Page 88 - CityofSouthlakeFY25AdoptedBudget

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 that
protects the initial investment and keeps such facilities in usable condition. Lastly, it also includes the ability
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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.

88 FY 2025 City of Southlake | Budget Book