Each year, the Budget Office prepares for City Council consideration a five year financial plan as part of the Citywide Business Plan. The Five-Year Financial Plan provides the basis for the annual budget that is submitted each spring.
Why do a Five Year Financial Plan?
In a special election on April 8, 2014, the residents of Kansas City mandated the inclusion of a Five Year Financial Plan into the City’s charter. By completing an annual financial plan, the City is ensuring that it can achieve its priorities and maintain current service levels while not overextending its resources. The keys to ensuring fiscal sustainability are the Financial Strategic Objectives and the Five Year Planning Model.
Building a Five Year Model – Baseline Scenario
To build the five year model, the City starts with the current budget as a base. Assumptions are then made for expenditures – salaries, health care, operating and other operating costs per fiscal year. The model also incorporates the current debt service schedules and the five year capital improvements plan. In addition, the financial model has the ability to perform a number of different scenarios for revenues and expenditures.
After completion of the Baseline Scenario, the City drafts potential “fixes” to the Baseline Scenario to bring all of the City’s funds to a balanced position within five years and to bring them in compliance with the City’s policy for reserve balances. The City Council can change or accept these possible “fixes,” or balanced scenario assumptions, before adopting the Citywide Business Plan resolution.
The graphs below show the reserves for the General Fund for the Baseline and Balanced Scenarios in relation to the City’s policy of maintaining two months’ of expenditures in reserves. On the Baseline Scenario, the percentage of reserves is below the City’s policy for all five years.
The Balanced Scenario, which incorporates the “fixes,” meets the City’s reserve policy by the years 2020 and 2021 with a slight decline in 2022.
Improvements to Five Year Model
The City is continually improving its five year model. For this fourth rendition of the model, the City incorporated eight special revenue funds (the Capital Improvements Fund, the Fire Sales Tax Fund, The Park Sales Tax Fund, the Street Maintenance Fund, the Public Mass Transportation Fund, the Public Safety Sales Tax Fund, the Health Levy Fund, the Convention and Tourism Fund and the Parking Garage Fund) by modeling them to ensure their fiscal sustainability over the next five fiscal years. A number of funds including these nine funds are interdependent. Therefore, it makes fiscal sense to model individual special revenue funds.
How accurate are the Five Year Model’s Projections?
The City has completed three five year models, and we now can compare actual results to the model’s projections. For the first full-year of the model, Fiscal Year 2014-15, the model was accurate within less than one half of one percent for revenues and program expenditures. The model was within three percent for all General Fund expenditures, which transfers to other funds.
FY 2014-15 – Five Year Financial Plan Projection to Actual Comparison
FY 2014-15 Est
|FY 2014-15 Actual||Variance|
|General Fund Revenues||$498,888,993||$500,216,532||.27%|
|General Fund Expend. by Program||$433,086,755||$433,073,470||(.003%)|
|Total General Fund Expenditures||$498,574,523||$483,189,045||(3.09%)|
The five year financial plan is meant to be flexible. And, it is always changing based on new data and new policy direction. The model informs the City’s annual budget process. And, it provides the City Council a tool to make informed spending decisions that balance fiscal realities with desired services levels in a long-term framework.