Local governments
need to react in the
short term by providing
current budget
solutions, but also by
developing the ability
to plan effectively and
efficiently, forecasting
budgetary requirements
based on current
economic conditions.
D
eveloping and adopting budg-ets that support strategic goals without exceeding available resources is a challenge at all times, but particularly when the economy is unstable. Elected officials are reluctant to raise taxes or adopt new fees, so government finance officers are faced with some tough choices. Jurisdictions can cut services, reduce costs, or explore and implement resilient alter-natives — a combination of strategies to provide resources that will be sus-tainable in the future. Local govern-ments need to react in the short term by providing current budget solutions, but also by developing the ability to plan effectively and efficiently, forecasting budgetary requirements based on cur-rent economic conditions. We need to use long-term financial planning to anticipate future needs and provide sustainability in our funding strategies.Florida law dictates that local govern-ments must adopt a balanced budget. Florida’s ability to fund budgets on the state and local levels has been severely affected by the economic downturn. The state has also mandated significant property tax reform. Factoring in the foreclosure crisis, financial market con-ditions, reductions in sales tax and other state revenues, and declining property values, significant reductions in revenues and service delivery are expected at both the state and local lev-els. According to RealtyTrac, Florida had the second most foreclosure filings
of any state in 2009, and high foreclo-sure rates continue to affect property values and tax collections.
Throughout Florida, local govern-ment finance officers have employed many strategies and approaches for dealing with the revenue shortfalls and reductions in services and personnel that have been required in the last sev-eral years. To diversify their financial position,many jurisdictions have adopt-ed new revenue enhancements and fees, expanded their use of grants, prior-itized services, and reduced operating costs (e.g., employee layoffs and fur-loughs, outsourcing of services, and regionalization and consolidation of services).They have also adopted budg-et policies that provide financial resiliency and direction that will be sus-tainable for the long term.
A recent survey prepared by the Florida Legislative Committee on Intergovernmental Relations (FLCIR) asked Florida cities and counties to detail the effects of tax policies and the economy. The majority of respondents indicated that their local governments will reduce their workforce, reduce services or the level of service, and contract out services or jointly fund services.
REVENUE ENHANCEMENTS
Fees provide a mechanism for col-lecting additional revenues while reducing the jurisdiction’s reliance on
BEST
PRACTICES
Budgeting for Sustainability
A Florida Perspective
By Linda C. Davidsonproperty taxes. Local governments in Florida have adopted a wide range of fees,including program assessment fees (a common one is an annual fire assessment fee, based on property type and size,that recovers all or a portion of fire services), special assessments (to fund public improvements that benefit a property),and impact fees (to recover a portion of the public services a new development is likely to require). In addition, governments often receive fees from public/private partnerships.
Florida also has a large number of special districts that have been used to provide specific funding and services throughout the state. This method has been effective in funding the delivery of services for particular needs such as hospitals, airports, or downtown districts.
Additional property tax reform at the state level has been proposed, and there are other statewide initiatives that might limit the ability of local govern-ments to enact or raise fees in the future. Such legislation will severely affect the ability of state and local governments to adopt resilient meas-ures to provide the resources for future budgets.
EXPANDED USE OF GRANTS
More and more local governments are using federal, state, and local grants to fund or supplement programs and to acquire or construct infrastructure. The Internet makes grant applications and reporting easily accessible. A local government should analyze the use of one-time grants for funding personnel or services very carefully, however, doing a cost-benefit analysis and looking at the long-term impact on
operations. The amount of grant fund-ing to be used for personnel might decline over extended grant periods,for instance, but the employees and associ-ated operating and capital replacement costs will remain. Grants also require significant reporting and compliance efforts, so the economic benefit of each one should be evaluated, both short and long term.
The American Recovery and Reinvestment Act of 2009 (ARRA) pro-vides a number of opportunities, but local governments should carefully evaluate the grant conditions and terms when determining their appropriate-ness. Funding through the ARRA is temporary and the grant requirements and commitments should be analyzed. For instance, if a local government chooses to apply for transit-related funding to operate a shuttle bus system, there are conditions as to how that shuttle system can be operated. One caveat is that the funds can only be used to pay union employees, which could negate the economic benefit of the transit grant if the cost of employ-ing union workers had not been factored in.
The federal government has set up a one-stop shop for all federal grants. Information about ARRA-related and non-ARRA-related grants is available at www.grants.gov.
SERVICE PRIORITIZATION
A local government needs to deter-mine the cost of providing services to its residents, and then determine the priority of those services. Some are essential — police, fire, and solid waste collection — and some might be at the direction of local policy, such as beach
renourishment. Other services are per-formed at the discretion of a local gov-ernment, such as youth and recreation programs and beach maintenance. These services are not required, but local residents have come to expect them, and they have been strategic pri-orities for the local jurisdiction. There are also services that have historically been funded by the local government, including fireworks, holiday parades, or payments to non-profits for activities that benefit the local government and the community, and are frequently used to provide the local match for federal and state funds.
Each of these services needs to be evaluated and prioritized as part of the annual budget process. The budget should outline how these service prior-ities support the strategic plan and goals of the local government. The budget should detail the program costs and benefits,and the minimum amount of revenue required to fund the service. When service priorities are established, revenues can be estimated for the fund-ing of these programs, and budgetary resource allocations can be made based on this prioritization of service delivery. (Florida requires notice to the public and several public hearings for the adoption of the annual budget.) Because of dwindling resources, many local governments in Florida have reduced or eliminated non-mandatory or non-core services, specifically cultur-al activities, non-profit funding, and other enhancement programming.
