Los Gatos City Council
May 19, 2025

110 E. Main Street Los Gatos, CA 95030 ● (408)354-6832
www.losgatosca.gov

TOWN OF LOS GATOS

TOWN COUNCIL AND

FINANCE COMMISSION REPORT
MEETING DATE: 05/19/2025
ITEM NO: 1

DESK ITEM
DATE: May 19, 2025
TO: Town Council
Finance Commission
FROM: Chris Constantin, Town Manager
SUBJECT: Presentation and Discussion of Government Budgeting and Financial Reporting Topics by the Government Finance Officers Association to Provide a Training Foundation for the Town Council and Finance Commission
REMARKS:

Attachment 1 contains Government Finance Officers Association Presentation.

Attachment Received with this Desk Item:

1. Government Finance Officers Association Presentation This Page Intentionally Left Blank
GFOA Workshop on
Budgeting and Financial
Management
May 19, 2025
GFOA’s mission is to advance excellence in public finance… …to support thriving communities
• Established in 1906
 Research and Consulting established in
1977
 Technology Consulting Group formed in
1998
• 25,000+ Members
 Offices in Chicago and Washington, DC
• GFOA offers resources, publications,
training, networking opportunities,
conferences, award programs, and
consulting services
A little bit about me…
• Katie Ludwig, Director of Resource Development
 Joined GFOA in 2018
‣ Lead all GFOA budget training, staff the Budget Committee, develop budgeting Best Practices
 Prior to GFOA, worked for 17 years in a variety of roles in the City of Chicago:
‣ Office of Budget and Management
‣ Department of Housing
‣ Public Library
‣ Chicago Housing Authority
 Master’s in Public Policy from the University of Chicago Financial Foundations for Thriving Communities
Why budget?
• Legal requirements
• Limited resources and unlimited possibilities
• Need to make decisions and prioritize
• Identify weaknesses and work to correct
• Set goals and obtain commitment of governing body
• Develop a plan
• Communicate to stakeholders
• Reach consensus
• Earn or maintain trust
Identifying Problems & Developing Solutions
Three components to build trust:
• Planning and policymaking is articulating a desired future state for where the organization wants to be in the
future.
• Budgeting is deciding and committing to how to spend a local government’s limited resources.
• Monitoring is making sure that the commitments made
during planning and allocating are lived up to and
maintaining an understanding of the environment.

