Author: Financial Management Resource Bureau
A multi-year financial forecast is a critical tool that allows policymakers to analyze and evaluate the long-term impact of financial decisions. Without a forecast, municipalities often resort to short-term budgetary fixes and reactive spending, which can lead to future shortfalls and budget cuts. Given the common challenge of increased demand for services with limited resources, a forecast can provide essential clarity for effective decision-making.
For the most productive discussion, it's recommended that the financial forecast be presented at the start of the budget process. This allows for early discussion of potential challenges in the upcoming fiscal year. The forecast can then help structure subsequent conversations with department heads, boards, and committees, and inform key financial decisions, such as contract negotiations.
A financial forecast does not need to be as detailed as the annual budget. Instead, it should be presented at a summary level with revenues and expenditures broken into manageable components. For example, expenditures can be summarized into categories like school expenditures, municipal departmental expenditures, employee benefits, debt service, reserves, state and county charges, and other amounts to be raised. Similarly, revenues can be consolidated into tax levy, state aid, local receipts, and available funds. While more detailed data can be kept in subsidiary worksheets for accuracy, presenting the forecast at a summary level makes it easier for readers to understand and helps them distinguish it from the recommended budget.
To ensure a reliable forecast, it’s vital to include accurate historical data and the most up-to-date information. While it's recommended that one member of the finance team manages the updates, the forecast should be a collaborative effort. It should be discussed at finance team meetings to review assumptions and projections and ensure it aligns with the long-term financial planning strategy.
The Financial Management Resource Bureau offers a two-day, in-person workshop that teaches municipal finance officials how to build a forecast using a five-year forecast template. This template includes separate pages for the four revenue categories, as well as pages for debt, expenditures, enterprise funds, and Community Preservation Act (CPA) funds. The template uses Gateway data and the municipality’s own expenditure data to populate the fields. A "what-if" scenarios column allows users to project different outcomes for future years. By the end of the workshop, participants leave with a substantially completed forecast for their community and the skills needed to present and update it in the future. If your municipality is interested in participating in a future forecast training, please complete a request through this link.
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Editor: Dan Bertrand
Editorial Board: Tracy Callahan, Sean Cronin, Janie Dretler, Jessica Ferry, Christopher Ketchen, Paula King, Jen McAllister and Tony Rassias
| Date published: | September 18, 2025 |
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