direct affect on revenues

(Swanson, 2008). Deterministic techniques allow for time variables as well as other variables

such as unemployment rates, population changes, and per capita income, with many of them

using pre-established formulas (Reddick). According to Reddick, econometric forecasting

combines economic principles with statistical techniques and, although more complex, is capable

of producing useful information for the forecaster and policy maker. The drawbacks to the

causal methods are the additional time and resource requirements, as well as the extra expenses

involved in developing such methods (Reddick). Reddick reports the greater the fiscal stress, the

more likely a jurisdiction is to utilize a complex predictive forecasting method such as a

regression or econometric model most likely attributable to the extreme risk aversion of local

officials. Because the financial forecast is so important in the decision-making process, the

projected forecast should be compared to actual results to identify weaknesses which should be


acknowledged and corrected and to enhance its credibility (Gudgeirsson, 2007). While it is true

that forecasting variances should be analyzed to improve future forecasting, the NACSLB warns

forecasting of sharp turns in national, state, or local economies is problematic and may result in

actual outcomes differing greatly from projections.

Amy Zachary Reynolds (2007) recommends creating a comprehensive revenue manual

which describes all revenue sources for local government officials and taxpayers. The revenue

manual can provide a portion of the long-term financial planning process. The detailed revenue

streams will provide a transparent picture in order to determine present and future impacts on

financial plans and projections. The examination of each revenue source will provide staff and

governing officials an opportunity to determine if the current system is stable, fair and equitable,

and well diversified (Reynolds). According to Reynolds, it should include historical data, the

legislative authority for each source, the uses and fund sources for each revenue stream, and the

forecasting method utilized. The first step in building the baseline revenue forecast is to collect

historical data for trend analysis and then utilizing those figures for a correlation analysis with

data such as residential and commercial development, economic cycles, population growth,

inflation, and so forth (Swanson, 2008). From the baseline forecast, alternative scenarios

demonstrating favorable and unfavorable scenarios can be developed (Swanson).

In recent research brief on the fiscal condition of cities in 2009, Hoene and Pagano

caution readers, "the full weight of the decline in housing values has yet to be experienced by

many cities, and property tax revenues will likely decline in 2010, 2011, and 2012 as declining

property values are reflected in city property tax rolls" (2009, p. 3). Local property tax revenues

are derived from the value of the residential and commercial property within taxing entities

boundaries (Hoene & Pagano). It takes time for the local assessment process to catch up with the


real estate market changes; therefore current property tax revenues typically reflect property

values anywhere from 18 months to several years prior (Hoene & Pagano). With regards to the

real estate market, Hoene and Pagano conclude, "Real estate markets tend to be slow to recover

from downturns, which will be particularly true this time around as housing values recover from

the largest decline in at least the past 40 years, meaning that a rapid rebound in property tax

revenues is unlikely in the next few years" (p. 7).

For governments in fiscal crisis, as well as those in a stable position wanting to practice

preventive care and avert a crisis before it happens, it is important to review the entities financial

position to look for structural or cyclical deficits (Kavanagh & Purcell, 2008). Temporary

downturns or cyclical deficits which last less than two or three years can be addressed by

utilizing reserve funds, across-the-board cuts, hiring freezes, or deferring capital or maintenance

spending, but utilizing these same tactics to address a structural deficit can actually make the

long-term situation worse (Kavanagh & Purcell; Kreklow & Bliss, 2007). Structural fiscal

problems are often a result of downward pressure on taxes coupled with greater demand for

public service, aging infrastructure and rapidly rising healthcare and employee benefit costs

(Kreklow & Bliss). The U.S. Government Accountability Office (2007) predicted state and local

governments would see persistent fiscal challenges emerging with the next decade as a result of

current unsustainable policies.

When faced with a structural or cyclical deficit, Kavanagh and Purcell (2008) advise the

following strategies: prioritize services, work with a citizen blue ribbon committee, and seize

innovative opportunities. When services are prioritized, governmental entities are better

positioned to determine service reductions or modifications during economic downturns

(Kavanagh & Purcell). A blue ribbon committee comprised of highly respected community


members, such as business owners, former public officials, accountants, or financial

professionals can provide an outside perspective on fiscal strategies and build public support

(Kavanagh & Purcell). At times, a crisis is also the opportunity and impetus to innovate or make

changes which will result in a more effective and efficient organization (Kavanagh & Purcell).

The benefit of any forecast or estimate is directly linked to its credibility, and its

credibility depends not only on the quality but on the transparency as well (Osborne &

Hutchinson, 2004). Cause for skepticism makes projections easy to ignore, and in political

situations, skepticism will always persist if one party controls the forecasting process (Osborne

& Hutchinson). Leaders who want to enhance the credibility of their budgets should publish

user-friendly projections to the media, interest groups and the public and encourage scrutiny

(Osborne & Hutchinson).

Transparency/Stakeholder Involvement

Stakeholders are diverse and therefore citizen viewpoints may differ from those of

government "insiders," union viewpoints may differ from elected official viewpoints, and even

viewpoints from citizen to citizen may vary (GFOA, 2009). Good public participation practices

can assist governmental entities with being more accountable and responsive and may also help

with the public's value and performance perceptions (GFOA). The best way to assure a broad

perspective is to gather information from a variety of stakeholders, in a variety of ways (GFOA).

In the GFOA's Recommend Practice of Public Participation in Planning, Budgeting, and

Performance Management it states:

Traditionally, public participation meant voting, running for office, being involved in

political campaigns, attending public hearings, and keeping informed on important issues

by reading government reports or the local newspaper. At an increased level of


involvement, the public, acting as individuals and in groups, advocated specific

government policies by attending or sponsoring public meeting, lobbying government

officials, or bringing media attention to policy issues. Most recently, governments have

used new forms of public involvement – surveys, focus groups, neighborhood councils,

and Citizen Relationship Management systems, among others – as inputs to decisions

about service levels and preferences, community priorities, and organizational

performance. (GFOA, 2009, ¶ 2)

At the same time, the GFOA (2009) cautions against superficial or poorly designed efforts that

waste staff time and financial resources, and can increase public cynicism if the public feels its

input has not been considered or taken seriously.

It is essential for a business to stay in touch with its customers in order to stay in

business. When governments are not involved with their citizens they may still remain in

business, but the results are not necessarily pleasant for the citizens or the government

(NACSLB, 1998). Osborne and Hutchinson (2004) equate the "price of government" to the

amount of purchasing power a community is willing to commit to its governments. Although

there is no "right" price of government, there is an acceptable price which will vary from one

jurisdiction to the next depending on the communities' history, wealth, culture, and value

(Osborne & Hutchinson). Elected officials are tasked with finding the acceptable price, just as

General Mills must determine the right price for Cheerios (Osborne & Hutchinson). Just as

private business feel the effects of inappropriately priced products, when the price of

government is too high incumbents are ousted and replaced with anti-tax candidates and/or

initiatives, and when the price gets too low critical public services began to fray with citizens

pushing the price of government back up by electing representatives committed to improving


services or voting in referenda to pay more for services (Osborne & Hutchinson). Driving the

price of government too high can damage an economy and yet when the price is too low it can

undermine entities viability (Osborne & Hutchinson). Leaders must realize that even when

citizens are not actively involved, they continue to assess the relationship between value and

pricing of public services, just as they do with everything they buy (Osborne & Hutchinson).

Determining the priorities of government starts with the process of deciding what

outcomes are of most value to the public (Osborne & Hutchinson, 2004). This process should

occur before service and budget decisions are made, and unless a compelling reason exists to

only target specific stakeholders, stakeholder involvement approaches should encourage all

citizens to participate (GFOA, 2009). A commitment to keeping your own people and

community stakeholders informed of changes which may be made and the necessity for changes

is essential (IAFC, 2008). If stakeholders have clearly defined budget input opportunities, it will

assist in ensuring their priorities are identified and enhance the support for the adopted budget.

(NACSLB, 1998). Recommended methods of obtaining public input include polling or random

sampling of public opinion, surveys, comment or point of service cards, town hall sessions or

public hearing facilitated by experienced staff, advisory commissions, TV and video

presentations, web sites with web-based feedback collected, focus groups or meetings with

citizen interest groups or leading citizens, neighborhood meetings, strategic planning processes,

meeting with employees, and workshops involving the government's administrative staff and

legislative body as possible mechanisms (GFOA; NACSLB; Osborne & Hutchinson, 2004).

City of Coral Springs (1999) found that varied and effective communications with its residents is

critical to its success. The approaches will differ based on the size of the government. A general-

purpose public hearing held shortly before the final budget adoption is not adequate as the sole


means of obtaining stakeholder input (NACSLB). The budget calendar should contain clearly

defined opportunities for citizen input (NACSLB).

Transparency implies openness, accountability, and willingness to communicate (Cascio,

2009; IAFC, 2008; Kavanagh, 2009). This transparency is an essential characteristic of a resilient

system (Cascio; Kavanagh). Organizations should share their goals and objectives, financial

condition, and forecast assumptions and be willing to listen when stakeholders point out flaws

(Cascio; Kavanagh). When systems are transparent, problems may be easier to discover. It is

important to maintain transparency and clarity with regards to established reserve amounts in

order to maintain the credibility and integrity of its reserve system (Kavangh).

