3 Ways Governments Can Better Manage Their Finances

Many municipalities across the U.S. are caught in never-ending cycles of financial trouble. These governments find themselves burdened by budget deficits and massive debts that simply pile up over the years. Sometimes, the situation gets so out of hand that they have to file for bankruptcy — a rare but devastating last resort.

When governments fall into so deep a financial hole, it can be very difficult for them to climb out of it. It takes money to reverse the situation — but where does this money come from?

Government leaders often create bigger problems for their municipalities when they try to supplement their budgets with cash reserves instead of raising taxes. This approach only temporarily stops the financial bleeding; it doesn’t solve the problem permanently. It merely defers the inevitable tax raise until the next year because current expenditures don’t match current revenue.

However, raising taxes also comes with its own set of hang-ups. If economic growth hasn’t kept up with projected growth surrounding debt limits, it becomes extremely difficult to keep increasing taxes year after year. Eventually, these constantly rising taxes will induce a mass exodus of residents, which will only make the situation worse.

The resultant shrinking tax base is a worst-case scenario for a local government balancing its budget. Not to mention that even after the economy begins to rebound, most governments cannot immediately respond because they need to wait until they have formulated and executed their annual or biannual budgets.

There’s no question that the cards are stacked against cash-strapped municipalities, but it certainly isn’t impossible for them to get back on track.

Making Better Budgetary Decisions

Governments that rely primarily on sales tax revenue are searching high and low for a quick and easy way to minimize expenditures without sacrificing the services they provide. Often, they’ll wisely look to their vast collections of business data for answers, but they’ll find themselves drowning in too much outdated, disorganized, and irrelevant information. In fact, anywhere from 70 to 80 percent of all corporate business intelligence projects fail for these very reasons.

When governments can’t glean useful insights from their mountains of data, it’s nearly impossible for them to build anything that resembles an effective budgeting road map.

Tech-driven strategic methodologies and cloud-based applications brought us into this era of big data, and they can also help us thrive within it. Here are three potential solutions to the public sector’s budgetary issues:

  1. Priority-Based Budgeting. Join the growing ranks of local governments adopting priority-based budgeting in their attempts to overcome fiscal challenges and unsustainability. This methodology provides cities with a comprehensive review of every program they offer, along with their costs and their effectiveness, helping them prioritize and align available tax dollars to the most important programs.Priority-based budgeting also encourages governments to engage with citizens, measure their expectations, and factor this feedback into their budgetary decisions. The Center for Priority Based Budgeting has introduced intuitive web-based platforms that reshape the way communities can influence how their resources are leveraged.
    South Jordan, Utah, is one such city that has embraced this strategy, granting each member of its city council access to an online portal that displays the costs and performances of more than 500 programs. Jupiter, Florida, has also seen big results from priority-based budgeting, reallocating nearly $700,000 immediately after gaining the insights and feedback made possible by the methodology.
  2. Align Strategy With Fiscal Performance. In the modern era, you can ensure your fiscal health by making budgetary decisions and adjustments throughout the year — not just at the beginning of every new budget cycle.
    Newer cloud-based technologies enable governments to consolidate their data silos into one universal reporting and strategic planning platform that — through enhanced operational intelligence and embedded analytics — reveals the scope of their municipal needs and aligns them to their strategic priorities. This allows cities to not only make decisions on the fly, but also to better plan for the future and share their strategies with their residents.

    Recently, one of my company’s clients aggregated its current and historic law enforcement time-tracking data into one cloud-based reporting solution. This enabled the city to explore how its law enforcement payroll costs corresponded to its population growth and other demographic information. Moving forward, it could use these data to successfully request additional personnel for the department. In the past, such requests were often denied because of their lack of statistical backing.
  3. Intelligent Reserve Usage. Each local government needs an emergency fund, and these cash reserves should never be used for day-to-day activities. They should be used only for extraordinary circumstances, such as paying off debt.Incorporating executive and operational views of the organization through cloud-based reporting solutions provides governments with automatic liability reconciliation, real-time fund balance calculations, and historically based cash-flow projections — all of which provide vital pieces of operational intelligence when it comes to identifying the right time to use cash reserves.One county government I work with ended up saving $7 million in interest payments over time by taking this approach.

Local governments are no strangers to financial issues, and some of their common practices only make the problems worse. By consolidating their existing applications and data silos into one cloud platform that offers fresh and strategic budgetary methodologies such as priority-based budgeting, local governments can achieve more stability and visibility and can pave the way to a brighter future.

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