A guide to financial forecasting management for local authorities

Financial forecasting: The new challenge for local authorities

Financial forecasting for local authorities and the public sector, in general, is becoming a major challenge. Over the past decade, public finances have never experienced such upheavals: the reform of the professional tax, the transfer of competences, and recently, the reform of the general operating grant (DGF).

The goal is to establish a diagnosis of the situation and present a financial analysis to fully understand where we come from before knowing where we are going. Based on this analysis, it is necessary to evaluate the financial capacity according to various economic indicators: savings levels, debt reduction ratio, outstanding debt, etc. Increased monitoring of these indicators followed by benchmarking is necessary to accurately know the position of the local authority compared to others.

Diagnosis, financial analysis, scenarios, multi-year investment program: Tools for effective financial forecasting management

Financial forecasting allows the development of scenarios and their comparison to reach the best solutions for financing local projects. Borrowing and taxation are the two most commonly used sources of financing. Regarding borrowing, forecasting allows the consideration of future repayments both on operations and investment and thus understand their impact on the budget. Forecasting is a very valuable tool to determine up to what level of debt the local authority can bear the charges inherent in resorting to debt. As for taxation, a good tax rate level, monitoring of tax exemptions, and a coherent abatement policy are essential assets for effective forecasting.

In terms of investment, the implementation of a multi-year investment program (PPI) is crucial in forecasting. Good project planning and knowledge of subsidized financing sources condition the choices of elected officials. The PPI must be integrated into the forecasting, and in the various feasibility scenarios, financial departments propose the best solutions to their elected officials.

Finally, a long-term plan must be established, with forecasting conducted over a minimum period of 3 years. There is no ideal duration, but regular monitoring and annual updates allow the local authority to manage its finances serenely.

Optim Prospective: The solution dedicated to financial forecasting management

To anticipate the financial trajectory of the local government, Finance Active offers a financial forecasting management solution and assistance provided by specialized consultants. The financial decision-maker is thus better equipped than ever to master the major balances and establish a financial strategy in line with the mandates and programs of the elected officials.