HOW to budget?
How do we make budget decisions?
Data Theory Hunch
Politics
Consensus
Appease the
“loudest” group
Avoid
confrontation Public interest
Collaboratively
Need to include a broad array of stakeholders
• Organizational executives (city
or county manager, CEO, etc.)
• Departments
 Executives
 Managers
 Folks doing the work
• Elected officials or members of
governing body
• Constituents/residents
• Employees
• Union representatives
• Advocates
• “Sister” organizations/agencies
 Park District
 Library District
 Fire District
 School system
• Non-profit organizations
• Businesses (big and small)
• Regional organizations
 Planning groups
 Transit agencies
 Neighboring jurisdictions
Overview of a Typical
Budget Process
Goal is a Structurally Balanced Budget
= Recurring
Expenditures
Recurring
Revenues
GFOA Best Practice:
https://www.gfoa.org/materials/achieving-a-structurally-balanced-budget Recurring vs. unstable vs. one-time sources
• Recurring: revenue that you can (generally) count on year after year, with little variation (or with highly predictable variation)
 Example: property tax (usually)
• Unstable: revenue that is volatile or unpredictable
 Example: fines, certain transaction/sales taxes
• One-time (also known as non-recurring): revenue that you don’t (or shouldn’t) expect to receive on a regular basis  Example: certain grants and intergovernmental assistance (e.g., ARPA), proceeds from the sale of assets, debt, reserves Should you spend one-time revenue on…
• Salaries for existing staff?
• Salaries for additional staff?
• Regular vehicle maintenance?
• Utility bills?
• Training?
• New technology or upgrades to existing technology?
 ERP software
 Cashiering software
• A new fire station? Or library, community center, etc? Path to Getting a Budget Approved
Determine
goals and
priorities
for
upcoming
budget
period
Determine
resources
available
Estimate
costs
Allocate
resources
Summarize
and
develop
materials
Present to
governing
body for
approval
Long-term
Financial Planning
Long-Term Financial Planning
Combines financial forecasting with financial strategizing to identify:
• Future challenges and opportunities
• Causes of fiscal imbalances
• Strategies to secure financial sustainability
GFOA Best Practice: Long-Term Financial Planning
• https://www.gfoa.org/materials/long-term-financial-planning • “…all governments prepare and maintain a long-term financial plan that projects revenues, expenses, financial position, and external factors for all key funds and government operations at least five years into the future. Governments that utilize debt financing and/or utility rate setting should consider a long-term financial plan greater than five years. The plan should be reviewed on an annual basis and updated as needed or as major assumptions change. Long-term financial planning should be the starting point for capital planning, developing operating budgets, estimating revenue, and other planning processes.”
Benefits of long-term financial planning
• Creating a long-term outlook into other planning processes like budgeting, capital planning, and revenue forecasting
• Helping to diagnose potential risks and causes of fiscal distress • Stimulating “big-picture thinking”
• Providing a tool for evaluating long-term compliance with financial policies
• Allowing for pre-emptive action to mitigate forecasted financial distress
• Defining parameters for decision-making
• Communicating long-term financial position to residents and other stakeholders, including rating agencies and bond investors Phases of Long-term Financial Planning
Mobilization Analysis Decision Execution
Mobilization Phase
• Align resources
• Conduct a preliminary financial analysis
 Initial environmental scan
 Strengths, weaknesses, opportunities, threats
 Preliminary revenue and expenditure forecasts
• Identify service level preferences
• Validate and/or promulgate financial policies
• Define the purpose and scope of the planning process
Analysis Phase
• Analyze the environment
 Factors should include demographics, land use, legislative, and public opinion issues  Is population increasing or decreasing? Are segments that are net contributors or net users of services increasing or decreasing?
 Is there adequate diversity of land use, including revenue-positive land uses?  Are housing prices going up or down?
 Might changes in laws impact the organization’s financial health?  Could perceptions of public safety impact people’s willingness to live and do business in the community?
• Analyze revenues and expenditures
 5-10 year outlook is typical, but the forecast horizon should match the relevant time horizon of the issues driving the planning process.
 Consider hybrid forecasting: combination of quantitative and qualitative techniques • Analyze debt
• Analyze financial imbalances you uncover
Decision Phase
• Develop a set of financial strategies to improve the financial position of the organization
• Finding the right mix of strategies to ensure you are addressing all of the financial imbalances you have identified.
 Short-term and long-term
 Costs and revenues
 Internal and externa
 Technical and political causes of distress
Financial Strategy Development
• Not uncommon for planning and forecasting to identify an imbalance in the organization’s financial future
• Important to identify strategies to address the issues • More often, the imbalance is unfavorable, but must be prepared with effective solutions for managing surpluses
Execution Phase
• Execute your long-term financial plan through budgeting • To ensure that the plan remains relevant, engage in regular monitoring and update the plan accordingly. Depending on the organization, monitoring can happen on a monthly or quarterly basis and updates made as needed.
• Consider using a financial scorecard or other data visualization to focus decision makers’ attention the big issues.

A forecast is not the goal…
• A forecast only provides information
• Goal is to use information on alternative financial futures and develop options and recommendations to get to the desired future
The Role of Reserves
https://www.gfoa.org/materials/fund-balanceguidelines-for-the-general-fund Fund balance definitions
• Fund Balance = Assets - Liabilities
• For planning and budgeting purposes, fund balance represents accumulated surpluses
 It is the resources available outside of current revenue to support the government.
 Due to differences in GAAP and the budgetary basis of accounting, there could be differences in the GAAP fund balance and the number you would use for to use for budget planning.