Elected officials are key stakeholders with incalculable impact on the organization's

financial health as they have the final say with regards to tax policies and budgets. Jamis Cascio

(2009) includes collaboration as a principle of resiliency and suggests organizations which work

together are stronger. Elected officials and staff who collaborate are able to make savvy financial

decisions, successfully recognize problems, and enact appropriate solutions. Resilient

governments create formal orientation programs, with periodic refreshers, where newly elected

officials can be introduced to the planning process (Kavanagh, 2009). There is a tendency for

elected officials to have a predilection for short-term issues as constituents expect responsiveness

(Kavanagh, 2007b). To overcome some elected officials beliefs that long-term financial planning

is an impediment, San Clemente has developed the plan as tool for elected officials to

communicate with the public (Kavanagh, 2007b). Since most elected officials are not interested

in reviewing reams of numerical data, Scottsdale has incorporated effective data visualization

such as charts and graphs into their plan (Kavanagh, 2007b).


Citizens should feel a sense of ownership, accountability, and responsibility for their

government (Babcock, Berman, Brown, Campbell, Chapman, Denhardt, et al., 2001). Citizen

engagement creates support for financial planning (Kavangh, 2009). Babcock et al. (2001)

states, "Individual involvement occurs most at the local level because people identify with the

decision makers and understand the process" (p.x). Babcock et al. (2001) suggest community

members are more likely to become involved in the complex process of governance, if they

understand it. Gudgeirsson (2007) recommends the public be encouraged to participate in the

financial planning processing at governance meeting as many projects will likely impact the

community's citizens. He also recommends preparing brief summaries of major plan elements

for press coverage (Gudgeirsson). Although citizen participation may lead to a slower, more

cumbersome process, it can also lead to better results (Babcock et al.).

Coral Springs, Florida has an active citizen volunteer program. In addition to reducing

staffing costs for the City, the volunteer program provides an opportunity to educate these fully

engaged citizens about Coral Springs financial condition and planning processes (City of Coral

Springs, 1999). They have found that these volunteers take accurate information back to their

family, friends, and neighbors. As a result, they also often become vocal advocates for the city

and their practices (S. Grant, personal communication, February, 2, 2010).

In the Surviving Financial Distress: Fiscal First Aid Tactics, presenters Melanie Purcell,

Timothy Soave, and Shayne Kavangh, (2009) state establishing a culture of frugality may be the

most important technique for long term fiscal stability and surviving a fiscal crisis. Purcell et al.

(2009) stress the critical need for open communication with all levels of the organization, not just

management, being educated, involved and receiving information regarding the current level of

fiscal standing. Purcell and Kavanagh (2008) remind readers of the importance of involving


employees as they are the most familiar with the organization and their creativity can be an asset

in reaching financial stability. "Those individuals who work 'in the trenches' day in and day out

have the experience and knowledge of what does or does not work, on a practical basis" (Purcell

et al., 2009, p. 30). Long-term financial planning is a comprehensive effort and it is important to

engage all departments, not just finance (Kavanagh, 2007b). The City of Scottsdale instills a

"pride of authorship" by involving all departments in revenue and expenditure forecasting,

holding them responsible to explain variances in expenditure forecasts and actual experience,

and including their departments forecasts in the public plan documents (Kavanagh, 2007b, p.

11). With financial planning being one of their most valued activities, San Clemente has created

"critical issue" teams to analyze and recommend solutions for the most pressing financial issues

(Kavangh, 2007b, p. 11). Participation on the issue teams is perceived as a means of

professional development and potential advancement and at times city personnel will submit

requests a year in advance to serve on the issue team for the next year's planning cycle

(Kavanagh, 2007b). San Clemente also moved away a planning process which utilized 25 to 30

staff members to a strike-team approach with seven key members who were identified as internal

experts from a variety of professional disciplines such as environmental and civil engineering,

capital and landscape planning, accounting and budgeting (Gudgeirsson, 2007). An Auxiliary

Team was formed to attend select meetings with members being recruited after consultation with

department directors (Gudgeirsson, 2007). This has improved the entire organizations

commitment to the plan as it is now seen as a city-wide effort to improve fiscal health and not

just a product of the finance department (Gudgeirsson, 2007).

The IAFC Weathering the Economic Storm publication lists several common pitfalls with

regards to transparency and stakeholder participation (IAFC, 2008). Some of these pitfalls


include: failing to disclose and share information regarding costs of your service or the impact of

budget cuts; making decisions single-handedly without input from firefighters, the union, or

other key stakeholders, and; failing to articulate prior efficiency or effectiveness efforts such as

regionalization or functional collaboration (IAFC). Kavanagh & Purcell (2008) recommend

when attempting to build public trust, governments understand what tough times mean for

citizens and recognize certain segments of the population cannot afford new or increased taxes.

Sustainability / Resiliency

The U.S. Government Accountability Office (GAO, 2007) predicted state and local

governments would see persistent fiscal challenges emerging with the next decade as a result of

current unsustainable policies. Sustainability and financial sustainability has been the focus of

many government leaders over the past few years. When considering financial sustainability,

organizations are cautioned against using one-time revenue sources for recurring expenditures

and taking into account the long-term maintenance and operating costs of capital projects

(Kavanagh, 2009). Managers are also advised against the practices of allowing needed capital

and human resources to deteriorate, deferring large amounts of current costs to the future, and

not accounting for the full long-term costs of programs or policy changes during a downturn in

the economy (Nollenberger, Groves, & Valente, 2003). Sustainability often equates to a goal of

living within our means for the long-term. With the current recession, it has become apparent

that although sustainability is important, it may not be adequate to ensure the ongoing financial

health of an organization. "A sustainable system is balanced but potentially brittle. A resilient

system not only survives shocks, it thrives under conditions of adversity" (Kavanagh, 2009, p.

9). "Resilience is all about being able to overcome the unexpected. Sustainability is about

survival. The goal of resilience is to thrive" (Cascio, 2009). When long-term financial


projections point out future imbalances, financially resilient government take preventative

actions, rather than use the projected imbalance as an opportunity for reproach (Kavanagh).

One of Jamis Cascio's (2009) principals of resiliency is to have redundancy and avoid a

single path of organizational escape. This principle would involve adopting a reserve policy

which would prohibit the use of fund balances for recurring expenditures and saving them for

capital and temporary budget stabilization in economic downturns (Cascio). It would also

include adopting a policy which requires assessment of long-term financial implications of

operating and capital expenses, financial policies, and service delivery policies (Cascio). Lastly,

the principle of redundancy would suggest pursuing multiple strategies, short- and long-term

expenditure reduction and revenue enrichment to maintain resiliency (Kavanagh, 2009).

Kavangh provides as an example a short-term draw downs on budget stabilization reserve funds

coupled with a long-term financial strategy of implementing a new two-tiered retirement system

with reduced benefits for new employees.

The second of Jamis Cascio's (2009) principles of resiliency is to move away from a

centralized system to a more decentralized environment. "Decentralization is about engaging

operating departments in financial planning so that all departments think more strategically about

finance, rather than long-term financial health relying solely on the efforts of central

administration" (Kavanagh, 2009, p. 10). Administrators and governing boards should work as

closely as possible with individual departments to determine potential upcoming financial

impacts such as new programs, projected staff increases, and new maintenance standards

(Gudgeirsson, 2007). Purcell et al. (2009) advises managers need to be provided with timely

financial information, be held responsible for their area's budget, and conduct on-going reviews

of the corresponding revenues and expenditures. Shayne Kavanagh (2009) concurs explaining


managers should be given responsibility to develop their own budgets, manage their costs,

identify and develop strategies to address their issues, and engage in financial planning and

forecasting for their departments. Kavanagh and Purcell (2008) propose eliminating costly layers

of control which may build up over time, and instead go back to making managers manage.

Kavanagh (2009) adds, by involving individual departments in financial forecasting, identifying

issues, analyzing them, and developing appropriate strategies, the quality of the long-term

financial planning process is improved.

Financial resource planning should also include legislative lobbying. Craig Clifford

(2007) recommends active lobbying and relationship development with legislative staff to

prevent erosion of legislative controlled revenues. The Arizona Fire District Association (AFDA)

strongly recommends fire district board members and chiefs get to know their senators and

representatives as they are the individuals who pass the laws which govern fire district operations

(AFDA, 2010, Chap. 15, p. 3). States which give local government greater leeway to raise

revenue assist in creating vibrant support for economic development if the localities are

cognizant of how their rates and taxes fit in with those the state is already levying (Barrett &

Greene, 2008). It is imperative for management to be familiar with the many substantive

requirements and statutory procedures associated with fire district financial management as

failure to follow these may result in loss of revenues and added expense for the district (AFDA,

Chap. 6, p. 3).

Data Collection / Accounting Practices

In the International Association of Fire Chiefs (IAFC) Weathering the Economic Storm

publication, the authors state "In the 'good old days,' fire and EMS leaders could be confident

that public safety would never receive significant budget cuts. In these 'good old days,' fire and


EMS chiefs did not have to collect and study data…" (2008, p. 5). In order for organizations to

adequately articulate the real impact of proposed budget cuts, it is essential to have a good data

collection and analysis process with an accurate data management program (IAFC). This data

must be relevant, accurate, and reliable in order to portray the impact of budget cuts (IAFC).

"[Chief officers] do have the responsibility to provide their community leaders with a coherent –

and data-drive – understanding of the impact of budget cuts" (IAFC, 2008, p. 7).

Governments must regularly collect data and information about trends in community

condition, external factors affecting it, possible opportunities, and problems or issuing needing

addressed (NACSLB, 1998). Governments which collect up-to-date information are better able

to evaluate community conditions and major issues and utilize this information when developing

goals and integrating them in the budget process (NACSLB). The NACSLB (1998) and

Kreklow and Bliss (2007) recommend evaluating community conditions based on local, regional,

and national economic and financial factors, demographic trends, social and cultural trends,

physical or environmental factors, legal or regulatory issues, intergovernmental issues and

technological changes. Craig Clifford (2007) explains local governments can gather appropriate

economic and demographic data, combine it with the entity's budgetary and financial reports and

use the data for financial trend monitoring. In turn, this series of financial indicators can be used

to monitor changes in financial conditions so that appropriate fiscal sustainability actions plans

can be built (Clifford). To supplement its forecasts with a credible third party, the City of

Scottsdale uses a monthly newsletter from leading analysts within the Arizona business

community called the Arizona Blue Chip Forecast (Kavanagh, 2007b).

