MSU Extension Fiscal Management

Municipalities across the state of Michigan are gearing up for budget planning a review going into the 2020 fiscal year. Although the state budget has not been completed as of this writing, municipalities have initiated their budget processes regardless of the state budget outcome. Unlike state government, local municipalities have a small margin of time to create balanced budgets even thought they might need direction from the state budget relative to revenue or other legislative mandates from state government. 

This article's purpose is to provide a government equation that fosters a positive experience with the fiscal equation (Definition link: Revenue equals expenditures) that promotes a long-term view for local municipalities. In addition to long term forecasting for both revenue and expenditures, municipalities also should consider the maintenance of current services, capitol improvements and potential new  services asked for y stakeholders. Engaging stakeholders in this process is important to the overall budget review process both short term and long term. 

A fiscally sustainable budget considers multiple years of forecasting revenue and expenditures. Municipalities are only required by law to create a balanced budget for one fiscal year in the State of Michigan. In addition to "costing" a budget for current and new services, the budget must take into account the debt service that they currently have and develop plans to reduce the debt with current financial means and not encumber more than they can afford long-term. 

To the extent possible, the following features of effective long-term budgeting, from a governance perspective, should be considered: 

• Incorporates a long-term perspective even if one budget is used
• Establishes links to broader organizational goals
• Focuses budget decisions based on results and outcomes 
• Involves and promotes effective communication with stakeholders

Sounds pretty straightforward and easy to do but it's not. Elected and appointed officials take many years and budget cycles to move towards a financially sustainable future and even then may have challenges with revenue cycles and state or federal mandates. 

For more information about Community Vitality and Governance programs provided by MSU Extension, visit our webpage.