GAAP fund balance categories
Source: Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions

1. Nonspendable2.

Restricted

3. Committed

4. Assigned

5. Unassigned
Most restrictive Least restrictive
Unrestricted fund balance
Committed Assigned Unassigned
What does the Best Practice recommend?
• Establish a formal policy on the unrestricted fund balance that should be maintained in the general fund
• Guideline should be set by the appropriate policy body and articulate a framework and process for how the government would increase or decrease the level of unrestricted fund balance over a specific time period
• Provide broad guidance in the policy for how resources will be directed to replenish fund balance should the balance fall below the level prescribed
• Be savvy in how excess fund balances are used
What’s the appropriate level?
• Short answer: it depends!
• Should take into account each government’s own unique circumstances.  If the government is vulnerable to natural disasters, is more dependent on a volatile revenue source, or is likely to experience cuts in state aid and/or federal grants, it may need to maintain a higher level  Outlining these risks in your policy makes it easier to explain to stakeholders why the organization requires a certain level of fund balance
• “Shortcut” target level: 2 months of regular general fund operating revenues or expenditures
 This might be too much for some organizations (very large ones) and not enough for others (very small ones)
Reserves as Insurance
What are reserves?
“Reserves” is a budget and policy term that
describes the resources available outside of the
budget for use if the resources appropriated inside
of the budget are insufficient. This offers protection
against unplanned, unavoidable costs or losses.

A mental model is a
representation of
how the real-world
works.

The real world is
complicated.

Mental models
simplify.

What is the
Traditional
Mental Model for
Reserves?
The Savings Account
• Easy to grasp
• Seemingly obvious
parallel to our
personal lives
The Savings
Account Mental
Model is Limited
• Savings is more commonly
seen as deferred spending
than a way to manage risk
• Implies that more is better
What is the
Alternative?
The Insurance Policy
• A reserve manages volatility
• Risk is a product of volatility
• Hence, reserves help manage risk
Advantages
• Obvious parallel to personal lives
• Invites us to think how commercial
insurance complements reserves
• Implies there is an optimal amount
Reserves as
Insurance
Reserves as
Savings
Account
Savvy &
Wise
Decisions
Perspective 2
The risk is that reserves are too
high and we miss an opportunity to
use reserves to create better value
for the public (opportunity costs).

Two Perspectives on Risk
Perspective 1
The risk is that reserves are too
low and we are unable to
respond to an emergency
situation.

A risk analysis can help you find the
“goldilocks” amount of reserves.

How You Can Approach
Risk Analysis
First Step: Think of Reserves as a Range
Reserves as a Single
Point
“Our policy is to
maintain reserves equal
to 20% of annual
revenue.”
Reserves as a Range
“Our policy is to
maintain reserves
between 15% and 25%
of annual revenue”
Why think of reserve as a range?
• Recognizes you need a margin of error to manage risks • Accommodates different risk appetites
• Better supports strategic, long-term thinking
• Provides a clear floor and ceiling
Golden Cone of Prosperity
How to Arrive at Your Range?
Three methods:

