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Building fiscal sustainability in the public sector: A case for proactive long term planning

May 20, 2025 · Authored by Steve Toler

Many local governments face challenges in achieving fiscal sustainability, often realizing the need for a balanced budget and adequate reserves only when confronted with financial difficulties. When a city struggles to balance its budget, depletes its reserves or faces cuts to core services, the long-term picture becomes clearer. By that point, options are fewer, tensions are higher, and the decisions are harder.

Fiscal sustainability shouldn’t be a panic response. It should be a core responsibility of every finance department and city leadership team. Like a capital improvement plan or asset management system, it belongs in the basic toolbox of public sector financial stewardship. Cities and counties that understand their financial trajectory and act early can preserve services, avoid crises and maintain the public’s trust.

What is fiscal sustainability?

Fiscal sustainability refers to a local government's ability to consistently provide essential public services now and in the future without relying on temporary measures like one-time revenues, deferred maintenance, or depleting reserves. It indicates the structural health of a city or county, ensuring ongoing revenue is sufficient to cover recurring costs and whether the government can handle future challenges without compromising service quality or financial stability.

Several indicators help gauge whether a local government is on a sustainable path. First, structurally balanced budgets, where ongoing expenditures are matched by ongoing revenues, are foundational. Healthy reserves, typically in the range of 15 to 25 percent of annual operating expenditures, provide a buffer against economic downturns or unexpected costs. A well-balanced revenue portfolio that grows with the economy is another sign of sustainability. And perhaps most importantly, a city should have a credible, long-range financial forecast that identifies fiscal imbalances before they become unmanageable.

Fiscal sustainability allows leaders to shift the focus from year-to-year survival to long-term service delivery and investment. It creates space for smarter decisions, greater transparency and better alignment with community priorities and long-term financial goals.

Why is it so often overlooked?

Despite its clear benefits, fiscal sustainability often takes a back seat in day-to-day governance. One reason is political: elected officials operate on election cycles that prioritize short-term wins and visible improvements. Long-term financial planning, while critical, doesn’t always generate immediate credit or public recognition.

Capacity is another challenge. Many finance teams are stretched thin managing annual budgets, audits and reporting obligations. Carving out time for forecasting and strategy development can feel like a luxury, especially in smaller or fast-growing communities.

There's also a tendency to assume that strong reserves or recent economic growth equate to long-term stability. But even cities with solid financial snapshots can face structural deficits if cost growth consistently outpaces revenue capacity, particularly in communities reliant on property taxes constrained by legal caps.

In short, sustainability is often neglected not because it's unimportant, but because it's easy to defer until it's too late.

The backbone: A realistic long-range forecast

A long-range financial forecast is the foundation of any fiscal sustainability effort. More than just a spreadsheet, a good forecast is a decision-support tool. One that helps city leaders look ahead, model potential challenges and weigh the consequences of today’s choices on future budgets.

Ideally, a forecast spans five to ten years and includes all major operating revenues and expenditures. It should reflect realistically conservative assumptions about inflation, growth and service demand. These assumptions should be based on historical trends and not be too conservative as to eliminate options for service delivery. Importantly, it must be updated regularly, at least every budget cycle, to remain relevant in changing conditions.

A well-built forecast gives elected officials and city management the ability to test different scenarios: What happens if revenue growth slows? What if labor costs increase faster than expected? How would a new tax measure or cost-control strategy change the outlook?

Without this type of model, local governments are effectively flying blind. With it, they can act early and strategically—before gaps turn into crises.

Developing budget strategies: A structured approach

Once a long-range forecast reveals a structural gap, the next step is to craft a balanced package of budget strategies to close that gap. The most effective fiscal sustainability plans organize potential solutions into four broad categories:

First are revenue enhancements. Options like expanding the tax base through economic development, increasing cost recovery through user fees and voter-approved tax measures that can generate recurring revenues to address the agency’s most pressing priorities. These strategies are most successful when they create a revenue stream that grows in step with the economy.

Next are expenditure controls and cost shifts. These approaches focus on internal efficiencies, such as process improvements or contractual renegotiations, which reduce operating costs without undermining service quality. They may also include shifting certain costs to other funds or agencies better positioned to absorb them.

A third category involves service delivery changes. These strategies explore innovative ways to deliver public services, through public-private partnerships, interlocal/shared services agreements, insourcing or outsourcing services or technology upgrades, that can reduce costs while maintaining, or even enhancing, service levels.

The final category, service level reductions, is generally seen as a last resort. This might involve reducing service hours, eliminating non-core programs, or other cuts that, while potentially painful, may be necessary if other strategies do not fully close the fiscal gap.

Each option must be assessed not only for its potential fiscal impact but also for how difficult it will be to implement, considering factors such as legal constraints, political feasibility and community acceptance. This structured, methodical approach helps ensure that the final strategy mix is both financially sound and practical to execute.

Engaging the community: Transparency and trust

No fiscal sustainability effort can succeed without robust community engagement. Public input is vital because the trade-offs involved in altering revenue structures or service levels affect everyone in the community. Transparent discussions about the long-term fiscal outlook and the rationale behind difficult decisions build trust and create a foundation for informed public debate.

Many successful cities incorporate community engagement into the planning process through public forums, surveys and advisory committees. One particularly effective method is to assemble a community-based task force. This task force, made up of residents, local business leaders and civic-minded individuals, reviews fiscal data, evaluates strategic options and helps shape recommendations. Their involvement not only enhances the credibility of the final plan but also ensures that diverse perspectives are considered in decision-making.

For example, by engaging residents early, a city can preempt opposition and create an atmosphere of collaboration, rather than confrontation. It also provides elected officials with the political cover needed to implement challenging measures that might otherwise be derailed by last-minute resistance.

Steps towards financial stability

If your city doesn’t have a fiscal sustainability plan or if your long-range forecast is outdated, it’s time to act. The signs of fiscal stress are visible in many jurisdictions: rising labor costs, stagnating revenue growth, deferred capital needs and a slow erosion of reserve balances. These issues are not insurmountable, but they do require proactive, strategic planning.

Begin with a realistic, regularly updated forecast. Use a structured approach to identify and prioritize strategies. Engage your community early and often to build trust and secure the necessary political support. Finally, treat your sustainability plan as a living document, one that evolves with changing circumstances and continues to guide decision-making over the long term.

Fiscal sustainability isn’t just about balancing the books. It’s about protecting the public services that define your community’s quality of life. It is a leadership imperative that demands foresight, rigor and the willingness to make tough choices today for a stronger tomorrow.

Bottom line
Don’t wait for a crisis. Build the forecast. Engage your community. Use a structured strategy. Fiscal sustainability isn’t just good finance—it’s good governance.