This past week City Council members met with senior administrative staff at the annual budget planning retreat. This half-day gathering serves as the official kick-off to budget preparations for the upcoming fiscal year. In addition to the regular discussion of closing out the previous fiscal year, performance of the current budget, review and affirmation of Council priorities, etc., this year’s retreat included a discussion on building additional resiliency into the budget. This included review of a five-year projection of revenues versus expenditures, as well as two scenarios—one where current revenue growth trends remain stable and the other where revenues decline in a manner similar to that experienced during the Great Recession.
Best Practices
The Government Finance Officers Association (GFOA), the leading government budgeting and financial management trade organization in the Country, provides guidance on a number of governmental financial practices. Relative to resiliency, GFOA identifies eight characteristics it feels represent best practices. Three were particularly insightful for the purposes of the retreat discussion—fail gracefully, maintain flexibility, and exercise foresight. Much of what was presented and discussed at the retreat centered on these three characteristics and how they may be applicable in Roanoke.
Five-Year Model
For the past few years, the City has made use of a five-year projection of revenues and expenditures based upon a set of assumptions around such things as property tax revenue growth, employee compensation increases, etc.
The value of the model is to identify ahead of time any significant structural concerns associated with either revenues or expenditures, or both. In our case, the model portrays expenditures increasing at a greater rate than revenues are projected to grow. As noted in a recent report by the National League of Cities, this is becoming a more common reality for local governments as the goods and services government purchases increase at rates significantly outpacing inflation. This is further complicated by local economies experiencing growth focused on so-called “eds and meds,” which tend to pay little to no property taxes.
Scenarios: One Good, One Challenging
One of the scenarios the Council reviewed assumed we continue to experience the revenue growth we have had over the past couple of years seeing, for example, property values increasing 2% to 3% annually and sales tax revenues increasing in the 5% to 6% range. This scenario would continue to provide the city with “new” revenue, which would enable us to meet increasing costs, increase employee compensation, and address additional one-time capital expenses such as additional street repairs. The Council spent most of its time focused on prioritizing how this increased revenue could be allocated emphasizing employee compensation, community safety, and neighborhood vitality.
The second scenario assumed we experienced revenue shortfalls comparable to that realized in FY09-FY10, necessitating planned expenditure reductions of more than $5 million. The discussion reviewed how the City responded when such a reduction last occurred. This included an increase in the meals tax to ensure Roanoke City Public Schools did not experience any harm from reductions in State funding; a reduction in the number of city employees (from 1,800 FTE in FY2009 to 1,676 by FY11); establishment of new fees (sanitation and storm water); and a reduction of expenditures in a number of areas (increased mowing cycle times, elimination of loose-leaf pickup, etc). The discussion allowed the Council to consider what tools might continue to be available and which they may choose to use or not, should it become necessary.
Though discussion of these scenarios did not result in any definitive actions, it was beneficial to have Council consider and be prepared should such situations present themselves, helping them define how they may be able to “fail gracefully” and “retain flexibility.”
Preparing for the Inevitable
As most everyone is aware, we are in the district of the longest period of economic growth our Country has ever seen. While no one wants it to end or knows when it will, the reality is it will and, when it does, we will be better off if we have prepared for it. During this period of growth, the City has been bolstering its reserve fund, enabling us to secure credit at very favorable rates and ensuring we are protected against a catastrophic occurrence. We have also used this time to begin establishment of a stabilization fund—a sort of “rainy-day” fund—that would allow us to respond to an abrupt interruption in revenues in the midst of a budget year.
The consequences of the Great Recession are never far out of mind and, as a result, the City has aggressively sought to become more efficient in delivery of the services we provide. This effort at continuous improvement has not only allowed us to do more with less, but also to do it better and to lessen the impact of any future economic downturn.
Better to Have Prepared
In planning for severe weather or other natural disasters, you hope you never have to put into practice what you have trained for. But should you need to do so, it is much better that the training and preparation took place. So it is with planning for resiliency and budgeting. Better to be ready for whatever may come—be it positive or negative—short or long in duration.
-- Bob Cowell