1. Qualitative Risk Analysis

2. Quantitative Analysis: “Single Number” Method

3. Quantitative Analysis: “Chance-based” Method
Qualitative
• Most accessible approach
 Assess your exposure
 Consider a range to accommodate exposure
• Pros
 Easy!
 Gets people thinking about risks
• Cons
 Results are subjective
 Raises chance of error
1 Very high
2 High
3 Medium
4 Low
5 Very Low
Quantitative with Single Number
• Recession risk
 2008 recession was a bad recession
 Losses were $5M
 $5M is probably sufficient for most
future recessions
• Use history & analogues for estimates
of potential loss
• Pro: Accessible
• Con: Risks are uncertain. Single
numbers may be misleading
Quantitative: Chance-based
• Same methods used by insurance companies
• Risk is not condensed to a single number
• Rather, the full range of variation is used
• Pros
 Provides best estimate of optimal reserve range
 Best way to take advantage of “power tools” of risk aware thinking  Technology makes is more practical than ever before
• Cons
 Requires special training and consulting support (maybe) Reserve Policy Checklist
• Does your organization have a reserve policy?
• Has your organization conducted a risk assessment?
 Are the risks articulated in the reserve policy?
• Does the policy address:
 Predictability of revenues and volatility of expenditures?  Perceived exposure to significant one-time outlays (e.g., disasters, immediate capital needs, state budget cuts)?
 Potential drain upon general fund resources from other funds, as well as the availability of resources in other funds?
 Potential impact on the entity’s bond ratings and the corresponding increased cost of borrowed funds?
 Commitments and assignments of fund balance?
Reserve Policy Checklist, continued
• Does the policy define conditions warranting the use of reserves? • Does the policy outline a plan to replenish the reserves if they fall below the target level? If so, does the plan:
 Describe how the government’s expenditure and/or revenue levels will be adjusted to match any new economic realities that are behind the use of reserves as a financing bridge?
 Describe the time period over which the components of fund balance will be replenished and the means by which they will be replenished? • Does the policy address what to do with reserves in excess of the target amount?
Policy Template and Other Resources
Reserve Policy Template:
https://www.gfoa.org/materials/reserve-policy-template
GFOA Research Paper “Should We Rethink Reserves?”:
https://www.gfoa.org/materials/rethinkingreserves
GFOA Risk Analysis Resource Page:
https://www.gfoa.org/risk-analysis
General Fund Reserve Calculation Tool (Excel Workbook):
https://www.gfoa.org/materials/general-fund-reservecalculation-worksheet Capital Improvement Planning
and Asset Maintenance
Balance vs. Wish List
Utilize objective criteria
• Capital planning policies should state that funding decisions will be based on objective criteria
• Possible criteria include:
 Results of needs assessments
 Alignment with goals adopted by governing body
 New asset vs. improvement/maintenance
 Economic impact
 Implications of deferral
 Feasibility of implementation
 Operating budget impact
Operating Budget Impacts
• Capital assets can often have significant impact on the operating budget
 Maintenance costs
 Staffing costs
• Consider these up-front
• Incorporate in your financial policies
 Example: could require that all proposals for capital projects include an assessment of long-term impact on the operating budget
Examples
Daily maintenance
Individual plumbing
fixtures
Elevator maintenance
Ground maintenance
improvements
Staffing for new facilities
Not eligible for capital financing;
requires source of ongoing funding
Furniture
Audio/visual equipment
Computers
Other equipment
Books
Supplies
Asset Maintenance
• Create inventory of assets and condition; reconcile with related documentation
• Establish capital maintenance program for all capital assets in service
• Dedicate funding for maintenance
Show me the money!
(or Funding the CIP)
A tale of two choices…
• Utilize debt financing
OR
• Allocate current resources (“pay-as-you-go” or “PAYGO”) Capital reserves
 One-time resources
Earmarking portions of certain regular revenue streams Establishing dedicated revenue streams (most common
for enterprise operations)
Advantages and Disadvantages of PAYGO
• Fiscal responsibility is enhanced
• Increased flexibility
• Future borrowing enhanced
• Intergenerational equity?
• Opportunity cost
Can we pay as we use (fund w/ debt financing)?
• Bonds
General obligation (guaranteed)
Revenue (not guaranteed)
• Capital leases
Privately placed for equipment or small projects
Certificates of participation for large projects
• Intergenerational equity?
What are the advantages of debt financing?
• Fiscal practicality
• Funding security
• Reduces pressure on operating funds
• Flexibility
• Aligned with asset’s useful life
• Leveraging current funds or greater impact
What are the challenges of debt financing?
• Requires commitment to long-term planning
• Financial complexity
How to decide on financing?
• Develop and review long-term projections
• Conduct scenario analysis
• Understand financial guidelines and constraints
Don’t forget the debt policy!
• How does the financing align with the debt policy?
• Debt limits set for each type of debt
Debt per capita
Debt to personal income
Debt to taxable property
Debt service payments as % of general fund revenues
or expenditures
• Purposes for which debt can be used (or should be used) • Types of debt permitted
Managing
Financial Distress
GFOA’s 12-Step Fiscal First Aid Program

