"What assumptions do we hold so firmly and that so calcify our thinking to convince us that changing fiscal conditions represent our crisis?"
"...the crisis facing local governments is not fiscal. It's the choices we make to address the fiscal challenges."
In a recent Governing article, national experts in government management and policy Katherine Barrett and Richard Greene co-authored the article What Keeps Government Managers Up at Night. In this piece, the authors discussed polling senior city and county leaders at the recent International City/County Management Association (ICMA) Annual Meeting last Fall.
Barrett and Greene go on to say, "We got 127 responses. While we aren’t pretending that this was any kind of scientific survey, the results seemed more than sensible and worth sharing. To begin, the biggest worry in the crowd pertained to revenues. Even though about half the states have seen their revenues return to pre-recessionary levels, the number is far smaller among municipalities. In fact, 1 in 4 who sent us their responses indicated that oncoming revenue problems and shortfalls are significant sources of concern to them.
As you would expect, a fair number of attendees are placing their faith in a steady return of the economy to set things right again and put revenues neatly in line with expenditures. But the theory of rising tides lifting all boats wasn’t enough to keep the audience from coming up with a schooner full of concerns.
Other major elements mentioned by our respondents regarding revenue instability included decreasing state and federal funding, overreliance on property taxes given the potential of the housing market to crash again, and increasing demands for new programs.
But that’s just the beginning of the story. Many attendees were concerned about escalating employee costs, largely from pensions and other post-employment benefits. A good number of respondents told us that they were worried about pressing infrastructure needs and costs -- more pointed us in that direction than those who brought up health costs, the next most commonly mentioned item. Finally, though they described the phenomenon in a variety of ways, many respondents were concerned about rising citizen expectations in their cities for additional services now that the recession is allegedly over.
Inasmuch as we’ve spent the majority of our adult lives researching and reporting about state and local management, we found it particularly intriguing to note that the causes for optimism cited by the group largely fell into the area of managerial changes. More than 1 in 5 suggested that they were hanging their hopes on a variety of ways to prioritize services, control spending and inaugurate efficiency improvements. Tom McCarty, county administrator of Eau Claire County, Wis., was one of a number of people who recommended a focus on results-based performance measures to decide priorities. Others suggested that shared services and local government consortiums “will,” in the words of Caitlin Humrickhouse, a consultant at Baker Tilly Virchow Krause LLP, “provide a new operating environment that can help relieve some fiscal pressures.”
These city and county leaders are able to rest because of the tools they use to utilize economic forecasting, economic scenario building and budget prioritization. Otherwise known as Fiscal Health and Wellness through Priority Based Budgeting.
The Crisis is Not Fiscal
What assumptions do we hold so firmly and that so calcify our thinking to convince us that changing fiscal conditions represent our crisis? Would higher revenues and lower expenses allow us to operate crisis free? Or does the true crisis exist when, despite our fiscal realities, we don’t focus on those priorities and objectives that ensure the success of our communities?"
Perhaps the biggest concern we face is not a fiscal crisis. Fiscal trends and conditions are by and large out of our control and simply represent a reality with which we need to cope. The real crisis on our hands is whether our organizations have the capabilities to address current fiscal realities and still meet the objectives of government and the expectations of our constituents.
The budget book, the certified annual financial report (CAFR), and reports out of the financial system are great tools for finance professionals, but they prove insufficient to clearly and simply answer the question: is the organization in "good shape" or is there trouble on the horizon? Furthermore, in a world of rapidly changing economic variables, the answer to that question today might not be the answer to that question tomorrow.
First and foremost, local governments must be clear and transparent about what truly is their picture of fiscal health. Communicating that picture
simply and clearly without volumes of numbers, spreadsheets, tables, and
an endless series of charts is frankly a challenge that has plagued
financial managers for years. If local governments 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.
The key breakthrough in this area has been "data visualization" which allows for the easiest way of creating a common view, a common perspective that is simple and that everybody can agree on. Part of the reason that financial problems can be obscured or hidden is because many times decisions makers have no idea how to understand finances to begin with.
Data Visualization allows us to create a common view of the financial situation that is simple to understand and interpret, describes the clearly defined variables that can impact the financial situation, allows for "live" and "real-time" changes in these variables, and offers the ability for "dynamic" modeling of "what-if" scenarios - this is how transparency is created, and this is the essential first component of the paradigm shift required.
Innovative and proactive communities are implementing much more strategic and proactive budgeting methods
The second component of the paradigm shift is changing the way that
resource allocation discussions take place. Financial problems are also
effectively hidden and obscured because the budget process allows for
it. Line item budgeting, incremental budgeting, zero-based budgeting
were each attempts to better understand "how" money is spent, but these
methods fail to address a more fundamental question: "why" money is
spent.
The question of whether or not public dollars are being used effectively is not answerable with the tools currently available to elected officials, decision makers, staff and citizens.
Priority Based Budgeting provides a comprehensive review of the entire
organization, identifying every program offered, identifying the costs
of every program offered, evaluating the relevance of every program
offered on the basis of the community's priorities, and ultimately
guiding elected and appointed officials to the policy questions they can
answer with the information gained from the Priority Based Budgeting
process, such as:
- What is the local government uniquely qualified to provide, offering the maximum benefit to citizens for the tax dollars they pay?
- What is the community truly mandated to provide? What does it cost to fulfill those mandates?
- What programs are most appropriate to fund by establishing or increasing user-fees?
- What programs are most appropriate for establishing partnerships with other community service providers?
- What services might the local government consider “getting out of the business” of providing?
- Where are there apparent overlaps and redundancies in a community because several entities are providing similar services?
- Where is the local government potentially competing against private businesses within its own community?
The "New Wave" represents efficiency and innovation in this Era of Local Government. The new wave represents a golden opportunity for local government communities. Finding creative, clear, and transparent ways to demonstrate what the next 5 to 10 years might look like is a must if local government professionals 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.
Local government communities must 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.
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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