The GFOA best practice of The Use of Trend Data and Comparative Data for Financial

Analysis states a government's past performance is normally the most relevant (but not


exclusive) for analyzing current financial data and is typically best expressed in the form of trend

data (GFOA, 2003). Trend data usefulness can be enhanced by examining data element

percentage relationships (i.e. residential property tax as a percentage of total property tax) over

time with a minimum of 5 years of data, but typically no more than 10 years, for effective trend

analysis (GFOA, 2003). Data comparisons with other similar governments can be useful for

financial analysis, if appropriate comparisons are utilized. Considerations that affect data

comparison validity include: are the governments the same level and type; is the scope or quality

of services provided similar; are there significant difference in number of citizens served; are

categories defined in the same way; and are the entities from regions where costs and

environmental factors are comparable (GFOA, 2003). These comparisons may be further

enhanced by using trend data for all entities, rather than simply relying on current-year data

(GFOA, 2003).

Thomas Kirn (2007) warns historical data often needs to be modified or adjusted using

data smoothing techniques or deflation to accommodate noise or measurement errors, inflation,

seasonal variability or tax rate changes in order to depict the true trend or pattern. The moving

average technique smoothes the data series utilizing the average value of the original successive

data points (Kirn). A seasonal adjustment is used to eliminate seasonal variations. Deflation will

remove price inflation, making it possible to compare a series which contains inflation, such as

tax revenues, with data that does not, such as employment (Kirn). Additionally, inflation can

vary over time and in turn obscure the true patterns (Kirn).

Governmental entities relying on property values will need to collect data with regards to

property valuations. Marcie Geffner (2009) reminds readers that local markets may be vastly

different from the national market. She explains the disconnect between broad-stroke forecasts


and small local markets which can be challenging if attempting to make financial decisions based

on fact and not fiction (Geffner). Geffner recommends obtaining data directly from a variety of

original sources and their associated websites, such as: (a) supply of for-sale homes from realtor

associations (http://rodomino.realtor.org/rodesign.nsf/pages/FS_FASSOC?OpenDocument); (b)

median home prices and volume of homes sold from realtor associations

(http://www.realtor.org/research/research/metroprice); (c) foreclosure rates from the Federal

Reserve Bank of New York (http://data.newyorkfed.org/creditconditions/); (d) residential

construction starts from the U.S. Census Bureau

(http://www.census.gov/const/www/newresconstindex.html); (e) residential building permits

from the U.S. Census Bureau (http://www.census.gov/const/www/permitsindex.html); (f)

homeownership & housing vacancy rates from the U.S. Census Bureau

(http://www.census.gov/hhes/www/housing/hvs/annual07/ann07ind.html); and (g) employment

and unemployment rates from the US Bureau of Labor Statistics

(http://www.bls.gov/data/home.htm). This data should be tracked over time, comparing the

historical highs, lows, and averages to begin getting a sense of where the market is currently

situated (Geffner).

Cost data can be useful for a variety of purposes, including performance measurement

and benchmarking, determining appropriate fees and charges, activity-based costing, and

activity-based management (GFOA, 2002). Full-cost accounting for services which includes all

direct and indirect costs is considered essential for organizational resiliency. Direct costs include:

all pay and benefits of employees while they are working exclusively on the delivery of the

service; associated materials and supplies; associated operating costs such as utilities, training,

and travel; and expenses that are not necessarily fully funded in the current period such as

http://rodomino.realtor.org/rodesign.nsf/pages/FS_FASSOC?OpenDocument�

http://www.realtor.org/research/research/metroprice�

http://data.newyorkfed.org/creditconditions/�

http://www.census.gov/const/www/newresconstindex.html�

http://www.census.gov/const/www/permitsindex.html�

http://www.census.gov/hhes/www/housing/hvs/annual07/ann07ind.html�

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interest expense, depreciation, and compensated absences (GFOA, 2002). Indirect costs such as

shared administrative and support expenses (legal, finance, maintenance, technology, human

resources) should be apportioned by a systematic and rational allocation methodology (GFOA,

2002). Full-cost accounting leads to stakeholder trust as everyone can clearly see the true cost of

services offered (Johnson & Fabian, 2008). While the GFOA acknowledges that cost data can be

extremely useful for service delivery decision making, it warns that it should not be the sole

factor as efficiency and effectiveness are also essential components (2002).

Plan Implementation

Executing the financial plan can be difficult, but it is also an opportunity (Gudgeirsson,

2007). Depending on the political implications, the number of projects with funding gaps, the

issues analyzed, and the level of stakeholders' acceptance, the level of difficulty will vary

(Gudgeirsson). The plan's success can be measured by the legislative body's adoption,

implementation of the adopted recommendations, and incorporation into the following year's

budget (Gudgeirsson). The adopted long-term financial plan recommendations should be

monitored through monthly or quarterly financial reports and performance measurement

systems, with final progress and accomplishments reported in the next financial plan

(Gudgeirsson).

Developing a good fiscal strategy is the foundation of successful long-term financial and

capital planning for both struggling and robust locales (Kreklow & Bliss, 2007). Governmental

entities can determine their fiscal capacity based on long-term financial forecasts and utilize this

information when developing their strategic plans (Clifford, 2007). When moving from a single

annual budget process to a long-term financial planning process, there will inevitably be changes

in business process (Kreklow & Bliss). It is important to get the chief financial officer involved


with department heads early on to assist with measuring costs and impact on the budget

(Kreklow & Bliss).

Sometimes there are no alternatives but to add a new tax or increase existing taxes. In

many areas this is difficult, but it is possible to gain approval for new tax revenues if the goals

are made clear to the public (Kreklow & Bliss, 2007). When a public entity successfully

communicates the impacts on delivery service, it helps with public acceptance for the need to

change (Kreklow & Bliss).

In summary, the literature review provided an abundance of information pertinent to

long-term financial planning. The research unequivocally reiterated the value of long-term fiscal

planning for effective, efficient, and resilient organizations. The research also outlined the

essential need for stakeholder involvement in order to determine community priorities and price

thresholds (Cascio, 2009; Kavanagh, 2009; Osborne & Hutchinson, 2004). This literature review

formed the basis for this applied research project and pointed the author towards the key

elements necessary to develop a collaborative and participative financial planning process which

would address economic growth and decline.

Procedures

This ARP utilized the Descriptive Research Method to determine the appropriate

procedures necessary for a long-term financial planning process that would assist with periods of

economic growth and decline while including all key stakeholders. The research process

necessary to develop a long-term financial planning process map involved many steps, including

a literature review, completion of two questionnaires, a review of numerous websites, a review

of other governmental long-term financial planning processes, utilization of data collected from


the Central Yavapai Fire District, and the development of a long-term financial planning process

and corresponding documents.

An initial search for existing subject related materials, especially in the fire service realm,

was conducted at the Learning Resource Center (LRC) at the National Fire Academy (NFA) in

Emmitsburg, MD. The LRC search was performed in July, 2009 and yielded a limited number of

research papers on the subject of long-term financial planning or forecasting. Over the next five

months, an extensive literature search was conducted, including a review of fire service and

governmental journals, periodicals, news articles, magazines and financial planning books. In

addition to the LRC, the Prescott Valley Library, located in Prescott Valley, Arizona was also

visited in an effort to obtain research materials. Additional research information was downloaded

from the Internet over the course of the project, utilizing the LRC and Google search engines as

well as specific governmental websites such as the Government Finance Officers Association

and the International City/County Management Association.

A questionnaire was developed to determine how other entities have addressed long-term

financial planning, especially in a down economy, and to inquire what processes they have

utilized to include key stakeholders. A review of this ARP questions and desired information

was conducted for inclusion in the questionnaire. A list of potential questionnaire recipients was

prepared. The draft questionnaire was sent to five fire service peers to verify that it was

understandable and complete, with recommended modifications then being implemented. The

final questionnaire (see Appendix A) was distributed to a wide variety of fire and governmental

organization through direct e-mail. A replica of the questionnaire was designed on the website

SurveyMonkey.com. The questionnaire internet link then e-mailed to associates and posted on


the social media website Linked In. Feedback was gathered, clarifications completed where

necessary, and all data was compiled.

Of the 35 agencies and individuals that received e-mails, 21 responded to the survey (see

Appendix B). This corresponds to a response rate of 60%. The answers to questions 1 and 2

provided the author with information regarding what other agencies found to be the most

successful means of determining service expectations and interaction with stakeholders.

Question 3 was asked to determine the most appropriate method of determining a cost of service

delivery. Questions 4 and 5 were intended to discover effective econometric forecasting

methods. Lastly, question 6 sought best practices for including stakeholders in the long-range

financial planning process (see Appendix C for questionnaire results).

A second questionnaire was developed to determine if community members had a

preferred venue for involvement with the District's long-term financial planning process. This

simple questionnaire was limited with two basic inquiries consisting of asking the respondent's

preferred method of interaction and if they were a District resident (see Appendix D). A hard

copy of this survey was created and distributed, with a website version also being developed and

placed on the District's website. An electronic version of the questionnaire, as well as a link to

the District's website, was distributed to all employees, Fire Board members, key community

members, local governmental leaders, and many local business owners. Hard copies of the

survey were distributed to a variety of locations throughout the Fire District in an attempt to

solicit input from the various communities located within the District's 160 square mile

boundary. Approximately 135 copies of the survey were directly e-mailed or delivered with 82

responses being received. This corresponds to a response rate of 60.7%. The questionnaire data

was gathered and results tallied (see Table 1 for public questionnaire results).