1.Recognition

2.Mobilize

3.Generic Treatments

4.Initial Diagnosis

5.Near-Term
Treatments

6.Detailed Diagnosis

7. Recovery Plan

8. Long-Term Treatments

9. Long-Term Financial
Planning

10. Recovery Leadership

11. Manage the Recovery
Process

12. The Outcome of Recovery
Step 5: Near-Term Treatments
• Builds on Step 3
• Things you can do to make progress during the next year or so • These might be enough to resolve minor cases of financial distress
• For severe cases, buys time for extensive changes, such as those suggested in Step 8, Long-Term Treatments
Balancing the Budget in Bad Times, Part 1
https://www.gfoa.org/materials/balancing-the-budget-in-bad-times-part-1 Establish a Culture of Frugality
Focus on Results
Be Willing to Spend Money to Save Money
Framing the crisis…
…As an opportunity
Primary Near-Term Treatments
These techniques take sound, proven financial
management practices and explain how they can be
helpful during financial distress.

Governments shouldn’t wait for a crisis to use many of
these primary techniques.

They are things governments should be doing in good
and bad times to maximize the value of taxpayer money.

Vacancy Control
Avoid hiring new
employees unless
it is affordable and
necessary
Require vacancy
fill to be subjected
to a review
Form recovery
leadership team to
conduct reviews
Provide integrated
finance and human
resource
information
Vacancy control is
different from
hiring freeze
Key Questions to Ask about Vacancy Control
• What controls do we have to make sure vacancies aren’t filled before they are reviewed?
• Who should review and make the decisions on vacancies? • What criteria should be used?
 Criticality, avoidable costs, lost revenues, increased cost, contractual or mandated requirements?
• What is the appropriate use of savings?
• What opportunities are there to maintain service levels while reducing headcount?
Monitor and Limit Overtime Use
If an
Opportunity
to Cut
Overtime
Exists
Create different schedules to
create less overtime need
Directly deal with consistent
overtime workers
Part-time employees fill
staffing gaps
Evaluate special projects and
services that consistently
create overtime
Junior full-time employees
may be cheaper
Create, clarify, and review
overtime polices and
guidelines
Key Questions to Ask About Overtime
• Is overtime cheaper or more expensive than having more employees?
• What are the controls on accruing overtime?
• What do collective bargaining contracts or mandates really say? • How else can you control overtime?
 Unscheduled leave
 Better work processes
Address Health Care Costs
Cost Reduction
Techniques That
Don’t Reduce
Employee Benefits
Rebid existing
insurances
Control prescription
drugs costs
Conduct eligibility audit Employee healthcare
concierge
Section 125 or a
“Cafeteria Plan”
Healthcare cooperative
purchasing pool
Key Questions to Ask
• Have you done an eligibility audit before?
 If not, see “Controlling Health Care Costs with Dependent Eligibility Audits”
• Are you self-insured now?
 If not, pooled options might be particularly attractive • Can you redesign co-pays, pre-authorizations, etc. based on plan utilization and analytics?
• Is disease management an opportunity?
Enhance purchasing practices
Maintain and enhance
competition
Better management
of contracts
Improve purchasing
practices
Review ongoing expenditures
Audit routine
expenditures
Investigate risk
management
practices and workers’
compensation claim
patterns
Pooling resources and partnering
Cooperate with
other governments
to achieve
economies of scale
Pool department
resources
Look for ways to
partner with private
organizations and
citizens
Better manage capital spending, equipment costs, & debt Better align capital
financing with project
schedules
Use long-term capital
improvement
planning to make
better near-term
decisions
Develop an
equipment
replacement schedule
Review opportunities
to refinance debt at
lower interest rates
Enhancing revenues
Obtain federal
and
state/provincial
aid
Examine fees for
services
New taxes with a
strong
connection to a
desired service
Improve billing
and collection
procedures
Audit tax revenue
sources
Balancing the Budget in Bad Times, Part 2
https://www.gfoa.org/materials/balancing-the-budget-in-bad-times-part-2 Criteria for Evaluating Near-Term Treatments
• Do we have the authority to do it?
• What is the potential financial benefit?
• What is the service impact?
• How feasible is implementation?
• Will elected officials support it?
Service Impact
Many expenditure-reduction techniques will have a cost in terms of the quality or level of services provided. This impact is real, even when it is harder to measure than the financial impact. • How might you mitigate the impact on services of cost-cutting measures like furloughs or program reductions?
• How can you gather public input into what would be considered acceptable?
Political Feasibility
Many elected leaders will have to take unpopular steps to cut costs or raise revenues to balance the budget. But those leaders will not have an unlimited supply of political capital to act on every proposal. • How should you take political feasibility into account when developing your gap closing strategy?
• How should you communicate with your elected officials so they have the information they need to take action when you need them to do so?
Cautionary Near-Term Treatments
for Controlling Personnel Costs
Near-Term Treatments in the
cautionary category are riskier.

