Every year, municipal organizations, whether cities or municipalities, have to present a balanced budget to their citizens, while trying to minimize the increase in their tax burden. Over the past few months, tax increases and the many challenges afflicting municipalities have captured the attention of the public and the media. Indeed, obstacles such as inflation, collective bargaining, climate change and the sustainability of municipal infrastructures are forcing municipal politicians to make tough choices. However, a financial management tool can help them navigate around these obstacles: the financial framework.
The financial framework is a management and financial planning tool for municipalities. By taking into account changes in property wealth, planned investments, indebtedness, the tax burden on taxpayers and the current financial situation, it is possible to project a municipality’s public finances for the coming years, thereby facilitating decision-making for local elected officials. The financial framework differs from a simple annual budget in that it enables the complete financial situation of the municipality to be projected over several years, normally 5 years, while allowing results to be simulated according to several investment scenarios or special projects.
The objectives of a financial framework
The financial framework assists elected municipal officials in achieving the following objectives:
- Plan investments to maintain infrastructure: in order to offer quality services to residents, it is essential that municipalities adequately maintain public infrastructure. The financial framework makes it possible to plan investments and their cost over the coming years.
- Respecting citizens’ ability to pay: it goes without saying that citizens don’t like to see their tax bills rise, especially when it’s a sudden increase. The financial framework anticipates increases in residential value and enables tax rates to be adjusted in line with projected income and expenditure over the coming years.
- Maintain and enhance the range of services offered to citizens: there are many services to be provided, including public safety, water and waste treatment, snow removal and road maintenance. To ensure that the municipality can guarantee quality services, it must have the necessary funds. The financial framework helps plan and manage financial reserves, enabling municipalities to maintain services to the population.
- Managing debt: given the recent rise in interest rates, the burden of debt has increased considerably, so we need to plan our public finances rigorously to ensure we maintain an adequate level of debt servicing. By planning the required investments, it is possible to calculate the principal repayments and interest charges to be paid over the coming years, and thus forecast a reasonable level of indebtedness.
- Control spending: certain investments or financial commitments may have taken up a significant portion of the municipal budget. In order to properly allocate available funds to the numerous government missions, it is important to ensure rigorous control of spending. The financial framework makes it possible to plan spending increases over the next few years, and thus to identify the expenditure items that need to be controlled over the coming years.
- Communicate the municipality’s orientations: by forecasting budgets for the coming years, municipalities can communicate the commitments made by elected officials and inform the population of the government’s intentions. This way, residents won’t have any unpleasant surprises, and they’ll have a clear vision of the future.
The benefits of a financial framework
All in all, this management and planning tool brings many benefits to elected officials and citizens alike:
- Assess a municipality’s financial capacity to carry out its projects and electoral commitments;
- Prioritize projects according to the municipality’s financial capacity;
- Efficiently controlling the tax burden on citizens;
- Gain an overview and a better understanding of the municipality’s financial reality;
- Establish the future impact of investment decisions and spending increases; etc. ;
- Achieve an intergenerational balance that respects the ability of today’s and tomorrow’s citizens to pay.
It goes without saying that any organization, public or private, must administer and manage its finances rigorously and efficiently. The financial framework is the ideal tool to support elected municipal officials in managing public finances, which can sometimes be a delicate subject for citizens. We can even include a section analyzing the history of the municipality over a five (5)-year period, and carrying out a comparative analysis with other similar municipalities, in terms of population, RFU and location, to better situate your town’s public finances.
In its 30 years of existence, Amyot Gélinas has developed expertise in the municipal field. Our experts can guide you through the implementation and presentation of a financial framework for your municipality.
An article by Gustave Legault-Brousseau, CPA Director – Consulting Services
