Charting a sustainable financial path

The concept of “sustainable finance” — recognition that the availability and use of municipal financial resources determine the future of every community — requires a long-term frame of reference. Sustainable finance links four basic elements — vision, environment, plan and public — into a comprehensive planning approach.

Vision statements describe the essential characteristics of the present community — those things to be preserved and those to be enhanced and expanded. They also paint a picture of aspirations for the future.

Finance plays an integral role in any vision of the future. The size of the community, the form of development and the characteristics of the population influence the demand for public spending and the availability of financial resources.

The path toward the future will not follow a straight line. Instead, it will weave through a complex and changing environment, and understanding this environment is the foundation for planning for the future. Some helpful steps include:

* Looking back before looking ahead. Understanding how a community arrived at its present financial condition is often a good indicator of the factors that will shape the future. Analyze changes in revenues, expenditures, growth and development over a five-year to 10-year period to look for trends and relationships;

* Collecting good information. A lack of good data often limits the ability to make better financial projections. Local governments know how much money is spent but not always what it buys, so collecting better information on the performance of municipal services helps to define the relationships between services, costs and the community; and

* Identifying constraints. These constraints — state laws limiting taxation and indebtedness, decreases in intergovernmental revenues and finite utility capacities — all play an important role in future financial decisions.

Understanding how growth and other factors influence municipal finance leads to creating sustainable plans for financial management. For example, land-use plans form development or redevelopment patterns that increase local revenues but also require investment in infrastructure and facilities and create demand for services. Capital improvement programs also influence operating expenses.

With a clearer understanding of development in the community, it is possible to create a model connecting the basic elements of sustainable finance. Such a model provides a tool for testing the financial implications of local governments’ decisions.

On a cautionary note, looking to sustainable finance with the goal of “calculating” a specific result is not the most effective approach. A significant amount of research has demonstrated the difficulty in quantifying the link between development and the cost of governmental services.

Even if the link could be well defined, planning should not be reduced solely to an effort to create an economic cost/benefit model. Finance is only one factor in a community’s vision for the future.

Involving the public will make difficult planning decisions easier. Town meetings, public hearings, task forces, focus groups and surveys provide meaningful opportunities for the public to participate in the planning process. If the broader community has ownership in the vision, financial decisions may more frequently be seen as investments in the community rather than just more governmental spending.

Finance can no longer be guided strictly by annual budgeting. A vision and plan sustained by revenues and expenditures over the long term are vital to direct competing demands for local resources toward accomplishing communities’ goals.