However, governments may
have no choice but use them
when in financial distress.

Governments do need to be
mindful of the risks these
techniques entail and be ready
to mitigate those risks.

Increase
PartTime
Labor
Wage
Freeze
Hiring
Freeze
Increase
Employee
Contributions to
Pensions
or OPEBs
Layoffs or
Reduction
in Force
Close
Facilities
Reduce
Hours
Worked
and Pay
Layoffs or Reductions in Force
• Eliminates positions within
the organization
• Can lead to significant and
ongoing cost savings
Risks
Poses the biggest challenge in
maintaining good morale
May reduce effectiveness of
service delivery
Key Questions to Ask
• Do you have a full accounting of all savings and costs?  For example, one-time separation payments for accrued, unused leave, potential unemployment insurance impacts
• What about early retirement incentives (ERI) as way to reduce headcount without firing anyone?
 ERI design and achievement of net savings can be challenging • What criteria can you use to make layoffs?
 For example, seniority-based layoffs could have unintended consequences
• How far can you get with attrition only?
Wage Freeze
• Limits personnel costs
• Does not reduce
nominal compensation
• To lessen morale impact,
leaders of organization
may also take temporary
pay cut
Risks
Hard to enact in a collective
bargaining environment
Might result in capable employees
leaving
Makes it harder to recruit high
quality employees
Harder to take a results-oriented,
data-driven approach to recovery
planning
Key Questions to Ask
• What about cost-of-living pressures?
• What about steps/merit pay and longevity increments?
Hiring Freeze
• Blanket stop on all or
almost all hiring
• Control costs and cut size
of workforce
• Important to set up and
adhere to relevant policies
Risks
Harder to take a focused approach
on cuts
Some exceptions may be necessary,
decreasing support
Harder to take a results-oriented,
data-driven approach to recovery
planning
Increase Part-Time Labor
• Transform labor into a
variable cost and reduce
benefits costs
• Cut overtime costs by adding
staff at times of peak demand
• Cost-effective way to assist
with temporary demands
Risks
Caution required when substituting
part-time for full-time employees
Morale may be affected
May be limited by collective
bargaining agreements
Key Questions to Ask
• Are you taking into account all costs of part time
employees?
• What critical training or skills might part-timers lack? Increase Employee Pension Contributions
• Increase employee
contributions, retiree copayments, deductibles, or
premiums
• Suspend retirement earning
credits
• Short-term solution to
growing liabilities
Risks
May compound the burden on the
employee
Will be less politically feasible if
employees already enduring cuts
Benefits may be hard to negotiate
for governments with organized
labor
Key Questions to Ask
• What, if anything, can be done in the short-term?
• How do you lay the groundwork for the long-term?
• How does this approach fit within a broader plan for
sustainable and secure retiree benefits?
Cautionary Near
-Term
Treatments for
Reducing Capital
Spending, Equipment
Costs, & Annual Debt
Costs
Defer and/
or cancel
capital
projects,
maintenance
, and/or
replacement
Defer
non-
capital
projects
Use
short-
term
debt to
pay for
vehicles
Re-
structure
debt
Small and/or
temporary
across-the-
board
budget cuts
Re-
organization
Centralize
financial
management
and human
resource
activities
Cautionary
Organizational
Strategies
Outsource
Insource
Divest
Cautionary
Sourcing
Strategies
Obtain
better
returns
on idle
cash
Revisit
interfund
transfer
policies
Cautionary
Strategies to
Enhance Revenue
Extreme Caution Near-Term Treatments
Reducing expenditures
• Large or sustained across-theboard budget cuts
• Across-the-board wage cuts
• Defer compensation
• Offer an early retirement
program
Enhancing revenues
• Levy a broad tax increase