REDUCTION OF OPERATING COSTS
Many Florida municipalities have made significant efforts to review
serv-ices and the related operating costs during the annual budget process and to recommend reductions in operating costs when warranted. Over the years, local governments have expanded their services and personnel, and that expan-sion is not necessarily sustainable under current economic conditions. Due to the state-initiated property tax reform over the last several years, most local governments have recommended reductions in service, changes in employee benefits, and personnel cuts in an attempt to realign expenditure growth to anticipated revenue growth. Another option Florida governments have used is outsourcing functions such as building permit and plan review, engineering, and sanitation services, which can reduce ongoing operating costs significantly.
In Florida, some local governments have implemented a four-day work week and have closed their facilities one day a week to reduce costs. Others have permanently shut down libraries and park facilities, or have sold facilities. Some have increased the use of volunteers to provide services. Collective bargaining agreements in Florida cannot exceed three-year terms, and most local governments have negotiated or are in the process of renegotiating limits to salary growth and health insurance benefits,and have prospectively reduced pension benefits for union members to reduce long-term costs. There has been considerable scrutiny of personnel costs to reduce overtime and other benefits, delay salary increases, and use employee fur-loughs to achieve savings.
There are non-traditional approaches that can also be used to stabilize costs. These include fuel hedging, using
futures contracts and a fixed-price fuel supply,to help offset the volatility of fuel prices.
REGIONALIZATION OR
CONSOLIDATION OF SERVICES
Budgetary funding issues have caused more local governments to con-sider providing services with other governments in a collaborate effort to consolidate and reduce costs. The Government Finance Officers Association (GFOA) recommends that governments examine the benefits of alternative serv-ice delivery that involves shared servserv-ice efforts in its best practice on Alternative Service Delivery: Shared Services (avail-able at www.gfoa.org). The purchasing power of local governments can be improved by pooling purchases — the volume of transactions can help achieve better pricing and efficiency. There are 67 counties, 412 cities, and more than 1,600 special districts in the state of Florida,so there is ample oppor-tunity to regionalize and consolidate service operations, and there has been an increased push in this direction, mostly for police and fire services.
In March 2009, Florida Legislative Committee on Intergovernmental Relations prepared an interim report, titled Review and Consideration of Consolidation Models for Florida’s Local Governments: Interim Project Update, which was presented at the Florida GFOA Fiscal Survivor Series in August 2009. The presentation is available at http://www.floridalcir.gov/presenta-tions.cfm.
LONG-RANGE FINANCIAL PLANNING
In 2008, the GFOA’s executive board approved a best practice on Long-Term
Financial Planning. It says: “Long-term financial process is the process of align-ing financial capacity with long-term service objectives. Financial planning uses forecasts to provide insight into future financial capacity so that strate-gies can be developed to achieve long-term sustainability in light of the gov-ernment’s service objectives and finan-cial challenges.”
For budget sustainability, local gov-ernments need to develop long-range financial plans to guide them in their future strategic and budgetary deci-sions. Long-range financial plans are financial forecasts that project revenues and expenditures over a period of time, typically 3 to 5 years, using past histori-cal trends and future revenue and spending assumptions. They incorpo-rate current economic conditions and the impacts of new or expanded facili-ties on operating costs. A long-range financial plan should provide an oppor-tunity to evaluate current policies and practices before they create critical fiscal stress on the local government. The best-informed, most fiscally sensi-tive decisions will be those made with the longer-term implications in mind. A long-range financial plan should provide financial strategies and recom-mendations for sustainable budgetary actions.
FINANCIAL CONDITION ASSESSMENT
The Florida Auditor General’s Office has developed financial condition assessment procedures that local gov-ernments can use to determine both their short-term and long-term fiscal health. (The procedures are available at http://www.myflorida.com/audgen/pag es/fca_procedures.htm.) These
tors, which were also presented at the Florida GFOA Fiscal Survivor Series August 2009, can be used to flag poor financial condition. The Web site con-tains an overview of the assessment tool, along with specific instructions for using it, as well as a comparison of var-ious Florida cities, counties, and special districts (see Exhibit 1). Using these assessment tools can assist a local gov-ernment in its long-range planning, but consideration should also be given to the condition of capital infrastructure.
CONCLUSIONS
Local governments must develop and employ strategies that will yield the anticipated results despite external conditions that provide swings in rev-enues and costs, over which we have lit-tle or no control. These strategies should include revenue enhancements, the expanded use of grants, service pri-oritization,reduction of operating costs, containment of long-term fixed costs, and the consolidation of services. Developing long-range financial plans that respond to an uncertain economy is a critical component to sustainability. Local governments need to adopt resilient actions to contain or control costs; otherwise, they will not have the ability to plan and react accordingly.❙
LINDA C. DAVIDSON is the director of financial services for the City of Boca Raton, Florida. She is a member of the GFOA’s Executive Board and a member of the GFOA’s Committee on Accounting, Auditing, and Financial Reporting. Davidson is immediate past president of the Florida GFOA and serves on the City of Boca Raton Police and Firefighters’ Retirement System.
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