State and local governments need to fortify their fiscal position

A long-term financial plan is the foundation for the fiscal fortress. It is also a playbook for tackling the toughest fiscal challenges. Good financial planning has three core components. The first is well-informed projections of revenues and the costs of maintaining current service levels. The relationship between revenues and costs sets the stage for the ambitions and limitations of the planning process. Second is a set of goals, which should be grounded in an assessment of financial strengths, weaknesses, opportunities and threats. These might include achieving structural budget balance, reducing unfunded liabilities, safer streets, cutting taxes or building new schools. Third is a robust set of options for achieving those goals. The options should be assessed for feasibility and impact to facilitate decision making.

The most fiscally resilient governments have diverse revenue sources and guard against overreliance on volatile taxes and fees. They also tie projections to cash collections. Governments should examine how their revenues have responded to past changes in the financial landscape and simulate alternative forecasts. They should also adopt policies that put parameters around revenue swings, using surpluses to fund reserves, pay down debt or invest in capital projects.

When faced with budget shortfalls, governments often respond by making across-the-board cuts — thinning the soup, as it were. While this approach may seem fair, its effect protects lower-value programs and punishes those that demonstrate results and advance important goals. In preparation for tighter budgets, governments should do three things: (1) Break the budget down into programs to better understand how money is spent, (2) measure how each program is performing and (3) evaluate how each program aligns with organizational and community goals.

For state and local governments, conditions have never been riper for maximizing service efficiency. They are shorthanded in virtually every function and have a record number of funded vacancies that (1) unlock cash for productivity investments and (2) can be eliminated or repurposed without human cost or labor strife. Governments have a range of options for making services better, faster and cheaper. The best ones, such as gainsharing and lean business process improvement, engage front-line employees as full partners in “straightening the pipes” of government.

Government employees are dedicated and hard-working people. They are a treasured resource to all state and local operations. Developing a strategy to keep government employees motivated, engaged and purpose-driven in the workforce of the future takes planning and careful consideration. Government employers must proactively evaluate how to offset inflationary pressures on wages, the talent retention, recruitment and rewards strategy and other human capital considerations. Ultimately, efforts to promote government as a brand and how the government can be a desired employer of choice should be at the forefront of discussions to attract the workforce of tomorrow. Those conversations should begin now, before local pressures inhibit this investment.

Many governments underutilize their assets, because they do not know what they own and control, do not know what it is worth or do not know how to monetize or repurpose it. An analysis of real estate holdings, for example, can unlock significant one-time and ongoing revenue through a sale, swap, lease, development, consolidation or other monetization strategies. Some assets are less obvious but also valuable, such as uncollected taxes, advertising space, air and land rights and even tree waste.