• Create an independent
special district with its own
taxing authority
• Long-term borrowing without
a supporting resource for
repayment
• Tax anticipation notes
• Review opportunities to
refinance debt at lower
interest rates
Inadvisable Near-Term Treatments
Underfund
accrued
liabilities
like
pensions
Pension
obligation
bonds
Default
on debt
Shift
operational
costs into
capital
budgets
Dilute/
dismantle
internal
controls
Use
accounting
manipulations
Have an
asset
“fire sale”
Understand the Risks
• Extreme cases of financial distress may require that you use a combination of cautionary, extreme caution, and
inadvisable near-term treatments
• Key to success is making sure you understand and
communicate the risks involved with each treatment
and develop ways to mitigate those risks
Step 6: Detailed Diagnosis
• Understanding root causes is needed for creating lasting solutions
• Two dimensions to consider in the detailed diagnosis:
 Internal vs. external: Does the cause arise from forces inside or outside the organization?
 Economic/technical vs. political: Are political or
technical issues behind distress?
Internal
External
Economic/
Technical Political
•Governance Crisis
•Excessive Personnel Costs
•Past Awards of Unsustainable Retirement
Benefits
•Poor Morale and Commitment
•Overexpansion
•Economic Development Incentives
•Implicit Development Subsidies
•Management Challenges
•Weak Budget Development Practices
•Lack of Innovation and Adaptability
•Poor Performance
•Ineffective Information Technology Systems
•Failure to Fund and Manage Retirement Benefits
Prudently
•Deteriorating Infrastructure
•Overbuilding Infrastructure
•Low Bang-for-the-Buck Development Decisions
•Poor Communication With the Public
•Interest Groups
•Decline in Local Fiscal Autonomy
•Economic Stagnation
•Shifting Demographics
Step 8: Long-Term Treatments
Long-term Technical Treatments
• Control employee benefit and health care costs
• Reform pensions
• Budget better
 Don’t budget incrementally
 Ensure capital assets are affordable now and in the long-term • Stop or reduce lower-priority services
• Shift from remediation to prevention
• Improve or simplify work processes
• Overcome the limits of local government fragmentation • More financially-savvy community development
• Tame the use of economic development incentives
• Choose financially sustainable land use patterns
Understanding the
ACFR
Basic financial statements
Government-wide Financial Statements
• Created by Government Accounting Standards Board
• GASB 34 (1999)
Basic Financial Statements
Fund level Statements
• Major fund reporting
• Non-major funds aggregated into one column
• Internal service funds aggregated into one column (no major fund) • Follow the basis of accounting and measurement focus of individual funds
 Governmental funds
 Proprietary funds
 Fiduciary funds
Financial Statements
• Annual Comprehensive Financial Report (ACFR)
• The result of the annual external audit
 Fieldwork
 Testing
 Interviews
 Is reporting accurate?
Three basic ACFR sections

1. Introductory

2. Financial

3. Statistical
1: Introductory section
• Table of Contents
• Letter of Transmittal
• GFOA Certificate of Achievement for Excellence in Financial Reporting
• Organizational Chart
2: Financial Section
• Auditor’s report
• Management’s Discussion and Analysis (MD&A)
• Basic financial statements
 Government-wide
 Fund level - Governmental
 Fund Level - Proprietary
 Fund Level - Fiduciary
 Notes to the financial statements
• Required Supplementary Information (other than the MD&A) • Combining statements
• Schedules to demonstrate compliance
3: Statistical Section
• Financial trends (normally for 10 years)
• Revenue capacity
• Debt capacity
• Demographic and economic information
• Operating information
• Continuing disclosure
GFOA is Rethinking Financial Reporting
https://www.gfoa.org/rethinking-financial-reporting