The Center for Priority Based Budgeting (CPBB) is in business to assist local government leaders who are seeking service excellence, transparency to their stakeholders, a strong desire to achieve long-term fiscal health and to achieve the Results that are important to their community. This financial survey is of great importance to us as we strongly advocate the importance of using municipal fiscal data in the most innovative and effective ways possible. This includes economic fiscal modeling, multi-year budgeting and providing a "picture of fiscal health" through data visualization (which allows management and elected officials to actually see and model the current and future fiscal economic health of their community).
Key Survey Results
The two key local government consumers and, coincidentally, producers of these reports are:
- city/county managers and administrators
- finance officers/directors/managers
For entities reporting in accordance with generally accepted accounting principles, annual financial reports offer management a comprehensive view of their finances that acknowledges economic events.
These annual financial reports are valuable resources for assessing fiscal conditions, conducting comparisons to comparable entities and integrating their other managerial roles such as capital improvements planning, budgeting, strategic planning, investing, financing, benchmarking, etc.
For the most part (64 percent), management uses little to no audited financial statements to inform their policy decisions; less than 25 percent use their financial reports to inform their policy decisions.
It is estimated that annual financial reporting costs taxpayers approximately $10k to $50k, with some larger communities spending more than $200k.
Management perceives the purpose (or key benefit) of financial statements to be for compliance and accountability, not as useful information for informing decisions.
Key Survey Recommendations
Leverage new technologies. New technologies could lend themselves to include rich details about government's finances without all the "noise" to better articulate the meaning of what is being reported based on the audience/consumer of information. For instance, digitized financial information could allow for consolidated reporting to present the big picture but still allow for others such as tax-payers or investors to go more deeply into the data.
CPBB Observations and Recommendations
What an interesting survey! From our perspective, local government entities (for the most part) are obligated to produce some form of annual financial report. Yet after spending up to six months of staff resources and somewhere between $10,000 to $200,000 of financial resources to produce a 100+ page financial report, less than 25% of local government leaders use their financial reports to inform their policy decisions or for input in assessing future operations?We see a tremendous opportunity here to better utilize and expand the scope and purpose of annual financial reporting so that this critical economic information can be used for forecasting and will directly tie to all significant policy decisions. And we already have the economic data visualization tools to do just that!
The New (Economic) Lens
How does local government continue to offer the important, even vital, services required by communities in a responsive and timely fashion?
How will finance chiefs address significant debt obligations while maintaining enough resources to provide prioritized services?
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. A new lens.
Case Study - Wheat Ridge, Colorado
In 2012, Wheat Ridge City Council included the identification of core services as a top priority goal in their strategic plan. The City was already operating at a base level of service due to budget cuts implemented to cope with the nationwide economic downturn. In addition, the City continued to face a long-term lack of funding for Capital Improvement Projects (CIP). With no dedicated revenue stream to fund more than 250 million in infrastructure projects and a systemic budget shortfall, 2014 would be the final year the City could fund minimal preventive maintenance projects with a transfer from the General Fund.The Fiscal Health Model provided a new visual tool to help facilitate budget discussions. The Fiscal Health Model allows staff to develop live scenarios to provide elected officials an instant picture of the financial impacts of their decisions. One of the more powerful traits of this process is how it has equipped Council and staff with information presented in a format that is resulting in new conversations around budget and resource allocation.
The power of the Fiscal Health Model was realized on May 19th, 2012 at the City Council’s annual
planning retreat. City Manager Patrick Goff used the model to show Council members how different
Seeking clearer understanding and communication with your elected officials?
·
Elected officials have adopted Fiscal Health as their
preferred means of communicating with staff regarding any decisions brought
before them that potentially might have a fiscal impact – asking staff to “show
us” those impacts using the principles of Fiscal Health as
the primary communication device.
Working through challenging conversations about compensation
with staff or bargaining units?
·
Organizations have entered into labor negotiations with their
bargaining units using Fiscal Health as a way to quickly agree on
the assumptions behind the City’s fiscal forecasts, therefore establishing a
basis of trust in the discussion – then modeling the bargaining units’ requests
to demonstrate impacts to the City’s fiscal position.
Weighing various financial related decisions, with complex variables,
and long-term impacts?
·
Fiscal Health modeling is a
powerful scenario-planning tool, providing easy to understand visualization of
data. It has even been used to help a Water and Sewer District prioritize
capital projects, understand the ongoing impacts of those projects, and
effectively develop rate increases by better understanding their ongoing and
one-time sources and uses of funding in their operation.
Local governments choosing to implement the concepts of Fiscal Health
as a treatment regimen are making substantial progress because they are doing
the analytical work required to more accurately diagnosis the reasons behind
their fiscal issues and then determining the best treatments that lead to a
viable cure. Once an organization is on the road to being fiscally healthy, it
can then become more financially sustainable by implementing a Fiscal
Wellness regimen centered around the principles of Priority Based
Budgeting.
Watch a video demo of the CPBB Web-Based (Fiscal Health) Economic Modeling Tool below!
Fiscal Transparency
First and foremost, local governments must be clear and transparent about what truly is their picture
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.
Next Steps
At the Center for Priority Based Budgeting, we're the first to admit we don't have all the answers. However, we do offer unique and innovative concepts and resources that allow local government communities to better understand their fiscal position and comprehensively model a multi-year variety of financial scenarios that provide options and solutions based on each individual communities unique goals and challenges (something very few municipalities perform to their detriment)."But it's not too late to do something." And that "something," as we've previously stated in this article, is to 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 (economic) vision of the future.
For managers, economic resources can appear to be scarce because of our tightly clenched grasp on some commonly held assumptions from which they need to break free. There is a different way to see things!
If you're thinking of jumping into the world of Fiscal Health and Wellness through Priority Based Budgeting we would certainly like to be part of your efforts! Contact us to schedule a free webinar and identify the best CPBB service option(s) to meet your organization's particular needs.
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