THE GOVERNMENT PERFORMANCE PROJECT

Introduction:
Financial Management

40-County Average Grade: B-

 
 
iven all the obstacles, it’s quite a revelation how good a job most counties do at managing their finances when they’re allowed a reasonable amount of freedom. The 40 counties in this year’s Government Performance Project received an average grade of B- in Financial Management. No other category came in higher.

Financial Management Grades County   Alameda, Calif. C+ Allegheny, Pa. C- Anne Arundel, Md. C+ Baltimore, Md. A- Broward, Fla. B+ Clark, Nev. B+ Contra Costa, Calif. B- Cook, Ill. B- Cuyahoga, Ohio B Dallas, Texas B+ Erie, N.Y. B- Fairfax, Va. A- Franklin, Ohio B Fulton, Ga. B- Hamilton, Ohio B Harris, Texas B- Hennepin, Minn. B+ Hillsborough, Fla. B King, Wash. B- Los Angeles, Calif. B- Maricopa, Ariz. A- Mecklenburg, N.C. B- Miami-Dade, Fla. B- Milwaukee, Wis. C+ Monroe, N.Y. C Montgomery, Md. B+ Nassau, N.Y. F Oakland, Mich. B Orange, Calif. B Palm Beach, Fla. B Prince George's, Md. B+ Riverside, Calif. B- Sacramento, Calif. B- San Bernardino, Calif. C San Diego, Calif. A- Santa Clara, Calif. B Shelby, Tenn. B Suffolk, N.Y. B- Wayne, Mich. B- Westchester, N.Y. B

Two related tasks that most counties perform well are ones pivotal to any well-managed entity: accounting and financial reporting. The Government Finance Officers Association Certificate of Excellence is the benchmark for excellent financial reporting, and all but one of the 40 counties studied received this citation. Half of the 40 won a similar award for outstanding budget presentation. Both represent somewhat higher percentages than either cities or states recorded in past years of the Government Performance Project.

Fairfax County, Virginia, is particularly impressive in its reporting of useful financial data to its own managers. Heavily dependent upon its property tax, which doesn’t quickly reflect market trends, the county worked with scholars at George Mason University to design ways of tracking its gross domestic product on a monthly basis. The county issues a monthly economic index and an in-house economic indicators bulletin. The reports use such indicators as job growth and consumer spending to detail the current and projected economic condition.

A number of counties, including Franklin County, Ohio, excel in cost accounting. They have learned to do this largely out of necessity: They sell services to municipalities within their borders, and need to be able to break out the costs of the individual service components in order to apportion them fairly. For example, when the Franklin sheriff’s office arranges to deliver law enforcement assistance to townships and municipalities, the contracts include a detailed listing of every cost from personnel, benefits and supplies to the depreciation on the sheriff’s vehicles.

Hennepin County, Minnesota, offers an increasing array of choices in service delivery, allowing its own departments, for example, to outsource IT work rather than using the county’s data operations. As a result, Hennepin has had to use cost accounting to make sure it prices its own services competitively. “If you are way out of line on what you are charging, departments or other customers may be able to walk,” says Budget Director James Ufer.

One area that has proven more difficult for many counties is getting a handle on procurements and contracts. There is a tricky balance between controls and speed — the tighter the controls to prevent bribery and fraud, the longer it takes to purchase something. Cook County, Illinois, for instance, is extremely restrictive, requiring managers to go through an informal bidding process for any purchase over $250. Any contract over $10,000 must get approval from the county board.

Another knotty issue is the calculation of cash flows; the timing of revenues and expenditures. This is understandable, given the fact that many of the dollars that counties receive come from the state and federal governments — both of which are famously adept at claiming checks are in the mail when that may be far from the truth. In addition, many counties use the sales tax — one of the most difficult to predict — as one of their major sources of funding.

The result is that counties tend to err on the side of conservatism in estimating revenue. While this is better than overestimating, there is a clear need to do better in this area, which inevitably will mean paying more attention to the political maneuvering in the state capital and in Washington D.C. “We’ve been talking about this a lot,” says Finance Director Debbie May, in Franklin County. “We want to be accountable on our revenue estimates.”

Perhaps more important, many counties have been far from adept in predicting the timing of their own cash needs. Managers often guess that money for their projects will be spent earlier than actually turns out to be the case. “When we’re talking about big capital projects, we can count on their estimates being very optimistic in terms of money going out the door,” says Kris Landkammer, director of finance in Hillsborough County, Florida.

One reason cash-flow accounting is important is that it’s essential information for counties when they invest. If a county believes it’s going to need its resources less quickly, it can invest its money for longer terms — and thus get better rates of return. Every little bit helps — particularly since the infamous Orange County bankruptcy of 1995. In the years since that risky investment bubble popped in California, many counties have tilted toward conservative investing in all cases.

Even when counties have a solid understanding of their financial situation, frustrations still abound. In most cases, these ultimately come back to the issue of divided control. Debt issuance is complicated by the need to consider the impact of debt decisions made by overlapping jurisdictions, including cities and the state. Counties draw from the same tax base as cities and sometimes school districts within their borders, and have to consider that factor when making revenue-related decisions. What’s more, cities within counties make decisions that affect county finances — for example, they can freeze taxes for a corporation to encourage economic development, but that may freeze taxes for the county, too.

Cuyahoga County lost a substantial portion of its welfare funding this year when the state of Ohio decided to transfer money the county was depending on to a Head Start program. Cuyahoga is now suing the state. Wayne County, Michigan, has to contend with the deficit problems caused by a court system that routinely overspends its budget. But Wayne officials have a challenge dealing with the underlying problem, as the courts make most of their own financial and personnel decisions — for example, negotiating union contracts. The county recently hired a consultant to fix the problem.

This kind of thing crops up most frequently in school funding. Few counties have control over the budget for their local schools, although a number provide the cash to operate them. In Baltimore County, half the budget goes to education, but the state-appointed school board isn’t required to take the county’s advice on how to spend it. Baltimore County officials have to struggle to ingratiate themselves with the school board in order to gain a say in the major decisions. “They are accountable to us,” says the chair of the county council, “but we know they don’t have to be.”