Financial Policy Resource Center

Financial policies provide guidelines for financial decision making and set the strategic intent for financial management and are central to a strategic, long-term approach to financial management.  Some of the most powerful arguments in favor of adopting formal written policies include thier abiltiy to help governments: 

• Institutionalize good financial management practices
• Clarify strategic intent for financial management
• Define boundries
• Support good bond ratings
• Promote long-term strategic thinking
• Manage risks to financial condition
• Comply with established public management best practices.

 

  Best Practices

• GFOA Best Practice: Adopting Financial Policies - GFOA recommends that governments formally adopt financial policies.  Steps to consider when making effective financial policies include (1) scope, (2) development, (3) design, (4) presentation, and (5) review.

GFOA also has best practices on specific types of policies. Below is a list of current best practices related to financial policies.

Planning and Budgeting Policies: 

• GFOA Best Practice: Capital Planning Policies - GFOA recommends that governments develop and adopt capital planning policies that take into account their unique organizational characteristics including the services they provide, how they are structured, and their external environment. 
• GFOA Best Practice: Establishing an Effective Grants Policy - GFOA recommends that governments develop a formal grants policy.  Further, GFOA recommends that such a policy address steps to take prior to applying for or accepting grants

Economic Development Policies:

• GFOA Best Practice: Developing an Economic Development Incentive Policy - GFOA recommends jurisdictions using or considering the use of economic development incentives create a policy on the appropriate parameters for use of such incentives and that the finance officer plays an active role in the creation of the policy.

Debt Management Policies: 

• GFOA Best Practice: Debt Management Policy - GFOA recommends that state and local governments adopt comprehensive written debt management policies. These policies should reflect local, state, and federal laws and regulations. 

Investing Policies: 

• GFOA Best Practice: Creating an Investment Policy - GFOA recommends that all governing bodies adopt a comprehensive written investment policy and review and update its policies, if necessary on an annual basis.

Pension and Benefits Administration Policies: 

• GFOA Best Practice: Investment Policies for Deferred Compensation Plans - GFOA recommends that state and local entities establish and adhere to a formal investment policy governing assets in a deferred compensation plan, and that it be approved by the plan sponsor.
• GFOA Best Practice: Core Elements of a Funding Policy - GFOA has recommended that every state and local government that offers defined benefit pensions formally adopt a funding policy that provides reasonable assurance that the cost of those benefits will be funded in an equitable and sustainable manner.
• GFOA Best Practice: Developing a Policy for Retirement Plan Design Options - GFOA recommends that state and local governments have a policy statement that will guide their on-going plan design decisions.
• GFOA Best Practice: Developing a Policy to Participate in Securities Litigation Class Actions - GFOA recommends that every Public Pension Plan develop and adopt a policy setting forth procedures for monitoring and participating in class action securities litigation

 

Examples

Example Policies
General Fund Reserves Reserves in Other Funds Revenues Expenditures Operating Budget Capital Asset Management Long-Term Financial Planning Debt Management Investment Accounting, Auditing, and Financial Reporting Internal Control and Risk Management Economic Development Procurement

 

Sample Policy Portfolios

Type	Examples
Comprehensive Policy Documents	City of San Luis Obispo, CA City of Bellevue, WA Gwinnett County, GA
Short and Long Form of Policy Documents	City of Long Beach, CA (short form) City of Long Beach, CA (long form)
Individual Policy Documents (including supplemental information)	City of Virgina Beach, VA (infrastructure policy) City of Virgina Beach, VA (grants administration directive)

 

Financial Policies Book

Financial Policies is a GFOA publication that provides guidance on developing and implementing financial policies. The book takes a new look at traditional policies such as those for general fund reserves, debt, and revenues. It also examines emerging policy issues around economic development, enterprise risk management, and reserves for funds other than the general fund.

This book provides governments with a step-by-step approach to developing and implementing financial policies. The author provides comprehensive coverage of financial policies for a range of administrative functions, including budgeting, capital improvements, debt management, and investments.