Fixing Municipal Finance, by the Book

A new guide provides tools to help beleaguered local officials keep their communities out of a fiscal nightmare.
by | September 20, 2012 AT 5:00 PM

Just as summer is inevitably turning into fall, a few things in life are certain. One is that when times are tough and revenue is scarce, each level of government pushes more of the fiscal burden down to the one below it. So the recent spate of bankruptcies that have taken down municipalities from California to Alabama to Rhode Island should come as no surprise, especially at a time when crippling public-pension costs are adding to the burden.

Clearly, local governments need all the expert guidance they can get to navigate these treacherous fiscal shoals. Members of municipal finance committees and other local officials often serve on a volunteer basis, meaning that many municipalities lack the resources or access to the data they need to solve daunting problems. This is especially true for small and medium-sized communities.

The Pioneer Institute, a Boston-based public-policy think tank, has gone a long way toward filling the data gap with its newly published, downloadable "Guide to Sound Fiscal Management for Municipalities" (disclosure: I am affiliated with Pioneer Institute as a senior fellow but was not involved in developing the guide). It gives municipalities the tools they need to perform data-driven analysis on the effectiveness and efficiency of their spending and to develop sustainable short- and long-term finance plans that provide quantifiable levels of quality services.

The guide breaks municipal government into six general categories: education, public safety, debt service, public works, health and welfare, and general government, which covers a range of administrative functions. Within each category are sub-areas with suggested performance metrics and questions that local leaders should ask.

Since personnel and benefit costs often account for more than three-quarters of municipal operating costs, the guide also includes a cross-departmental analysis section that provides information about items typically covered under collective-bargaining agreements and the impact each can have on a city or town's bottom line.

When it comes to pensions, for example, the guide explains the difference between normal costs (liabilities that will accrue in the current year) and funds used to pay down liabilities caused by past underfunding of pension systems. Understanding these details can guide decision-making by allowing local officials to get a handle on the costs associated with discrete decisions and providing the information needed to control costs.

The guide, originating as it does in Boston, is especially useful for local officials in Massachusetts. It provides a companion online utility that provides access to virtually all publicly available municipal finance data for each of the Bay State's 351 municipalities. Officials can also compare their city or town with up to 15 others over an array of categories ranging from schools to debt service to unemployment rates.

Despite the fact that it primarily focuses on Massachusetts, the Pioneer Institute guide is a worthwhile tool for local officials across the country. To maximize that value, think tanks, colleges and universities, and other institutions should build on the guide's template to provide data customized to the needs of municipal leaders in all 50 states.