Page 82 - Southlake FY24 Budget

Financial Trend Monitoring System Overview

Financial condition can best be described as a municipality’s ability to maintain existing service levels,
withstand economic disruptions that occur at the local, regional, and national levels, and adapt to ever-
changing economic conditions.

The ability to maintain existing service levels refers to more than just the ability to pay for the services
the locality currently provides. It also refers to the ability to maintain programs that are currently funded
from external sources (state or federal grants) where the support is likely to diminish over time, and
such programs cannot be practically eliminated once funding does disappear. This element also refers
to the ability to maintain capital facilities, such as roads, buildings, and other infrastructure, in a manner
City Profile
that protects the initial investment and keeps such facilities in usable condition. Lastly, it also includes
the ability to provide funds for any future liabilities that may currently be unfunded, such as pensions,
employee leave, and debt.

The ability to withstand economic disruptions that occur at the local, regional, and national levels is an
important element because these disruptions have significant impacts on businesses and individuals who
enjoy their livelihoods within the locality. Economic disruptions therefore impact a locality’s ability to
generate new local tax dollars.

The ability to adapt to ever-changing economic conditions refers to the financial pressures localities
face as they grow, shrink, or experience no change at all. Growth can force localities to assume new
debt in order to finance new infrastructure or cause a sudden increase in the operating budget in
order to maintain and provide necessary services. Shrinkage leaves a locality with the same amount of
infrastructure to maintain but with a smaller tax base with which to pay for it.

What is the Financial Trend Monitoring System?
The Financial Trend Monitoring System (FTMS), adapted from the system developed by the International
City/County Management Association (ICMA), “identifies the factors that affect financial condition
and arranges them in a rational order so that they can be more easily analyzed and measured.” The
FTMS is a management tool that compiles pertinent information from the city’s budgetary and financial
reports, combines it with relevant economic and demographic information, and creates a series of local
government financial indicators that can be used to monitor changes in financial conditions when plotted
over a period of time.

These financial indicators include: cash liquidity, level of business activities, changes in the fund balance,
and external revenue dependencies. This system can also assist the locality by setting in place long-range
policy priorities as well as providing a logical way of introducing long-range considerations into the annual
budget process. The following discussion has been developed using the ICMA manual entitled Evaluating
Financial Condition, A Handbook for Local Government.

The FTMS is built on overall “factors” that represent the various influences of a locality’s financial
condition. These financial condition factors are then associated with “indicators” that measure different
aspects of these factors. Once developed, these can be used to monitor changes in factors and financial
conditions. Each factor is classified under three categories: environmental, organizational, or financial.

82 FY 2024 City of Southlake | Budget Book