A Five-Year Financial Model for Municipal Decision Making and Resource Allocation

Nottley, Mark W., Government Finance Review

Increasingly, Michigan's municipalities are embracing the concept of financial modeling. Typically, this involves the creation of an automated multiyear budget model which can be used to estimate or forecast the future years' finances of the general fund.

This article examines the reasons for the growing use of this budgeting technique in the public sector and the benefits that can be derived from a five-year future financial model. The City of Lincoln Park, a long-time advocate of financial modeling, is utilized as a case study.

Growing Popularity of Financial Modeling

Michigan's municipal governments have been subjected to a series of fiscal challenges. Since 1978, local taxing ability has been limited by the Headlee Amendment to the state constitution, a statute which requires millage rollbacks when property value increases exceed the rate of inflation. Potentially more onerous, the recently enacted Proposal A, places an inflationary cap on the increase in individual property assessments; a restriction which may severely limit future revenue growth in many municipalities.

Additionally, federal assistance has been significantly curtailed and state-shared revenue has proven to be a volatile, less-than-predictable funding source. Coupled with rapidly rising costs, mandates and increasing service demand, the financial outlook dictates a prudent, planned approach to long-term resource management.

The …

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Publication information: Article title: A Five-Year Financial Model for Municipal Decision Making and Resource Allocation. Contributors: Nottley, Mark W. - Author. Magazine title: Government Finance Review. Volume: 11. Issue: 3 Publication date: June 1995. Page number: 46+. © 1999 Government Finance Officers Association. COPYRIGHT 1995 Gale Group.

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