The limitations that affected this research project included time, the complexity involved

with determining cost of service delivery, the abundance of general long-term financial planning

materials, and the broad scope of this project. The completion time requirements imposed by the

National Fire Academy limited the literature review, particularly in the area of stakeholder

involvement, and the development of fully detailed financial forecasting documents. The author

found a tremendous amount of information in regards to long-term financial planning and it was

not feasible to review all available literature. The topic of long-term financial planning is very

complex and diverse with a wide-range of processes involved. This extensive topic required the

author to step back and limit the research and scope of this ARP on a regular basis. Additionally,

after completing the literature review and review of other entities' long-term financial planning

processes, the author recognized the development of a long-term financial planning process will

need to begin with the most essential steps and will continue to develop and expand as time goes

on.

Definition of Terms

Budgeting for Outcomes – begins with available revenues, rather than starting with the prior

period's budgeted programs and activities, and continues with a consideration of desired results

and strategies, and then concludes by deciding what activities and programs best achieve desired

results. Links strategic planning, long-range financial planning, performance measures,

budgeting, and evaluation.

Econometric - Application of mathematical and statistical techniques to economics in the study

of problems, the analysis of data, and the development and testing of theories and models.

(http://www.answers.com/topic/econometrics)

http://www.answers.com/topic/econometrics�


Fiduciary - Person or a legal entity holding assets or information as an agent-in-trust for a

principal (stockholder, customer, member). A fiduciary has the duty of loyalty, full disclosure,

obedience, diligence, and of accounting for all monies. A fiduciary must not exploit his or her

position of trust and confidence for personal gain at the expense of the principal. Law demands a

fiduciary to exercise highest degree of care and utmost good faith in maintenance and

preservation of the principal's assets and rights, and imposes compensatory as well as punitive

damages on the erring fiduciary. (http://www.businessdictionary.com)

Stakeholders - Individual, group, or organization that has direct or indirect stake in an

organization because it can affect or be affected by the organization's actions, objectives, and

policies. Key stakeholders include elected officials, governmental administrators, employees and

their representatives, citizen groups, business leaders, customers, other governmental entities,

associate businesses, and the community from which the organization draws and provides

resources. (http://www.businessdictionary.com)

Results

Through descriptive research, which included the review of an abundance of information

related to long-term financial planning, the review of questionnaire results, and the author's

review of long-term financial plans developed by other governmental entities, the author was

able to answer the five research questions.

Research Question 1. What processes and procedures need to be implemented in order to

determine the services expected by CYFD citizens and the price they are willing to pay for those

services?

The literature review consistently recommended a process be developed to evaluate

current programs and services and measure these against the needs and priorities of the

http://www.businessdictionary.com/�

http://www.businessdictionary.com/�


community (NACSLB, 2008). When Osborne and Hutchinson (2004) equate the price citizens

are willing to pay to the amount of purchasing power a community will commit to its

government and they suggest this amount varies from one community to the next. Kreklow &

Bliss (2007), recommend community consensus on local priorities be determined. With an

acceptable price of government established and high service priorities determined, elected

officials can began the task of balancing service delivery with long-term sustainability, debt, and

community tax burden (Kavanagh, 2007b; Osborne & Hutchinson). The opportunities for

citizens to provide service expectations and acceptable tax burden levels should be clearly

defined and transmitted to the public (NACSLB, 1998).

Osborne and Hutchinson (2004) recommended utilizing the Budgeting for Outcomes

process to provide citizens with the most value for their tax dollar. Setting the acceptable price of

government is one of the critical challenges that must be initially addressed (Osborne &

Hutchinson). Elected officials are tasked with finding the "right" price of government (Osborne

& Hutchinson). Through data collection and graphical depictions, Osborne & Hutchinson

suggest citizens are not simply requesting lower taxes and "cheap government", but are instead

demanding more value each year for the dollars they pay. The IAFC (2008) state the failure to

disclose and share cost of service information and budget cut impacts is a common pitfall in

regards to transparency and stakeholder participation. Governmental entities are advised to use

full-cost accounting for services, which includes all direct and indirect costs, to assist with

stakeholder trust and provide a true cost of service (Johnson & Fabian, 2008).

The author sought other governmental entities advice with regards to determining an

acceptable coast of service delivery through the use of a long-term financial planning

questionnaire (see Appendix C). According to the questionnaire results, 85.7% of the responding


agencies are utilizing some method to determine a cost of the services they provide their citizens.

The questionnaire results indicate the majority of respondents (42.8%) are self-determining the

cost for service by completing an in-house analysis (23.8%) or through the use of program

budgeting and a corresponding account coding system (19.0%). A frequent concern expressed by

the respondents completing the self-analysis was the true delivery costs may not be reflected as it

is difficult to include costs, such as administrative expense and infrastructure, into the

calculations. Those agencies utilizing an outside professional (14.3%) to determine cost of

service were confident they were obtaining an accurate service delivery cost. Although Mesa

Fire completes a cost for service analysis for code enforcement, Fire Chief Beck reminded the

author of the challenges in respect to balancing service delivery cost with service value (H. Beck,

personal communication, January 5, 2010).

In order to determine service priorities, the public must have an opportunity to convey

their most valued results to an organization's elected officials and administrators. The author's

research pointed to a host of methods for obtaining the citizen service expectations, including

polling or random samplings, survey, public hearings, advisory commissions or focus groups,

employee meetings, web-based feedback opportunities, neighborhood meetings, and strategic

planning processes (City of Coral Springs, 1999; NACSLB, 1998; Osborne, 2004).

The respondents of the author's EFO Applied Research Project long-term financial

planning questionnaire are utilizing a variety of procedures to determine service expectations and

acceptable tax burden for those services, with the most frequently mentioned mechanism, at

66.7%, being a survey (see Appendix C). Tempe Fire Department utilizes an annual

comprehensive community survey which is completed by an outside consultant and includes

questions relative to value and preference for funding. Obtaining public input through public


forums and/or their elected officials were the next most popular methods with each being utilized

by 28.6% of the responding governmental entities. The largest number of respondents (29.4%)

found a comprehensive community survey completed by an outside professional agency to be the

most effective method of obtaining feedback from citizens and stakeholders, with a direct

mailing to citizens being second at 23.5%. Only 5.9% of respondents found the use of an internet

or online survey to be effective in obtaining feedback.

History indicates the price of government is not something elected officials can set

anywhere they choose (Osborne & Hutchinson, 2004). The balance between citizen tolerance for

taxation and acceptable level of service will guide this price, with an understanding that it may

be adjusted at times due to the health of the economy. In the long run, the will of the people

indicates the price that is acceptable to those who pay it and adequate to deliver the results

demanded (Osborne & Hutchinson).

Research Question 2. What type of data and statistics do we need to gather to build a

comprehensive 10-year revenue and expenditure forecasting model?

In order to articulate real financial impacts, organizations must collect relevant, accurate,

and reliable data (IAFC, 2008). Governments which regularly collect data to evaluate community

conditions based on economic and demographic data are able to use the data for financial trend

monitoring so fiscal sustainability action plans can be built (Clifford, 2007).

The GFOA believes past performance is most relevant for analyzing current and future

financial data and is best expressed in the form of trend data for key financial indicators such as

revenues, expenditures, and fund balance (GFOA, 2003). Although trend information loses

relevance over time due to changes in circumstances, a minimum of five years of data is

necessary for effective analysis, with typically no more than ten years being considered (GFOA).


One-time items or changes in assumptions or structures should be carefully noted as they have

the potential to distort trends (GFOA). At times, data may need to be modified or adjusted using

data smoothing techniques or deflation to adjust for measurement errors, inflation, and tax rate

changes to depict a true trend or pattern (Kirn, 2007).

Governmental entities which rely heavily on property taxes will need to collect data with

regards to property valuations. In addition to obtaining property valuation data from the County

Assessor's Office, the feedback provided from other governmental entities, as well as the

literature review, indicates property valuation data can be obtained from the local realtor

associations and a variety of real estate websites, governmental entities which issue building

permits, state universities which have real estate data banks, national data banks such as the

S&P/Case-Shiller Home Price Indices, internal economic development departments, and

organizations such as the Federal Reserve Bank and the U.S. Census Bureau. Research indicates

caution should be used when considering national property data as it can be vastly different from

local markets (Geffner, 2009). The data should be tracked over time to obtain a view of historical

highs, lows, and averages in order to get a sense of where the market is currently (Geffner).

Lastly, it is important for governmental entities to review the data related to its current

and projected financial position in order to look for structural or cyclical deficits (Kavanagh &

Purcell, 2008). Although cyclical or temporary downturns which last less than two or three years

can be managed with short-term solutions such as utilizing reserve funds, implementing hiring

freezes, or deferring capital and maintenance expenses, a structural deficit will continue to

increase and worsen the entities financial situation if the same short-term tactics are utilized

(Kavanagh & Purcell; Kreklow & Bliss, 2007).


Research Question 3. What are suggested best practices with regards to governmental

long-range fiscal planning?

