Economic Diversification Roadmap: Fiscal Health Analysis

Taking stock of the current economic state of affairs in any municipality is vital to the management and supported growth of the area. Nuclear communities sometimes become overly reliant on the economic benefits generated by a nuclear plant. These benefits can include a substantial amount of tax revenue and funding for local schools. However, this reliance can leave residents in a vulnerable financial position when the plant eventually shuts down. Therefore, preparing for potential economic challenges is a vital strategy for building a diverse and resilient local economy.

Who can use this checklist?

  • Local elected officials
  • Municipal planners
  • Economic development managers
  • Community members & organizations

Walking through a fiscal health checklist

Conducting a fiscal health analysis for a municipality, while tailored to unique circumstances, typically involves assessing several critical elements: financial position, revenue sources, expenditure patterns, debt levels, and overall budgetary sustainability. The following steps provide a general framework for performing such an analysis, focused specifically on economic diversification and future financial sustainability.

Step 1 | Define the Scope:
Determine the time period and specific elements that impact fiscal health. This may include an annual budget, specific funds (e.g. Capital Improvement Plan (CIP), debt obligations, revenue sources, and expenditure categories, likely in the form of a spreadsheet that can be continually updated.

Step 2 | Compile a Leadership Team to direct the process:
Identify people who have knowledge, are considered unbiased, and have influence in the public, private, and nonprofit sectors. Consider the utility and property owners of the site, government, labor, issue experts, citizens, academia, tribal communities, faith-based organizations, and philanthropy. Not everyone has to be involved in the entire process. The formation of the team can be delegated to other departments and groups, with clear objectives, and expectations for completion.1

Step 3 | Identify people and places that will be impacted by plant closure, both directly and indirectly:
Major utilities often contribute to a community in more ways than paying taxes and employing people. Large employers often provide sponsorships, participate in local fundraising, and provide volunteers for community efforts. Direct impacts of closure range from loss of industrial property and the associated tax base to loss of populations and, and jobs. Indirect impacts range from vacancy in the nuclear energy supply chain, loss of housing value, increased vacancy rates due to population decline, and revenue decline in local businesses and services. Additionally, if a municipality’s bond rating goes down, financing capital improvements becomes more difficult, and municipal insurance rates may rise.

Step 4 | Prepare a public engagement plan:
Utilizing the leadership team and discussion with the community needs to provide space for grief, planning, action, and brainstorming solutions. Identify people and groups who have local influence and are respected in the community to help conversations be positive and forward-thinking. Identify economic development agencies, Chambers of Commerce, and agencies that are proxies for economic development and health such as medical institutions and universities. Hold facilitated conversations at various times of day, bringing the engagement process to locations people can access conveniently.

Step 5 | Gather economic and budgetary information:
Losing a major industry is hard to digest and worse when there are rumors or inaccuracies blanketing the community. Identify what can be known, why the information is needed, and what information is missing. Find other communities that have faced similar situations to share best practices and lessons learned, and take the opportunity to learn how your government, taxes, and the community as a whole fit together and can work toward solutions. Ensure the data is accurate, relevant, up-to-date, and comprehensive. Budgetary information can include:

  • Revenue Sources: Taxes, fees (such as permits, user fees, licenses, etc.), grants, and other sources of income. Analyze revenue trends over time to identify any significant changes or patterns that could inform budget forecasting.
  • Expenditure Patterns: Categorize expenses by function (e.g., public safety, infrastructure, administration). Identify any trends or anomalies, such as rising costs or disproportionate spending in certain areas, as well as expenditures that may/will terminate.
  • Budgetary Practices: Evaluate budget formulation, execution, and monitoring. Assess the accuracy of revenue and expenditure projections, budget variances, and the effectiveness of internal/external financial controls and any policies that may affect budgetary practices.
  • Debt Levels: Examine debt obligations, including outstanding bonds, loans, and other liabilities. Assess debt sustainability, repayment schedules, and the impact of debt service on the municipality’s financial position.

Step 6 | Develop possible outcome scenarios:

It’s difficult to identify what the future will be like in the event of a major industry shift, and locals are sometimes unwilling to talk about possible scenarios, fearing it will speed the closure of the plant or find planning for the unknown waste of time. Using previously gathered information and data, think about the impacts (monetary, social, and physical) of potential closure on current municipal operations 6 months, 3 years, and 5+ years down the road. Conduct continual reviews of these timelines and scenarios.

Step 7 | Quantify the impact of these scenarios:
Once you have the anticipated scenarios, pull out the previously gathered facts from Step 4 to gain an understanding of the details. For example:

  • Know where tax dollars originate and how they are spent: Some funds act as leverage or matching for emergency services or fees for regional authorities.
  • Quantify the nonfinancial support the community gets from the utility: Estimate the cost–in user fees, for example–sponsorships for local teams or special or underwriting events.
  • Identify social and cultural impacts of closure: List and explain how this will change if and when the plant closes, ie., community morale, population shifts, volunteerism, school enrollment, etc.
  • Map and list all of the property that the utility owns and any subsidiaries: Think about the value of this land to the community at present and in the future.
  • Identify infrastructure impacts: Think about what, where, and the function of roads, ports, rail lines, sewers, water lines, transmission lines, landfills, emergency services and others connected to or influenced by the facility. Are there service agreements with the utility and will it have a significant impact on the host community or others upon closure?
  • Analyze demographic/economic indicators: Such as population growth, employment rates, business development, and real estate market trends. Evaluate how these factors affect the municipality’s fiscal health and revenue potential.

Step 8 | Formulate Recommendations:
Propose solutions and modifications to anticipated impacts and identify steps to affect those changes. Based on a review of the overall analysis from the above elements, develop recommendations to help improve the municipality’s fiscal health. This may involve cost-saving measures, revenue diversification strategies, expenditure reallocation, staffing and workflow adjustments, or policy changes. It’s imperative to engage the public in solution-building. Important questions to consider are the reasonableness of expecting financial help from the state or federal government and if not, local policy changes that would be beneficial. Longer-term, economic development options may surface as solutions for job replacement, tax base creation, or filling vacant storefronts.

Step 9 | Communicate findings:
Present the findings of the fiscal health analysis to key stakeholders, including elected officials and policymakers. Effectively communicate the results using multiple modes of media communication, highlighting both strengths and areas of concern.

Step 10 | Monitor and update:
Regularly monitor the municipality’s fiscal health and update the analysis over time to track progress, identify emerging issues, and adjust strategies accordingly.

This resource is part of the Community Economic Diversification Roadmap, a new tool created by Smart Growth America and the Nuclear Communities TA team, to support communities in planning for the challenges and opportunities that stem from hosting energy infrastructure.

Economic development