Public finance is subject to a great deal of uncertainty, such as future recessions, changes in interest rates, forecast inaccuracy, and much more. Uncertainty is a source of risk. The gold standard for analyzing and managing risk is computer simulation. That’s how insurance companies design and price policies, for example. Technological advances have made computer simulation more accessible than ever before and GFOA has been on the cutting edge of applying these advances to public finance.
GFOA helps local governments conduct stress tests and analyze risks for a variety of public finance issues.
Our most popular service is a risk-based analysis of reserves. Reserves are essentially a form of self-insurance. Hence, the right amount of reserves to maintain depends on the risks you face. We’ve been providing this service for ten years. You can see an example of one of our reports and client testimonials below.
We have also conducted risk analysis of many other public finance issues, including: debt affordability in light of changing bond ratings and interest rates; and long-term revenue and expenditure forecasts in light of recessions, pension investment performance, health care cost increases, etc.; and user fee analysis in light of uncertainty of how much it costs to provide the service.
Click here to learn more about our risk-based analysis and stress test of general fund reserve requirements for the City of Providence, Rhode Island.
What do our clients say?
Don't Go It Alone: Pooling Budgetary Risk to Save Money in Your Budget
Local governments often join together to pool risk for insurance. Insurance pools save money by aggregating multiple local governments into a larger, more diversified risk pool. Or a government might provide insurance coverage as a central, shared service, which is far cheaper than each department independently contracting with their own insurance providers. This is also a form of risk pooling.
The Last Line of Financial Defense? Internal Loans in Emergency Situations
General fund reserves are one of local governments’ primary resources for responding to unexpected financial losses, such as those brought about by natural disasters or man-made extreme events. However, it is neither practical nor desirable for a government to accumulate enough reserves to respond to every possible contingency it might face — that would simply not be affordable for most communities.
GFOA works with other organizations that are on the leading edge of risk analysis.
Probability Management is a 501(c)(3) nonprofit that is making uncertainty actionable through tools, open standards and training. It has collaborated with GFOA since 2013.
GFOA is teaming with Aon plc (NYSE: AON), a leading global professional services firm, on a first-of-its-kind initiative to provide local U.S. governments with state-of-the-art tools to help them better analyze and plan their rainy day funds. You can read more about it here.