Local governments need to give careful thought when selecting investment tasks to be financed and time instants of using debt: debt maturity length, weighing such factors as the type of project being financed, the financial circumstances of the issuer, budget liquiudity and legal constraints on the term of the debt. We present a computerized model to be implemented for improvement of financial management at the local government level and describe its application.

The objective of the model is to support informed decision making, regarding investment and debt, under changing conditions of financial markets and uncertain results of applications by LG, for EU funds.  The model immediate objective is determination of a maximum capacity  to invest by LG, with utilization of debt, subject to a number of conditions, which:

1. ensure a safe level of debt for a municipality, and satisfaction of constraints regarding debt, which result from the law on public finance (lpf) – ratio of total  debt to total revenue, and cost of debt service to total revenue, assume limited values below the values given in the lpf
2. sufficient level of current (operating) expenditure, which assure implementation of all LG own and delegated tasks, and allows to fund capital investment
3. LG budget liquidity in each period, over  a total period  of  analysis (several years).

We describe implementation of the model for improvement of management of local government finances and efficient LG budget management over a period  of  several (7-10) years, usally equal to the maturity of the longest loan  or bond. Improvements include:

·       assessment of a maximum feasible level of debt over time, and monitoring the debt, level and cost of debt service,  in every time period and over the whole period  of  analysis

·       computation of alternative levels of european funds, which are a source of financing investment and a contribution to the LG budget revenue

·        computation of several LG budget revenue scenarios, depending on: the level of EU funds available for financing investment, growth rate of the economy, one time revenues of LG (including sales of property), and revenue from debt proceeds

·       maintaining the operating expenditure at a level, which  is not outstripping the growth in operating revenues, and allows the capital investment expenditure of LG to grow, and its ratio to total expenditure to be maintained at a high and stable level. We present and discuss examples of real LG long-term budget analysis, with the help of the model. They exemplify good practice and observation of standards of efficient debt management in the area of long-term financial and investmnet planning (Bitner, Cichocki, 2008). They also demonstrate ways of accessing a maximum capacity of a municipality to borrow with  the safety measures provided by the model.