a fresh perspective on finding sustainable budget solutions
TRANSCRIPT
A Fresh Perspective On Finding Sustainable Budget Solutions
PRESENTERS: John A. AnzivinoSr. Vice PresidentNicholas R. DragisichExecutive Vice President
October 7, 2010
The Virginia GFOA
PRESENTATION TO
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“In the New Economy”Local Governments’ Environment
• Internal: money is scarce– Operations– Infrastructure investment– Borrowing and credit concerns– Focus on basics and risk avoidance
• External citizens and businesses are hurting– Jobs and wages– Vitality of housing is weak, lagging retail, C-I vacancies are at high
levels• Tension: internal and external is strong
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A Fresh Perspective
• Rethinking the traditional budget process• Emergence of ‘new thinking’ on budgets• Communications and community engagement• Evaluation across the organization• Rethinking your community’s structure and
partnerships• Revisiting organizational management principals
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How Are You Perceived Within Your Organization?
• Different organizations: different molds• Bean counter to astute financial manager• Cries wolf but always finds money• What is your stature among senior managers?• What is your access to and credibility
with your governing body?
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What Do You Take Professional Comfort In?
• Your fund balance policy?• Our budget computer model and long range financial
plan?• Credit rating?• All elements of the “old time financial religion”• Finance professional style
– Gatekeeper or flexible participant
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Changing Role of the Local Government Finance Professional
• Needs of your jurisdiction: defining the ‘big picture’• Help define where your jurisdiction should be
‘financially’ when the economy finds new equilibrium• Assist in planning how your local government is going
to get there during this multi-year period of uncertainty and economic retrenchment– Services– Funding and financial position– Risk
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Hallmarks of a Successful Financial Professional in These Times
• Organizational acceptance of your standing and information
• Flexibility and adaptation– Change your systems– Change your policies and practices
• “Old time financial religion” in a cycle
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Hallmarks of a Successful Financial Professional in These Times cont.
• Must have a financial plan– Dynamic, flexible and multi-year
• Must be viewed as the ‘go-to’ professional with the financial wisdom– First a peer professional, then a finance professional– Constructive engagement
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The process of budgeting is being transform from an exercise in Excel® spreadsheets and internal number
crunching to a more collaborative, open and constructive process.
The most successful organizations will be those who embrace this transformation and create new opportunities that contribute toward the realization of the organizational
goals and objectives.
Rethinking the Traditional Budget Process
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Successful Budget Process in the Current Environment
• Organizational acceptance of information• Flexibility and adaptation
– Change your systems– Change your policies and practices
• Financial plan– Dynamic, flexible and multi-year
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Changing Environment For Budgeting
• Needs of your jurisdiction: big picture• Help define where your jurisdiction should be
‘financially’ when the economy finds new equilibrium• Assist in planning how it is going to get there during
this multi-year period of uncertainty and retrenchment– Services– Funding and financial position– Risk
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The world is fundamentally changing in front of our eyes and the business culture and climate is undergoing a metamorphosis with no parallel since the 1930s.
Can we really expect the public sector to stand still and not change? If the answer is no, then the question becomes what is your role in this transformation?
Evaluate Your Policies and Programs
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Communications and Engaging Your Citizens
When making significant policy, program and service decisions, especially those that differ from past practice, it is vitally important to merge the input of the citizens, the staff and elected officials.The best public policy will result.
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Organizational Management Principles
• Stay true to your organizational values and culture no matter how difficult the circumstances are – Seize the opportunity to participate in changing and enhancing
the culture if necessary– Focus on your employees; treat them as assets
and partners in your search for solutions• Keep to your long-term strategy or change your strategy if it
is no longer valid – Look at short term actions as “means” to your end
and not an end in and of itself
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Organizational Management Principles cont.
• View the current experience as an opportunity as opposed to a burden– Don’t be afraid to ask difficult questions and explore new
ideas inherent with risk and challenges • Citizens care about value and service,
not institutions and boundaries– Work to create a flexible and
fluid organizational foundation – Reduce bureaucracies and redundancies
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Emphasizing the “Why’s”
• Your City/County/Town– Concentrated revenue sources (lack of diversity)
• Political (local) reluctance to raise taxes• Political (state) acceptance of cutting intergovernmental sources
of funding
– Economic conditions eroding most revenue sources• Local control• Reduced or controlled variability• Fairness/Equity
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The “How’s”• Tax policy – “same as last year?”• Service policy – “we have always done this”• Fundamental changes
– Not just the ongoing recession– Demographics – aging
• Employment?• Income levels?• Property values?• Public pensions and related benefits?
