Budgeting in Today’s Economy

1. 2009 GGFOA Annual Conference John G. Hulsey, CGFM Jackson County, GA Budgeting in Today’s Economy

2. Learning Objectives • Identify Symptoms & Causes of Fiscal Stress • Diagnosis of your Government’s Fiscal/Budget Situation • Effective Communication • Budget Strategies • Budget Tactics • Enhanced Interim Financial Reporting

3. Identifying the Symptoms . . . • Inadequate Cash Flow Needs • Declining Fund Balance • Using Reserves to Balance the Budget

4. Knowing the Causes . . . • Inadequate Reporting/Lack of Good Information • Cash Basis Vs. Modified Accrual • Deficit Financing • Slow Debt Retirement • Unfunded Accrued Pension Liability

5. Knowing the Causes . . . • Debt Restructuring • Deferring more than 35% of Current Debt Service • Over-reliance on nonrecurring revenue • Lack of Capital Improvement Plan • Excess Inter-fund Borrowing with no Capacity to Repay in the Near Future

6. Cyclical Vs. Structural Deficits • Knowing the Difference • Cyclical Deficits • Short-term in nature • Caused by temporary economic downturns • Easier to address and weather

7. Cyclical Vs. Structural Deficits • Structural Deficits • Long-term in nature • Caused by long-term gaps between projected revenue growth and the estimated cost of government-funded services • Much more difficult to address

8. Selecting the Appropriate Strategy • Cyclical Deficits – • Use of Reserves – “rainy day funds” • Freeze on hiring • Defer capital or maintenance spending

9. Selecting the Appropriate Strategy • Structural Deficits – • Use of Reserves post-pones the problem and becomes a recipe for fiscal disaster • Hiring freeze places greater pressure on staff – leading to turnover • Deferring infrastructure spending harms the economic vitality of the community and the tax base that supports the government

10. Effective Communication • It is imperative that decision makers visualize the problem • Interactive presentations of future financial positions using different growth scenarios • Find anecdotal ways to relate the scope and nature of the problem • Benchmark Data • Use to show areas of over-expenditure • Employees per capita • Overtime spending ratios • Trends in benefit costs

11. Effective Communication • Understand what tough times mean for citizens • Try to anticipate the unintended consequences of applying budget strategies • Trust with citizens is crucial for ongoing financial stability and short-term political support

12. Effective Communication • Understand what tough times mean for employees • The most effective and efficient organizations recognize the value of employees in achieving the primary purpose of government, “to serve the citizens”.

13. Is the Budget Balanced? “Accuracy above Balance” is the fundamental rule of budgeting. If the budget is balanced but not accurate, it is not balanced!

14. Know the Budget Environment • It is imperative that you are aware of State Legislation that will impact the budget process. • HB 233 – Moratorium on Digest Value • Removal of HTRG

15. Budget Strategies . . . • Prioritize Services • Entails carefully considering the price($) of government and results desired • Essential to eliminating structural deficits and preventing cyclical deficits from becoming structural deficits

16. Budget Strategies . . . • Work with a Citizen Blue Ribbon Committee • Leading citizens can provide an outside perspective on efforts to restore financial balance • Build public support for hard choices and involve in the development of the strategies

17. Budget Strategies . . . • Seize the Opportunity to Innovate • A crisis can be the impetus to innovate and make changes that would be near impossible in better times. • Involving and re-focusing employees can be of great aid in reaching financial stability.

18. Budget Tactics – Management Practices • Make Managers Manage • Layers of control may have built up over time that are costly to maintain and of limited effectiveness. • Pursue inter-organizational cooperation • Cooperate with other organizations to gain economies of scale • Joint health insurance purchasing or using pooled insurance

19. Budget Tactics – Management Practices • Enhance Purchasing Practices • Identify bulk purchases and explore multi-year contracts to lower cost and explore long-term contracts to help manage energy costs • Standardize and limit the selection available for office supplies & basic technology • Utilize Just-in-Time purchasing to reduce inventory carrying costs and shrinkage

20. Budget Tactics – Management Practices • Re-evaluate vendors frequently to verify value and accuracy. • Lack of competition can cause complacency and lead to higher prices.

21. Budget Tactics – Financial Planning & Analysis • Divestiture of loss-generating enterprises • Identify sources of liquidity

22. Budget Tactics – Financial Planning & Analysis • Audit certain routine expenditures • Pensions and benefits • Cell phones, pagers, and landline usage • Office and janitorial supplies • Publications, travel, and memberships • Review property & liability insurance schedules for accuracy • Review insurance claims history

23. Budget Tactics – Human Resources and Benefits • Investigate risk management • Inadequate practices and fraud can contribute to higher costs • Use benchmarking to compare your experiences against those of others • Evaluate overtime usage • Examine ratio of overtime to regular wages • Consider alternative scheduling options

24. Budget Tactics – Human Resources and Benefits • Re-examine labor structures • Review all positions for duplication of duties • Review the use of consultants and temporary staff • Use workload indicators to budget staff and identify targeted reductions • Assess organization structure

25. Budget Tactics – Human Resources and Benefits • Integrate Human Resources and Financial Systems • Integrated HR and financial data is vital to decision making • Address health-care costs • Examine the major drivers of the cost • Re-evaluate co-payments • Focus on the greatest needs of the population and ensure that the plan does not pay for unused benefits

26. Budget Tactics – Capital and Debt • Restructure Debt • Take advantage of lower interest rates • Beware of intergenerational inequity issues • Consider operating impacts on future budgets (i.e., back-loading a debt issue with higher principal payments) • Begin comprehensive capital project planning • Ensure you understand operating and maintenance cost of new assets

27. Budget Tactics – Revenue • Audit revenue sources • Audit surcharges, franchise fees, etc., to uncover instances of underpayment • Improve billing and collection procedures • Explore fees for services • Re-visit to ensure existing fee structure is meeting cost recovery goals

28. Budget Tactics to Use with Caution • Offer early retirement program • Institute hiring/wage freezes • Furlough Days • Suspend retirement plan contributions • Use of fund balance • Sell assets • Defer and/or cancel capital projects

29. Budget Tactics to Use with Extreme Caution • Make across the board wage cuts • Make across the board budget cuts • Levy a broad tax increase

30. Enhanced Interim Financial Reporting • Cash Basis Vs. Modified Accrual • Timely and accurate information

31. Conclusion • Fiscal stress creates opportunities and is an opportunity to focus on outcomes that the citizens really desire • Know the difference between cyclical and structural deficits and employ the budget strategy/tactic to improve your financial condition

32. Questions • John G. Hulsey, CGFM • Jackson County Government • 706-367-1840 • jhulsey@jacksoncountygov.com