Five-Year Financial Forecast

An important aspect of our budget development process is taking a multi-year approach to understand revenue and expenditure trends over time.  Serving as the foundation of the budget planning process, the Town develops a Five-Year Financial Forecast (“Forecast”) beginning in the late fall of each year.  The Forecast enables the Town to evaluate the Town’s fiscal condition and to help guide policy, programmatic planning, and budget decisions.  Development of a financial forecast as part of the budget development process has been identified as a best practice by the Government Financial Officers Association (GFOA).

The Forecast takes a forward look at the Town's General Fund revenues and expenditures and is updated regularly.  Its purpose is to identify financial trends, potential shortfalls, and other issues so the Town can proactively address them and budget accordingly.  It does so by projecting out into the future the fiscal results of continuing the Town's current service levels and policies.  This process helps to provide a snapshot of what the future will look like as a result of the decisions made to date.

This Five-Year Financial Forecast is not a budget, nor a proposed plan.  The Five-Year Financial Forecast sets the stage for the upcoming budget process and is a tool in facilitating both the Town Council and Town Manager in establishing priorities and allocating resources appropriately.

While the Town was fortunate to have surpluses projected for FY 2019/20, the remainder of the five-year forecast indicated very little room for growth in service delivery.

Five Year Forecast 19.20 through 24.25

As with all forecasts, there is a level of uncertainty regarding future revenue and expenditure estimates. For example, General Fund revenues may exceed or fall below expectations based on changes in economic or non-economic conditions. The Town’s two largest General Fund revenues, Property Tax and Sales Tax, have experienced these fluctuations in the past. Various cost elements can also vary from year to year. As seen in recent years, retirement costs fluctuate and will likely continue to experience upward pressure based on changes in actuarial economic and demographic assumptions approved by CalPERS.

Given the potential for variability on revenue and expense estimates, staff provides alternative scenarios to the “Base Case” scenario in the Forecast. The Base Case Forecast is built on the assumption of slow, yet still positive, economic growth. Two alternative forecasts are developed to model the range of budgetary scenarios possible under varying economic conditions. “Greater Growth” and “Lower Growth” scenarios are created to model economic conditions considered possible.

For more information regarding the Five-year Financial Forecast, budget assumptions, and budget sensitivity please see the Staff Report and Attachments from Item 12 of the February 19, 2019 Town Council meeting.