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Strategic Fiscal Management for a Crisis — and Beyond

The coronavirus pandemic is forcing local governments to find new ways to cut costs. It's an opportunity to build effective financial practices into their cultures, not just for now but for the long term.

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(Shutterstock)
The coronavirus has greatly amplified local governments' pre-pandemic financial concerns, leaving them to tackle significant new fiscal challenges while simultaneously facing increased demand for social services. Securing federal and state support is important, but in itself will not provide the financial stability that cities and counties need to operate efficiently and effectively.

While higher taxes and fees will be part of the solution in many jurisdictions, cost reductions will likely be on everyone's agenda for the foreseeable future. But the current situation, coupled with new technology tools, provides governments with a once-in-a-century opportunity to change many of their outdated procedures permanently — to build strategic fiscal management into their operations and cultures.

To that end, here is a checklist of effective strategies:

Re-examine public value: Look at each agency's definition of public value — what the agency contributes to the good of the community — and then examine performance scorecards to determine whether each activity really advances the jurisdiction's mission.

Create a dedicated office of cost savings and innovation: Staff a small, separate internal operation that focuses exclusively on cost management. An empowered team with a singular mandate can help policymakers understand the true tradeoffs of their decisions.

Transition to a culture relentlessly focused on data: Many governments have focused in recent years on data transparency, which is good, but in a resource-constrained environment everybody must know and manage by the numbers, not by instincts.

Use lateral benchmarking to drive innovation and performance: Instead of making comparisons to similarly sized local governments, look to other industries and business sectors whose practices your jurisdiction might emulate.

Rapidly adopt external innovations: All communities have unique features, but it is unlikely that every public-service function needs a bespoke design; conforming local practices to widely accepted standards may be the best solution.

Reward productive employees: Use gainsharing to manage and incentivize a higher level of performance through the structured involvement and participation of employees. Enhanced, efficient performance should yield greater compensation, in turn promoting continuous improvement through a reinforcing cycle.

Adopt self-managed teams: With proper training and oversight, line workers are capable of and eager to operate as self-managed teams, which lower costs and facilitate gainsharing. The practice helps empower governments' best employees to assume ownership of their work as well as greater leadership duties.

Release value trapped in public assets: Many local governments have one or more underperforming assets that may have significant value locked inside. Harvest value from assets such as utilities, parking lots and golf courses with a sale, concession lease or management contract, while still controlling important issues of access, equity and pricing.

Eliminate red tape: With the goals of fairness, cost containment and fraud prevention, local governments have created a vast regulatory apparatus that, ironically, can work against holding down costs. Endless rules prohibit any kind of reasonable discretionary decision-making, and some of the regulation — excessive professional licensing, for example — is downright harmful at a time when we want to get people back to work.

Rapidly adopt technology tools: Lengthy procurement cycles focused on avoiding risk conspire to keep many local governments behind the curve. To overcome these barriers, governments should create center-led technology teams, success-based contracting processes and integrated solutions for which the provider partner is fully accountable.

Consider private partners: As advocates of public-private partnerships, we believe that, properly structured, P3s can lower costs and improve services while increasing access to global best practices, talent and economies of scale and better manage risk and project timelines.

All of these are strategies that can continue to pay dividends over the long term, well after the pandemic is behind us. In the near term, we also expect to see cities implement a number of tactical cost-management strategies, such as:

Implementing flexible hiring freezes, whereby departures are an opportunity to re-examine productivity and employee transfer/retraining programs ensure that essential jobs are filled without new hiring.

Insisting on third-party reviews — assessments by someone outside of the agency who isn't an advocate — of claims, contracts, expenditures and capital projects to avoid inadvisable contract renewals, poor performers and low standards.

Trimming non-essentials and focusing on the core mission; this is not the time for pet projects from either side of the aisle.

Capturing unspent capacity in fourth-quarter budgets and definitively ending the public sector's notorious end-of-the-fiscal-year "use it or lose it" practice.

Supporting nonprofit partners, sustaining and leveraging their value by providing physical space, technology, equipment and other supports to reduce their costs while in turn utilizing their innovative reach.

Faced with revenue shortfalls and increased demand for services, smart public managers will look past ideological moorings and embrace an "all of the above" mindset when it comes to managing costs. Virtually every local government will be forced into short-term tactical controls, but the very best managers will seek to deploy more lasting and impactful strategic tools, both to further manage the new normal and to prepare for the future.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.

A professor of practice at the Harvard Kennedy School and director of the Innovations in American Government Program. He can be reached at stephen_goldsmith@harvard.edu.
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