All long-term financial planning literature reviewed indicated that long-term financial

planning is a critical element for public entities. The NACSLB (1998) and Riddick (2004)

recommend a multi-year financial planning process which determines the fiscal impact of all

policies and programs, analyzes financial trends, assesses both problems and opportunities,

includes a long-term forecast of revenues and expenditures, and determines appropriate strategies

or actions needed. Good financial planning is not simply a matter of projecting the status quo "x"

number of years into the future, but instead is a planning process which considers possible

threats and opportunities and develops appropriate strategies (Kavanagh, 2007a). Therefore,

research indicates one of the best reasons to undertake a long-range financial planning process is

the ability to begin recognizing the long-term impact of today's decisions and how the

organization can position itself now to meet future challenges and opportunities and deliver a

stable level of essential services.

Financial forecasting will provide an understanding of available funding, evaluate

financial risk, assess service sustainability, assess capital investment levels, identify future

commitments and resource demands, and identify key variables causing changes in revenues

(GFOA, 1999). All major revenues and expenditures should be forecast a minimum of three to

five years beyond the budget period, regularly monitored, and periodically updated with

underlying assumptions and methodology clearly stated (NACSLB, 1998). Osborne and

Hutchinson (2004) and Kavanagh (2007a) recommend a five year forecast be considered the

minimum with the optimum being the projection of every budget line out ten years. It is

important to educate governing bodies, administration, and key stakeholders that while the


financial forecast is simply an estimate, and not a definitive prediction of the future, it is a tool

which can be used to recognize issues which will require a long-term strategic approach,

establish financial parameters, and provide the ability to evaluate the long-term effects of

proposed initiatives while educating constituents about present and future capabilities

(Kavangh, 2009; Osborne & Hutchinson, 2004; Swanson, 2008).

The expenditure forecasting projections should encompass long-range operating

expenditures for existing and newly proposed programs, as well as the operating impacts of

capital projects (Clifford, 2007; NACSLB, 1998). This long-term look at expenditures will assist

decision-makers and stakeholders with decisions regarding the sustainability, affordability, and

acceptability of a program (NACSLB). Baseline expenditure projections should be linked with

the accounting system (NACSLB). Once recurring expenses have been identified, the historical

trends should be analyzed to identify positive and negative trends with solutions developed for

negative trends and positive trends recognized and enhanced (Gudgeirsson, 2007; Swanson,

2008).

The development of revenue projections are particularly critical in order to understand

the funding level available for services and capital acquisition and help determine current and

future service sustainability (NACSLB, 1998; Reddick, 2004). While literature research indicates

recommended expenditure projection time frames from three to ten years, it typically

recommends a five to twenty year revenue projection time frame to understand long-term

revenue impacts. Long-range revenue projections should be provided to all budget participants

prior to budgetary decision-making, with one or more updated projections distributed during the

budget period (NACSLB). Although the author found a variety of revenue forecasting methods

being utilized, including trend analysis, econometric modeling, expert, judgmental or


nonextrapolative, research indicated the more advanced casual and quantitative forecasting

methods utilizing econometric and deterministic processes to be more accurate (Reddick, 2004).

Extrapolative techniques are generally straightforward, simpler, and less expensive, but are not

as accurate for highly volatile revenue sources since history does not always repeat itself,

recessions are unpredictable, and the local economic picture and tax base may change (Reddick).

Experts recommend using a casual forecasting method, such as deterministic or econometric,

which will account for time variables, as well as other underlying factors such as unemployment

rates, population changes, and per capita income (Reddick; Swanson, 2008).

A comprehensive revenue manual which describes all revenue sources, the legislative

authority for each source, the uses and funding sources for each revenue stream, and the

historical revenue data for each source, can provide a portion of the long-term financial planning

process (Reynolds, 2007). The historical data trends can be utilized for a correlation analysis

with other data such as residential and commercial development statistics, population growth,

economic cycles, and inflation (Swanson, 2008). Local property tax revenues are derived from

residential and commercial property values. Econometric revenue forecasting models, with

alternative scenarios, should reflect current property tax revenues lagging property values

anywhere from 18 months to several years prior and the real estate market being slow to recover

(Hoene & Pagano, 2009; Swanson).

Financial forecasting models should be developed with an ability to demonstrate best-

and worst-case scenarios, flexible enough to be modified on a regular basis, and have the ability

to demonstrate the impact of changing environments and financial conditions (Kavanagh, 2009;

Swanson, 2008). Revenue and expenditure projections should be linked to provide stakeholders

an overall financial picture of the organization's future and provide the planning staff with early


warnings of financial deficit or highlighting issues of concern (Kavanagh, 2007a). Forecasting

variances should be analyzed to improve future projection methodologies (NACSLB, 1998). The

literature review and questionnaire feedback indicates the most frequently recommended

methods of developing a financial forecasting model were to utilize an electronic spreadsheet

software package, such as Microsoft Excel, or through the purchase of a pre-developed

forecasting software package such as MuniCast.

Developing a long-term financial plan is a difficult and challenging process, but it is an

opportunity as well (Gudgeirsson, 2007). The success of the process will be measured by the

legislative body's adoption and implementation of recommended changes in business process as

well as the incorporation of those recommendations in the following year's budget (Gudgeirsson,

2007; Kavanagh, 2007a). The research was consistent in recommending the adopted long-term

financial plan be monitored through monthly or quarterly financial reports and updated on a

regular basis.

Research Question 4. How have other fire districts addressed long-range fiscal planning?

The author found a very limited number of fire districts which were utilizing a long-range

fiscal planning process. Of the 21 questionnaire respondents, only four were from fire districts.

All four of these Arizona fire districts are demographically similar to the Central Yavapai Fire

District. One fire district was utilizing only rudimentary methods and expressed frustration with

the internal complacency with regards to upcoming budget shortfalls and lack of interest in

committing to a long-range fiscal planning process. The second fire district had a budget

committee with firefighters, chiefs, office personnel, union members, and board members

assisting with budget development, but does not have a formal long-range financial planning

process and is not currently including the public in the process. The Fire Chief and staff are


conducting long-range fiscal planning and budgeting for a third Arizona fire district. They have

not formally included citizens, the governing board, or the union in the process. The final

responding fire district has involved the citizens and governing board only on a limited basis

with the development of the long-range fiscal planning and budget being completed by the Fire

Chief, the Accounting Supervisor, and outside consultants. (See Appendix C for long-term

financial planning questionnaire results.)

Research Question 5. What processes should the District develop in order to provide an

inclusive, supportive culture for our citizens, Fire Board, Staff, Union, and key stakeholders in

our long-range fiscal plans?

Governmental entities should incorporate public participation in its fiscal planning,

budgeting, and performance management processes (Cascio, 2009; GFOA, 2009; IAFC, 2008;

Kavanagh, 2009; NACSLB, 1998; Osborne & Hutchinson, 2004). To ensure effective and well

implemented public participation processes, the GFOA (2009) recommends the following:

purposes for involving the public be considered; a method which will assure the entity of getting

the public's perspective and not simply that of a small number of highly vocal special interest

groups; an effective approach to obtain public participation and which points in the planning,

budgeting, performance management cycle would be most appropriate; how the information

received will be incorporated into decision making; method of communicating to the public how

the collected information will be and was used; and buy-in from top government officials.

The first critical step will be to articulate the purpose for conducting a long-term financial

planning process with an open participation process as the purpose will become the foundation

for determining who to involve, how to select them, what activities they will be involved in, and

how the District will use the information (GFOA, 2009). While the District may identify its own


unique purposes for involving the public, it may also consider some of the common purposes

such as: to improve performance with a better understanding of public expectations; to align

services and service levels with public preferences; to establish performance measures that

incorporate the public's perspective; to understand community priorities in planning, budgeting,

and managing services, especially when revenues are not sufficient to continue to provide all

services at their current levels; to develop long term strategies for assurance of a fiscally

sustainable future for the District; and to ensure public input on capital investment decisions, like

station locations (GFOA, 2009).

When all stakeholders are involved in the District's financial planning and budgeting

processes, the end product reflects their needs and priorities and serves as a positive force in

maintaining good public relations and enhancing the overall impression of the District

(NACSLB, 1999). The author's literature review and questionnaire processes reveal numerous

and varied opportunities to obtain stakeholder input, which include polling, surveys, public

hearings, point of service cards, town hall sessions, advisory commissions, neighborhood

meetings, web sites, employee meetings, and TV and video presentations. The research indicated

the approach will need to vary based on the input sought and the size of the government. The

District's public calendar and internal calendar should contain clearly defined opportunities for

input (NACSLB). Brief summaries of major plan elements should be prepared for press coverage

(Gudgeirsson, 2007).

In order to determine if a preferred public input method existed in our local area, the

author created a public questionnaire which requested the respondents provide their top three

venues for participation (see Appendix D). The questionnaire was distributed by placing it on the

District's website for a period of 60 days; e-mailing the website link to community business


leaders, the Prescott Valley Chamber of Commerce, all District employees, other local

governmental entities; and hard copies placed a various strategic locations throughout the

District's jurisdiction. Of the estimated 135 e-mails and distributed hard copies, in addition to

being available on the www.centralyavapaifire.org website, 82 questionnaires were completed.

The results of the data analysis are displayed in Table 1 with the majority of the respondents

preferring a "town hall" type session, and the second and third most popular being an interactive

response website and focus groups.

In addition to the research highlighting the importance of citizen and public input, the

literature review also points out the need for all levels of the organization being educated,

involved, and receiving information regarding the current level of fiscal standing (Purcell et al.,

2009). Employees are most familiar with the organization and have the practical knowledge and

experience of what does and does not work (Kavanagh, 2007b; Purcell et al.). Jamis Cascio

(2009) advocates a decentralized environment to improve resiliency. Individual departments and

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managers should be given responsibility to develop their budgets, manage costs, identify

potential future financial challenges and develop strategies to deal with those issues, and engage

in financial planning and forecasting with administrators and governing boards (Gudgeirsson,

2007; Kavanagh, 2009; Purcell et al.). Both the City of Scottsdale and the City of San Clemente

reported a sense of pride and ownership from employees who have been involved in the long-

term financial planning process.

