By Buster Nicholson, Public Sector Outreach at American Public University
As the budget season quickly approaches for small towns and cities across the United States, executive staff are facing the grim reality of significant shortfalls in revenue due to COVID-19. In June’s issue of Virginia Town and City, Dr. Stephanie Davis of Virginia Tech addresses the topic of navigating the changing landscape of local budgetary processes.
The article cites a survey, which was conducted to gather data on anticipated impacts on budgets from economic shutdowns during the COVID-19 pandemic. Albeit the sample was small, the information gathered can be helpful to localities. With a median anticipated shortfall of $1 million, it will be difficult for many localities to provide basic services, meet expectations, and pursue new opportunities.
Executive-level managers would be wise to approach this budget season by focusing on results instead of methods. Decisiveness and resolve will be key to achieving results that are both viable and manageable.
Cut Costs First
Even though a budget is an annual document, it affects the long-term fiscal health of a municipality. Dr. Davis touches on the idea of municipalities using general fund balances to make up shortfalls in revenue. As long as this in within the locality’s fiscal policy, using fund balances to cover expenditures should only be considered after expenses have been reviewed.
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In my experience in the public sector, I have worked with many individuals in leadership positions who are not aware of basic best-business budget practices. This lack of awareness in elementary economics comes from never having worked in the private sector, thus never having to consider turning a profit, as public sector revenues are compulsory.
Upon completing an initial review of costs in my capacity as a public-sector manager, I have cut expenditures by an average of 10% to 20% without any real effect on operations. This approach takes discipline, sound justification, and, most importantly, resolve. A manager must be ready for pushback with knowledge of sound principles based on proven business norms.
Future Revenues May Not Be Available
Do not be the manager who engages in untested fiscal theories. The decisions you make now will greatly affect the future fiscal health of the locality.
In Dr. Davis’s article, she suggests that if a municipality uses fund balances to address current shortfalls, then a plan must be in place to replace those expended funds in the future. Two possible issues need to be considered when taking this approach.
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First, a town with a solid fiscal policy, which will normally allow use of those funds only in an emergency, will have those fund balances sitting in interest-bearing accounts. If you remove the funds without first taking a hard look at expenditures, the money is no longer growing and, in fact, is shrinking due to inflation.
Secondly, the future is always uncertain. The conservative approach is to live within your means. Again, this takes resolve coupled with a solid communication strategy to answer the tough questions from staff, the council, and the public.
Gain Knowledge Outside of the Public Sector
There’s a famous story about John D. Rockefeller visiting one of his Standard Oil refineries and observing the sealing of oil containers for shipment. Already one of the richest men in the world, he still had an eye for detail when it comes to efficiency. Watching the men work on the production line, he noticed they were using 31 dots of solder to seal a container. He asked the foreman, “Can you seal it with 30?”
The foreman replied, “I can try!” It worked. Although a single dot of solder costs so little that by itself it is insignificant to operations, the amount of containers being processed at Standard Oil were so huge that the move saved the company millions annually.
I am sure using 31 dots was efficient and did a good job at sealing the container, but the enemy of best is good. Rockefeller’s eye for efficiency was key to him creating an empire and providing thousands of good paying jobs to American families.
Dr. Davis points you to the Government Finance Officer’s Association’s best practices and fiscal first aid recommendations on their website to learn more about addressing COVID-19-related budget revenue shortfalls. This is a wise place to start. However, by adding sources outside of the public sphere, such as Covey’s “Seven Habits of Highly Effective People,” you will bring to the budgetary table a new set of eyes that can find areas to improve efficiency and cut costs without sacrificing levels of service.
About the Author: Buster Nicholson is a senior manager of Public Sector Outreach at American Public University. He has a Master’s degree in Public Administration and has worked as a public school teacher, an analyst for the United States Secret Service, a town administrator, and a director of public works. At APU, he works with directors, senior managers, and staff from state and local government entities to facilitate leadership growth through education and professional development. You can reach him at ANicholson@apus.edu.
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