6.1 Long-term Financial Plan
A LTFP is essential for organisations with large stocks of long-life assets relative to their income base because it assists them in undertaking asset renewal and replacement when required over the life of these assets and achieve affordable service level objectives. The case of state and local authorities and their respective road asset bases are therefore prime candidates for this. A LTFP is based on these basic principles, but extends them beyond the one-year time horizon associated with an annual budget and looks into the future, say three years or more. This means the LTFP will not be as detailed as annual budgets, but should set out the financial implications (affordability) of future outlays and anticipated incomes, enabling proposals for appropriate income raising to be formulated in line with required service levels (see also IPWEA 2012). The rationale for an LTFP has been summarised in Comrie (2012) as follows:
A long-term financial plan should be viewed as a roadmap that simply helps inform revenue-raising and service level decisions while optimally managing assets and maintaining or, where necessary, enhancing financial sustainability. It also enables people to see the implications of straying from this pathway. A long-term financial plan also helps in assessing affordability of service levels. Affordability is not the same as available cash or cash generated within a period. Instead, an entity should focus on the underlying or trend-operating result over the medium term.