Utilizing the long-term financial planning / budgeting and stakeholder involvement

recommendations discussed in numerous literature resources, as well as those best practice

recommendations of other fire service and governmental entities, the author developed a revenue

manual template, a ten-year revenue and expenditure forecasting spreadsheet, and a long-term

financial planning process map to assist the District in its' long-term financial planning

endeavors (see Appendices E through H).

Discussion

Based on the current economic situation and the evident need to move from a simple

annual budgeting practice to a more complex long-term perspective in order to ascertain the

District's ability to continue providing its citizens with the level of services they expect, the

author of this ARP felt it was important to research best practices regarding financial planning

and stakeholder involvement. The desired outcome of this ARP was the development of a fiscal

planning process which would assist the District in becoming an inclusive and resilient entity

with the ability to foresee future imbalances and take preventative action while continuing to

meet the needs of our stakeholders.

The literature review confirmed the author's belief that it was very important to involve

all key stakeholders in the District's long-term financial planning process with the end product


being a reflection of their needs and priorities (Babcock et al., 2001; IAFC, 2008; NACSLB,

1999; Osborne & Hutchinson, 2004). The literature review established the importance of

stakeholder involvement in order to verify the District's is finding the acceptable price and

desired service levels for our community (NACSLB, 1998; Osborne & Hutchinson). Both the

literature review and the long-term financial planning questionnaire provided a host of methods

for involving the community and the author felt a variety of different methods would work well

in the District. With the utilization of both formal and informal transparent interaction

opportunities, citizens and elected officials are introduced to and educated about the planning

process, and are more likely to feel a sense of ownership, responsibility, and have the

opportunity to become advocates (Babcock et al.; Cascio, 2009; Gudgeirsson, 2007; Kavanagh,

2009).

In addition to involving citizens, elected officials, and other governmental entities, many

literature references were found which emphasized the importance of involving employees at all

levels of the organization (Kavanagh, 2007b; Purcell et al., 2009). The concept of including

those individual who work in the trenches and engaging all departments, not just finance,

resonated with the author as it is evident those employees have the knowledge and experience of

what works and what does not (Kavanagh, 2007b; Purcell et al.). Both the City of Scottsdale and

the City of San Clemente report evident organizational pride, responsibility, and commitment

when employees are involved in the long-term financial planning process. The IAFC (2008) also

listed the lack of involvement from firefighters, the union, or other key stakeholders as an

economic pitfall.

When considering reasons to implement a long-term financial planning process, some of

the reason that seemed particularly important to the author was the ability to assist with


navigating complex, long-term opportunities and challenges, assisting the organization with the

assurance of its ability to provide a consistent level of essential services over the long-term, the

integrating of financial perspective into organizational planning, and its' ability to assist with

crisis management. The author also appreciated the advice provided by Shayne Kavanagh in

Long-Term Financial Planning for Local Government (2007a) with regards to stimulating long-

term and big-picture thinking. The author's literature review indicates when financial decisions

are made without purposeful efforts to understand the long-term impact they are often counter-

productive to the agencies long term best interests (Kavanagh, 2007a). When considering the

Town of Addison, Texas, example of reviewing the big picture of revenue data and recognizing

to need to maintain a fund balance of at least 25% to stabilize the highly volatile abundant and

slower years, the parallels with our current financial situation and the need for long-term

financial planning were evident (Kavanagh, 2007a). Additionally, it is clear that long-term

financial planning has the ability to highlight current minor problems which could escalate if not

addressed (Osborne & Hutchinson, 2004; Swanson, 2008). The advance recognition of potential

problems will provide the District with the ability to make gradual adjustments now rather than

having to make more drastic changes in the future (Kavanagh, 2007a). Lastly, the research

pointed out the benefit of long-term financial planning in reinforcing sound financial

management practices by magnifying the cumulative effects of poor decisions. An example of a

government using non-recurring resources, rather than structuring its services to match recurring

revenues, and finding itself with a future fiscal imbalance and inability to support on-going

programs was demonstrated (Kavanagh, 2007a).

An important portion of the long-term financial planning process is the expenditure and

revenue forecasting; which is not necessarily a prediction of the future but a tool to recognize


long-term issues and establish financial parameters (Kavanagh, 2009; NACSLB; Osborne &

Hutchinson, 2004; Swanson, 2008). The author believes the long-term forecast will bring

credibility to the District and assist our elected board members, employees, and citizens with

understanding the long-term effects of proposed initiatives and the current future financial

situation of the District (Kavanagh, 2009; Swanson). The literature discussions regarding the

appropriateness of moving the expenditure paradigm from "what do we need or can get this

year" to "how do we accomplish our service objectives over time given our financial capacity"

seemed especially relevant in today's economy (Clifford, 2007; Osborne & Hutchinson).

Additionally, current research indicates the current housing decline effects will likely continue

through 2012 (Hoene & Pagno, 2009) causing governmental entities property tax revenue

challenges for the next few years. Without a plan for period longer than a traditional budget

year, the governing board may be faced with having to make hasty decisions or managing by

crisis resulting in emergency expenditure cuts and/or tax increases (Reddick, 2004).

A broad literature review was completed with regards to recommended methods for

accurate expenditure and revenue forecasting. While trend analysis and judgmental or

nonextrapolative processes are generally the most simplistic and least expensive (Reddick,

2004), deterministic or econometric forecasting were often more accurate (Reddick; Swanson,

2008). According to the long-term financial planning questionnaire results, less than half

(47.6%) of the respondents were utilizing an econometric forecasting model (see Appendix C).

While only 10% of the respondents indicated they are using a pre-packaged program (MuniCast),

the author has read several positive reviews of this software package. From both the literature

review and the best practices recommended by other governmental entities, it appears a

combination of forecasting methods would provide the best end result.


The results of the long-term financial planning questionnaire indicates the majority of

governmental and fire service entity respondents are utilizing some method for determining the

cost of service delivery with 42.8% utilizing an in-house "cost for service" analysis or program

budgeting / account coding process (see Appendix C). This is consistent with the literature

review which recommended the utilization of a full-cost accounting system (Johnson & Fabian,

2008). Determining the cost of service delivery is also a key factor in the Budgeting for

Outcomes process which includes setting the price for the citizen's priorities (Osborne &

Hutchinson, 2004). At the same time, the author values Mesa Fire Chief Harry Beck's sage

advice with regards to calculating a cost for service when he states:

However, if you are going to calculate cost you must calculate benefit. It is not

functional to calculate the value of a life or the value of the sense of security the

community feels. People who have been in a situation where they have directly benefited

from our services have not expressed a concern with the cost of the service. Others may

not be in a position to judge the value of the service. Before you go too far with this line

of thinking evaluate the potential cost of not providing the service. (H. Beck, personal

correspondence, January 5, 2010)

The research for this ARP indicated the answer to this dichotomy may be to first identify and

assess the programs and services offered (NACSLB, 1998) and obtain a community consensus

on local priorities (Kreklow & Bliss, 2007). Once the price of service has been determined, and

coupled with the determination of how much citizens are willing to pay and which results they

value most, the District can decide how to best produce the desired results (Osborne &

Hutchinson).


The outcomes of the stakeholder involvement and long-term financial planning process

will guide the District in its' systematic decision making process with both budget increases and

reductions being a result of balancing staffing, facilities, and service outcomes against long-term

sustainability, debt, and acceptable community tax burden (Kavanagh, 2007b). The author

concurs with the recommendations of the IAFC in stating budget cuts being made in terms of

impact on service levels, beginning with those with the least impact (IAFC, 2008). While the

author agrees with the recommendation of avoiding across the board budget cuts, research

indicated some of the recommendations, such as first anticipating budget reducing and

developing a budget with the depth of those cuts being the target and the general rule of "the

larger the budget request, the more will be left when budget negotiations are finished" found in

the Rhetoric of Budgets (Roach, 2009), to be shortsighted tactics in the current economy

(Osborne & Hutchinson, 2004). Other short-term budget fixes which were repeated advised

against was practice of funding shortfalls through special funds such as capital or pension funds,

the selling of assets, delaying of maintenance or capital replacement purchases, and the nickeling

and diming of employees (Osborne & Hutchinson). The author agrees with this advice and has

found in her experience that these short-term fixes are not long-term solutions and at a minimum

delay the necessity of making of structural changes and at worst compound the problem for

future staffs and policy makers. If the entity is successful in communicating budgetary increases

or decreases and the correlating service delivery impacts it will help with public acceptance

(Kreklow & Bliss, 2007).

Although the author had not originally intended to research the issues of sustainability

and resiliency, the reviewed literature often included references and discussions in regards to

these two topics. Both seemed to be pertinent and an integral element of the long term fiscal


planning process with financial sustainability and the question of unsustainable policies begin the

focus of many government leaders. Much of the sustainability research pointed towards the

importance of having good financial policies which dissuade organizations from using one-time

revenues sources, allowing capital and human resources needs to deteriorate, and deferring

current costs to the future, as well as verifying on-going maintenance and operating costs of

programs and capital are including in the long-term financial plan (GAO, 2007; Kavanagh, 2009;

Nollenberger, Groves, & Valente, 2003). The author respected the advice given by Kavanagh

(2009) with regards to sustainability equating to a goal of living within our means for the long-

term, but given the current economy an understanding of a sustainable system being balance, yet

brittle, and a resilient system surviving and thriving in adverse conditions. Cascio (2009) echoed

these thoughts when he said, "Resilience is all about being able to overcome the unexpected.