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The “How’s”:Managing to New Equilibrium
• Public sector, particularly at the local level, lags going into a recession and coming out of a recession
• Your organization should be managing to its service and fiscal form in 2015 and beyond
• If not now given a sense of urgency,more difficult and severe later on
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The “How’s”:Organizational Discussion
• Realistic discussion on future revenues– Tax policy – leads to revenue diversity policy
• What is your core resource base?– What will your pie graph look like in 2015 +?
• How do your services match up to core revenues?– Service definition, prioritization, new approaches
• How do you fund important services outside of the core?
• Acknowledged foreign and difficult discussions
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The “How’s”:‘But I’m Just the Finance Director!’
• YOU ARE THE KEY PERSON!• Why? Finance is mumbo-jumbo to most people
– You speak the language– You have the keys to the information
• Deliver good, understandable information • Information may now be in new forms• Constructively engage the management team
and governing body
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The “How’s”:‘But I’m Just the Finance Director!’
• Active participant in management team realization and engagement of the issue– Alliance with manager or administrator– Credible with other senior managers
• Public Safety/Public Works hold the cards• Active participant with the governing body
– Not everywhere but most places– Workshop discussion issues
• Need to be a Financial Manager…and accepted
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The “What’s”: General Categories• Your own internal sources – shifting
– Utility transfers– Administrative fees – recession less activities– Debt collection – cash for receivables
• Cost recovery to existing external parties– Cost of services studies – permitting
• Cost shifting to new external parties– New service utilities formerly core revenue funded
• New revenue sources
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The “What’s”: Common Themes
• Breaking apart the general fund – both sides• Breaking down cost centers and isolating services
– Not Public Works, but individual services– Total cost detailing of individual services
• Identifying distinct beneficiaries of services -individuals– Easy: building permits, picnic shelters– Having a fire truck available – general benefit– Sending it on a fire call – individual benefit
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The “What’s”: Common Themes
• Identifying distinct beneficiaries of services – groups– Street lighting, snow plowing– Franchise fees– Downtown service area
• Identifying distinct new revenue contributors– Tax-exempt properties– External consumers: hospitality tax, sales tax
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Alternative Revenue Sources: The Link
• How do your services match up to core revenues?– Service definition, prioritization, new approaches
• Not talking about the Public Safety department• We are talking fire false alarms, dispatch service• Carefully defining service units and their cost
• How to fund important services outside of the core?– Libraries, recreation, street sweeping
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Fundamentally Cost Allocation/Recovery
• Cost identification– Direct staff salary and benefits– Materials and supplies– Internal service costs– Overall administrative overhead– Fixed assets-depreciation
• Cost per service unit
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• Reallocating costs of general fund administrationand support to other funds– Enterprise, capital project funds
• Costing exercise • Pricing exercise
– Utility bills –competitive; Special Assessments - legal• Accessing new revenue sources/payers
– Tax-exempt properties, capital project properties
Your Own Internal Sources:Shifting Utilities and Other Major Funds
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Cost Recovery to Existing External Parties
• Moving service costs out of corerevenue competition to existing beneficiaries
• Costing exercise: user charges (ems services)• Pricing exercise: full cost recovery? Partial?
– Going rates? Adult softball?• Accessing new revenue sources/payers
– Adult softball players, users of paramedicand fire services
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Cost Shifting to Existing and New External Parties
• Reallocation costs out of general fund to other funds– New utilities: street maintenance,
street light, storm water– Franchise taxes– New service districts: downtown maintenance, distinct
geographic areas linked with services (parks)• Costing exercise• Pricing exercise: full or partial recovery• Accessing new revenue sources/payers
– Tax exempt properties
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New Revenue Sources
• Introducing new revenues and reallocating costs out of General Fund– Hospitality (hotel, restaurant, car rental), sales taxes– Local initiative sales tax for public safety– Hospitality tax for downtown, public safety
• Cost exercise: more flexibility• Pricing exercise: political issue
– Is it exportable?• Accessing new revenue sources/payers
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New Revenue Sources
• PPP- Partnerships with Private Parties– Corporate partners = endowments, library and recreation
• Naming rights– Providing a distinct service
• Cell towers, billboards, buses, • Cost Exercise:
– No cost or a specific cost for their identity recognition• Pricing Exercise:
– Defined or broader discretion• Accessing new revenue sources/payers
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Conclusion
• Manage to a new economic equilibrium• Require fundamental review of revenue and service
policies – difficult decisions• Better positioned entities: more revenue
diversification• Financial Manager is central to success
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