Monday, September 30, 2013

Facing Challenges & Seizing Opportunities in the "Decade of Local Government"

The next 10 years will most likely be a defining period for local governments, including your own. In a June 27, 2012, Governing magazine article, ICMA Executive Director Bob O’Neill declared this time as “the next decade [for local government] will be a time in which the fiscal woes of federal and state governments will leave local and regional governments on their own, struggling to balance the need for innovation against the necessity of making tough choices.

“It will also be a decade in which local government will lead the way in developing creative solutions to extraordinary problems. There are a number of reasons to be optimistic about this coming decade of local government.”

Even op-ed columnist David Brooks published an editorial in the June 6 New York Times entitled "The Power Inversion," in which he echoes O’Neill’s observations. Brooks writes, “Washington paralysis is already leading to a power inversion. As the federal government becomes less energetic, city governments become more so.”

Notwithstanding all the extraordinary opportunities ahead, there are also extraordinary challenges that will need to be confronted by all who serve as local government leaders. In a substantial number of communities, the scarcity of available resources is painfully apparent and has visibly impacted managers’ ability not only to preserve and maintain the status quo but also to tackle emerging issues and address the day-to-day needs of residents, businesses, and visitors.

This scarcity can only be made worse by the problems plaguing federal and state agencies that now might be landing at local government’s doorstep.


A New Environment

The recession may officially be over according to economists, but unlike the normal ebb and flow of the past, the picture is dramatically different than anything managers have experienced during other economic cycles. Local governments are realizing that they will not simply return to the status quo that existed before the recession.

Managers are coming to grips with an environment in which:
  • Revenues will at best remain flat or continue to decline.
  • Costs associated with energy, fuel, health care, and basic supplies will continue to grow.
  • Taxpayers can't afford to pay more because of the recession’s impact on their own personal finances.
Taxpayers are perhaps expecting local government to provide even more support in meeting their social, physical, environmental, and economic needs, especially with the declining assistance in these same areas from federal and/or state sources.

How does local government seize this incredible opportunity, embracing O’Neill’s decade of local government, but still continue to offer the important, even vital, services required by communities in a responsive and timely fashion?

What can managers do to successfully navigate these challenging waters so that their communities become better, stronger, and more relevant than ever before?

Let’s consider a completely different perspective. In order to achieve success and accept the challenges that are ahead, we must see more clearly how to manage, use, and optimize resources in a much different way than has been done in the past. This new environment demands a new vision of the future.

For managers, resources can appear to be scarce because of our tightly clenched grasp on some commonly held assumptions from which they need to break free. Perhaps there is a different way to see things.

Fiscal Transparency

First and foremost, local governments must be clear and transparent about what truly is their picture
of fiscal health. Communicating that picture simply, clearly, and understandably without volumes of numbers, spreadsheets, tables, and an endless series of charts is frankly a challenge that has plagued managers for years. If managers are going to be able to demonstrate financial reality internally to elected officials and staff, and externally to residents, they have to find better ways to make fiscal situations understandable and transparent to everyone.

Finding creative, clear, and nontechnical ways to demonstrate what the next five to 10 years might look like is a must if people are going to address fiscal concerns. All too often, local governments are unable to make sound, timely decisions regarding investing in new resources, starting new programs, or initiating major capital projects because elected officials, local government managers, and staff members are paralyzed by the uncertainty of whether they actually have enough money to appropriate for these purposes. Developing a long-term financial forecast is key to gaining a better understanding of what the future might hold.

Differentiating between one-time and ongoing revenues and expenditures to clearly understand how finances are aligned and where they might be out of alignment is a critical element in eliminating this uncertainty. Managers understand this principle but rarely make a concerted effort to be deliberate about depicting this separation in financial forecasts or budget documents. The need for this separation is understood but without actually “seeing it,” managers may not be aware of its impact on the ability to manage and maximize resources. Not clearly separating the picture into these two revenue categories may obscure some serious looming fiscal problems.

How many officials, for example, have approved a capital project without considering the implications of the associated ongoing costs? Newly constructed public facilities have sat vacant because of a failure to separately identify and depict the impact of ongoing operational costs.
Adhering to this philosophy of differentiating between one-time and ongoing revenues and expenditures also helps ensure that an organization “spends within its means.” This concept is not just about balancing the budget but allows managers to be clear that ongoing operational expenses are funded through ongoing revenue streams. Using such one-time monies as fund balance or grants to support ongoing operations is an unsustainable practice. “How much do you need?” Isn’t this the question that leads off most local government budget discussions? It’s certainly a far easier question to answer, but shouldn’t the conversation begin with the more difficult and oftentimes nebulous question of “How much do we have?”

Devoting more time to revenue analysis is a critical element in gaining a clearer understanding of 1) what factors truly drive our individual revenue streams; 2) how to develop more meaningful and accurate multiyear forecasts, and, most important; 3) how much is actually available to spend. If managers have more clarity about what factors might impact revenue sources, they can improve their ability to foresee those changes before they happen and react to them before they arrive on the doorstep. By taking a more diagnostic approach, it isn’t terribly difficult to determine where revenues specifically come from and assess what internal or external forces might cause them to grow and shrink.

Click to read the rest of the October 2013 ICMA PM Magazine cover story Embracing the Decade of "Local Government" - How to Face Challenges and Seize Opportunities written by Jon Johnson and Chris Fabian of the Center for Priority Based Budgeting and Cheryl Hilvert of ICMA.

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"DATA VISUALIZATION" for Local Government

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