Sustainability is about survival." Several of the principles of resiliency would be appropriate to

inclusion in the long-term financial planning process. These principles included the goal of

redundancy with its recommended reserve and fund balance policies, a move to a decentralized

system wherein all departments think strategically about finance and managers are held

responsible for their budgets and managing costs, and legislative lobbying remaining a

recognized need to prevent erosion of revenues (Cascio, 2009; Clifford, 2007; Kavanagh, 2009).

In summary, this research has confirmed the author's belief that it is imperative to make

the shift from a short-term tactical budgeting method to a comprehensive strategic fiscal process.

As a nation we began to see the severe downturn in the economy two years ago, and we have yet

to witness a wide-spread recovery. In Arizona we will continue to grapple with the brutal

declines in property values for at least the next two or three years. At the same time, the public's

frustration with government and taxes is evident, which means we may not be able to rely on the


simple fix of increasing our taxes. Therefore, it is only prudent of fire service to address this

challenge in the proactive manner we traditionally respond to all other new crisis we are faced

with and employing the knowledge and abilities we have acquired to be successful.

Recommendations

Given our current economic situation, it is evident CYFD will be faced with financial

challenges for at least the next three to five years. While the District is only required to adopt an

annual budget to meet state statutory requirements, based on the research completed for this

Applied Research Project, it is recommended the District build a financial plan for the next ten

years to help anticipate future economic impacts, ensure achievement of District objectives, and

meet its fiduciary responsibilities.

The District should take the necessary steps to develop, adopt, and implement a long-

term financial planning process as outlined in Appendix H. The following principles and

processes should be included in the process:

• A collaborative process which will include all key stakeholders.

• Commitment to a review of current and proposed programs and services for purpose,

beneficiaries and needs served, goals achieved, priority of the community, and possible

future issues, challenges, and opportunities.

• A commitment from the Fire Board and staff members to the planning process, the

formation of a LTFP strike team, and the adoption of associated policies.

• Through data collection and accounting practices, an ability to determine the cost of

service.

• The development of a comprehensive revenue manual.


• The development of a 10-year revenue and expenditure forecasting model to provide

effective analysis of problems and opportunities, and an ability to look for structural or

cyclical deficits.

• A decentralized financial planning process which will encourage all departments to think

strategically about long-term financial health and hold all managers responsible for

developing their budgets, managing associated costs, and engaging in financial planning

and forecasting.

• On-going involvement in the state's legislative process.

• Regular and frequent reporting in order to provide accountability, educate and inform

stakeholders, and improve confidence levels in CYFD.

Use of a long-term collaborative and participative financial planning process will provide the

District with assistance in navigation of complex long-term opportunities and challenges,

assurance of ability to provide essential services over the long-term, and the ability to meet

the public's value and performance expectations.


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Appendix A: Long-Term Financial Planning (LTFP) Questionnaire


EFO Long-Term Financial Planning Questionnaire

I am working on my EFO Applied Research Project and the projected outcome of this research project will be a process map for long-range fiscal planning and budgeting which will meet the service demands of our citizens during times of economic expansion and decline. I would like to gather information from other governmental entities and non-profit organizations with respect to their successful and/or unsuccessful processes in determining services demanded, cost of service delivery, long-range revenue and expense projections, and inclusion of stakeholders in your fiscal planning. I have included a few specific questions below, but would welcome any additional recommendations you have for me. If you have time to send me information with regards to your entity's long-range fiscal planning processes, it would be most appreciated. Thank you so much for your assistance. Kindest Regards, Mary

1. What methods or procedures has your organization utilized to determine the services and results your citizens expect and value most and the price they are willing to pay for those services?

2. If you have surveyed your citizens and stakeholders in the past with regards to service

expectations, what have you found to be the most effective method of receiving feedback?

3. Have you determined a cost of delivery for the various services your organization offers,

and if so, how have you calculated the cost? 4. Have you developed any econometric forecasting models which you utilize to assist with

your revenue and expenditure forecasting? 5. Have you relied on sources, other than the County Assessor's Office, to assist with

assessed valuation projections, and if so, what sources have you utilized? 6. Are you currently conducting long-range fiscal planning and budgeting, and if so, what

processes have you utilized to include your citizens, governing board, staff, and union in the process?


Appendix B: Government Entities Completing the LTFP Questionnaire

Apache Junction Fire District, Arizona

City of Coral Springs, Florida

City of El Mirage, Arizona

City of High Springs Fire Department, Florida

City of Peoria, Arizona

City of San Clemente, California

Flagstaff Fire Department, Arizona

Glendale Fire Department, Arizona

Northwest Fire District, Arizona

Mesa Fire Department, Arizona

Onalaska Fire Department, Wisconsin

Pinkerton Government Services, Fire & Emergency Services, East Coast

Prescott Fire Department, Arizona

Prince William County Department of Fire and Rescue, Virginia

S.E. Thurston Fire & EMS, Washington

Sun City West Fire District, Arizona

Tempe Fire Department, Arizona

Town of Dewey-Humboldt, Arizona

Tucson Fire Department, Arizona

Verde Valley Fire District, Arizona

Yavapai County, Arizona


Appendix C: LTFP Questionnaire Results 35 Questionnaires Sent Out; 21 Completed Questionnaires Returned = 60% 1. What methods or procedures has your organization utilized to determine the services and

results your citizens expect and value most and the price they are willing to pay for those services?

• Not Performed 33.3% • Surveys 66.7% • Public Forums 23.6% • Elected Official Feedback 28.6% • Strategic Planning 9.5% • Historical Data 4.8%

Notes – In 1994, Glendale voters approved a .1% Special Revenue Sales Tax to support expansion of fire and police operations. In September 2007, an initiative to increase this to .5% was approved with community support indicating the price the community is willing to pay for expanded fire department services.

2. If you have surveyed your citizens and stakeholders in the past with regards to service

expectations, what have you found to be the most effective method of receiving feedback?

• Comprehensive community survey completed by outside agency – 29.4% • Direct mailings to citizens – 23.5% • Public forums – 17.6% • Statistically validated telephone survey – 11.8% • Individual contacts with citizens who have received services – 11.8% • Online survey – 5.9%

Notes- Tempe Fire surveys its stakeholders following emergency incidents, fire inspections, and public safety education activities. The City of Peoria has found citizen focus groups or ad-hoc committees beneficial in some instances. Glendale Fire has found public forums (council meetings, neighborhood watch meetings, block parties, public education classes) to be the most effective as participants can express themselves in person and receive immediate feedback. Prince William County had completed an annual citizen survey for the past 17 years to provide direction to County department heads as well as utilizing the customer service portions for employee performance evaluations. The Prescott Fire Department includes their service expectation survey in the citizen's water bills.


3. Have you determined a cost of delivery for the various services your organization offers, and if so, how have you calculated the cost?

• Not currently determining a cost of delivery for services – 14.3% • In-house "cost-for-service" analysis – 23.8% • Program Budgeting/Account Coding – 19.0% • Outside consultant provides "cost-for-service" analysis – 14.3% • Operating budget is divided by number of calls, average call duration, units of work –

9.5% • Multiplying the percentage of grouped responses by the operation & personnel expenses

– 4.8% • Utilization of previous cost of emergency service delivery research – 4.8% • Utilization of current state approved rates – 4.8%

Notes – Every two to three years, the City of Peoria conducts an extensive "cost-for-service" exercise to calculate the true, full cost of delivering services (including all indirect costs), which is beneficial in determining user fees and rates. Glendale Fire utilizes the FEMA Schedule of Equipment Rates coupled with current personnel compensation and benefit rates, but does not include the cost of materials and wear/tear on equipment. Mesa Fire suggests using caution when calculating "cost-for-service" as it is difficult to balance this with a benefit or service since we cannot place a value on a life, sense of security, etc.

4. Have you developed any econometric forecasting models which you utilize to assist with

your revenue and expenditure forecasting?

No – 52.4% Yes – 47.6%

Respondents utilizing econometric forecasting provided the following specifics: • Completed by City Financial Services Department/Budget Office – 40% • Utilizing historical data, but this method is not helpful in today's economy – 20% • Utilizing rough predictions based on home values and numbers for sale, local economy –

10% • Utilizing MuniCast's Excel-based forecast model – 10% • Utilizing outside professional consultants – 10% • Prepares several possible scenarios with different assessed values and legislative changes

– 10%

Notes – City of Peoria utilizes econometric forecasting for key revenue assumptions and notable cost drivers (health care, etc.), but have found less quantitative methods (such as time-series and structured judgmental methods) have proven more useful than regression analysis. Onalaska Fire forecasts apparatus replacement utilizing a formula where when repairs exceed 20% of the expected trade in value, the apparatus is replaced.


5. Have you relied on sources, other than the County Assessor's Office, to assist with assessed valuation projections, and if so, what sources have you utilized?

• County Assessor's Office only – 38.1% • Local real estate information – 23.1% • Residential data utilizing JLBC, ASU Real Estate, U of A Eller School, Fiserv, Case-

Shilling, Realty Trac – 23.1% • Local building permit information – 15.4% • Independent consultants – 15.4% • Commercial data utilizing internal Economic Development Department, state economic

publications, CB Richard Ellis – 7.7% • Orange County Register / DataQuest – 7.7%

6. Are you currently conducting long-range fiscal planning and budgeting, and if so, what

processes have you utilized to include your citizens, governing board, staff, and union in the process?

No – 33.3% Yes – 66.7% • The City of Tempe utilizes citizen satisfaction surveys and conducts open forums for

governing board, staff, and the union. • The City of Peoria has adopted financial policies requiring long-range forecasts for major

operating funds and the utilization of the information in budget decisions. The dynamic forecasts are televised for citizens, shared with the governing board, City Manager and staff at "Brown-Bag" lunches, and with all three collective bargaining units.

• The City of San Clemente produces an annual Long Term Financial Plan (LTFP) with issue papers for fiscal policy, reserves, trends, financial forecast, debt, and capital projects. Prior to the start of the LTFP, Council and the public are given the opportunity to suggest topics. The completed LTFP is presented to the Council in a workshop, with the public again having the opportunity to participate. There has been no attempt to involve the union.

• The City of Flagstaff holds a budget retreat with the public, city council, and staff participating. The union is briefed at labor/management meetings and typically attends the retreats.

• The Glendale Fire Department will soon update their 5-year Strategic Plan which will include fiscal planning and budgeting. The planning team will consist of Senior Staff and Labor. Once the document is finalized it will be presented to Management, Mayor and Council. The citizens are included in long-range fiscal planning and budgeting through Public Safety Sales Tax and Bond elections.

• Northwest Fire District is currently conducting long-range fiscal planning and budgeting, but has not included citizens, the governing board, or union in the process. The District's strategic plan development included citizens, the governing board, staff at all levels of the organization, and the union.


• The Prince William County Office of Management and Budget is responsible for the long-range fiscal planning and budgeting. Through the Chief's Weekly Message personnel are kept up-to-date.

• The Prescott Fire Department labor and management, together with the City Manager's staff, have annually updated its 5-year business plan. Citizens have not been included in this process.

• The Verde Valley Fire District's budget committee, which includes firefighters, chief officers, office personnel, and board members, is responsible for long-range fiscal planning. The only citizens involved are the Board members.

• The Town of Dewey-Humboldt has a Citizen's Advisory Board which assists with the development of long-term fiscal planning and budgeting. The process is facilitated by an outside advisory firm or in-house staff, with final drafts being brought to the Council and reviewed at public meetings.

• The Sun City West Fire District's long-range fiscal plan is developed by the Fire Chief, Accounting Supervisor, and outside consultants. The developed documents are brought to the Fire Board for approval.


Appendix D: Stakeholder Input Public Questionnaire


Appendix E: CYFD Revenue Manual Example


Discussion During the year ended June 30, 2009, approximately 92.9% of the District's actual revenues were derived from real property taxes. The Yavapai County Assessor is mandated by statute to value real property to determine its worth using standard appraisal methods. For homes and land, they generally utilize the sales comparison method which compares property to other similar properties that have recently been sold. Consistent with national and regional trends, the local real estate market and residential development have slowed with the tightening of the credit markets and general downturn of the economy. Although commercial construction was initially unaffected, it began to be impacted in early 2009 with an excess supply of commercial property and commercial valuations and lease rates declining rapidly. The Effect of the Economic Downturn In FY 2010, assessed valuations decreased for the first time in the District's history, dropping from $906,891 to $901,038, a .5% decrease. It is anticipated that the Arizona housing market sector will continue to decline due to an imbalance in supply and demand and increases in foreclosures and bankruptcies. For fiscal year 2011, it is estimated that assessed valuations will decrease by nearly 18%, resulting in an estimated tax rate of $1.8411 per $100 in assessed valuation. It is projected that assessed valuations will continue to drop each year until FY 2014, when decreases will finally level off. The effect of the decrease in property valuations will be that the District's tax rate per $100 of assessed valuation is estimated to rise to the statutory maximum by FY 2014.


Appendix F: CYFD 10-Year Revenue Forecasting Spreadsheet


Appendix G: CYFD 10-Year Expenditure Forecasting Spreadsheet


Appendix H: CYFD Long-Term Financial Planning Process Map

CENTRAL YAVAPAI FIRE DISTRICT

LONG-TERM FINANCIAL PLANNING (LTFP) PROCESS

Purpose

Long-term financial planning is a collaborative process with combines financial forecasting with strategizing in order to consider future scenarios and help navigate challenges. Long-term financial planning should be coupled with the District's overall strategic plan. Financial forecasting is the process of projecting revenues and expenditures over a long-term period, using assumptions about economic conditions, future spending, and other variables. Long-term financial planning aligns financial capacity with long-term service objectives. The developed forecasts will provide guidance for future financial capacity so appropriate strategies can be developed to achieve long-term sustainability and the continued delivery of the communities' service objectives. The long-term financial planning process should stimulate discussion and engender a long-term perspective for decision makers, stimulate long-term and strategic thinking, assist with future financial challenges, provide consensus on long-term financial direction, and be a communication tool for internal and external stakeholders. Elements1

The long-term financial plan should include these elements: Time Horizon – The plan should look at least five to ten years into the future. Scope – The plan should include all appropriated funds, and especially those that are utilized for issues of top concern to the elected officials and community. Frequency – Long-term planning activities should be updated in order to provide direction to the budget process, though not every element of the long-range plan must be repeated. Content – The plan should include an analysis of the financial environment, revenue and expenditure forecasts, debt position and affordability analysis, strategies for achieving and maintaining financial balance, and plan monitoring mechanisms. Visibility – The long-term financial prospects of the District and strategies for financial balance should be very apparent and understandable to the public and elected officials. The District should devise an effective means of communicating this information, through either separate plan documents or by integrating it with existing communication devices.

Long-term Financial Planning Steps

1 GFOA Recommended Practice – Long-Term Financial Planning (2008)


1. Initial Preparation

a. Assess programs and services offered

i. Intended purposes ii. Beneficiaries and needs served iii. Goals achieved iv. Community priority v. Factors which could impact them in the future

2. Commit to Planning Process

a. Strike-team approach

i. Engage all departments ii. Involve those who "work in the trenches"

3. Plan Development

a. Determine purposes for involving the public

b. Gather data

i. 5 to 10 years revenues, expenditures, fund balances ii. 5 to 10 years property valuations, parcel counts, property types

c. Develop percentage relationships among data elements

d. Analyze trend data, noting items that potentially distort trends

e. Compare with other governmental trend data, if appropriate

f. Identify critical issues

g. Analyze all issues which may impact District's fiscal condition

h. Focal point should be capital planning, gap analysis, debt analysis

i. Develop/update 10-year expenditure and revenue projections

i. Revenue projections should utilize causal forecasting methods such as deterministic and econometric

ii. Expenditure projections may utilize extrapolative or trend forecasting

j. Develop/update comprehensive revenue manual

k. Adopt a reserve policy prohibiting the use of funds for recurring expenses, saving them for

capital and temporary budget stabilization in economic downturns

l. Adopt a policy requiring assessment of long-term financial implications for operating and

capital expenses

4. Get a grip on the problems

a. Are they short or long term

b. Driven by revenues or expenses or both

5. Stakeholder Involvement – Accurate & consistent, timely, patient, open

a. Determine stakeholder involvement methods to assure a broad perspective rather than only

that of a small number of highly vocal interest groups


i. Collect information in a variety of ways from a variety of sources

b. Consider methods for eliciting participation and the points in the process those methods are

likely to be most effective

i. Internal / Departmental

1. Regular Senior Staff Meetings 2. E-Mail (All Hands) 3. Personnel Meetings 4. Town Hall Meetings (open to all) 5. "Frequently Asked Questions" bulletin on department's intranet

ii. Community

1. Public Hearings 2. Public Town Hall Meetings 3. Question & Answer Website 4. Regional EMS Council 5. Health Advisory Board

iii. Neighboring Jurisdictions / Other governmental entities

1. Provide potential service impacts to mutual aid partners

c. Determine how information gathered will be incorporated into decision-making

d. Determine process for communicating to the public how the information will be and was used

e. Stay in touch with our customers

i. Fire Corp program

1. Expand to fully engage wider range of citizens 2. Educate about financial condition and planning process

6. Executing the plan

a. Fire Board adoption of plan

b. Implement adopted recommendations

c. Provide information to the public

i. Newsletters

ii. Public notices in community media

iii. Public hearings

iv. Public reports – long-term financial planning document, annual financial reports,

budgets, etc.

v. Websites

vi. Individual or group e-mails, phone calls, in-person contact

d. Financial forecasts should be regularly monitored and periodically updated

e. Financial forecasts should be clearly stated, available to participants in the budget process,

and referenced in the final budget document

f. Variances between previous forecasts and actual amounts should be analyzed with factors

identified which influence revenues, expenditure levels, and forecast assumptions


g. Establish and maintain decentralized environment

i. Encourage all departments to think strategically about long-term financial health

ii. All departments determine potential upcoming financial impacts (new programs,

projected staff increases, new maintenance standards)

iii. Provide all managers with timely financial information

iv. All managers held responsible for their area's finances (developing budgets,

managing their costs, identifying strategies to address issues, conducting on-going

reviews, engaging in financial planning and forecasting for their departments)

h. Remain active in legislative lobbying efforts

7. Budget development

a. Incorporate approved LTFP

b. Account for full long-term costs of program of policy changes

c. Live within our means for the long-term

d. If faced with deficit, is it structural or cyclical

i. Consider impact on levels of service

1. Prioritize services

ii. Seize innovative opportunities

iii. All options outlined with pros and cons of each

iv. Avoid across-the-board cuts

v. Temporary downturns or cyclical deficits

1. Utilize reserve funds

2. Consider hiring freezes

3. Defer capital or maintenance spending

vi. Structural fiscal problems

1. Avoid temptation to use capital reserve funds, delay capital replacement

items and maintenance

2. Do not allow capital or human resources to deteriorate

3. Do not deter large amounts of current costs to the future

4. Long-term innovative or service changes will need to be implemented


Table 1 Venues for Key Stakeholder Financial Planning / Budgeting Input

Table 1. (N-82)

long-term financial planning and budgeting: how do we

Documents