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  • VGFOA 2017 FallConferenceOctober 19, 2017

    PRESENTATION TO

    Thriving Through Change: Building Financial Resiliency

    PRESENTER: Sheryl D. Bailey, Ph.D.Senior Vice President

  • 2

    What Does Surviving the Recession Mean?

    • Restoring services?• Going back to the way we were?• Taking a pause, then picking up where we left off?• Fundamentally adjusting to new circumstances?

  • 3

    New Normal Has Emerged

    – Slow to moderate growth– Continuously increasing service requirements– Unfunded mandates– Domestic and global industry changes– Rapid technological change– Altered political landscape– Aging populations– Persistent community issues– Opportunities and likelihood of disruptions increasing

  • 4

    Why Is Sustainability No Longer Sufficient?

    • Sustainability is necessary, but insufficient, to ensure ongoing financial health of public entity

    • Sustainable system is balanced, but potentially brittle– External shock can unbalance system and cause major

    disruptions/breakdowns, e.g., severe economic downturn– Balanced budget and operations do not signify resiliency

    • Resilient system not only survives shocks, it thrives

    GFOA

  • 5

    Building Financial Resiliency is Vital

    • Thriving Through Change– Withstand acute shocks and chronic stresses– Maintain and improve essential services– Recover quickly and effectively– Adapt, succeed and renew under adverse and unforeseen

    conditions – Move from recovery and sustainability to resiliency

  • 6

    Characteristics of Financially Resilient Government

    • Diversity – avoid single point of failure or single solution• Redundancy – have more than one path of escape• Decentralization – when centralized systems fail, its catastrophic• Transparency – don’t hide your systems• Collaboration – working together to become stronger• Fail gracefully – it happens, ensure it doesn’t make things worse• Flexibility – be ready to change, don’t count on stability• Foresight – think, hear footsteps approaching, and prepare

    GFOA

  • Key Tools to Build Financial Resiliency

    • Enhance long-term financial planning• Reform budget process• Address liabilities• Advance culture of accountability• Advance innovative and adaptive culture

    7

    GFOA

  • Planning is Indispensable

    • “In preparing for battle, I have always found that plans are useless and planning is indispensable.”- General Dwight D. Eisenhower

    • Long-term financial planning is central to financial resiliency– Supports important characteristics of resiliency: diversity,

    decentralization, and collaboration (GFOA)

    8

  • Enhance Long-Term Financial Planning

    • Combines financial forecasting with strategizing– Prepare for and make sound investments in future– Project revenues and expenditures for at least 5 years,

    longer time horizon recommended – Anticipate future impact of cost increases, contracts,

    revenue trends, service demand, and liabilities• Demonstrates commitment to maintain long-term

    financial health– Impacts bond credit ratings and credibility with community

    9

    GFOA

  • Long-Term Financial Plan = Foundation

    Strategic Plan

    Comprehensive Plan

    Capital Improvement Plan

    Financial Policies

    Long-Term Financial Plan

    10

  • Interlude on Financial Policies

    • Financial policies = Rudder to steer toward operational success and financial sustainability/resiliency– Fund balance and reserves– Revenues, expenditures, and operating budget– Capital asset management and debt management– Accounting, auditing and financial reporting– Internal controls and risk management– Economic development

    11

    GFOA

  • Reform Budget Process

    • Move from incremental budget to policy-based perspective– Zero-based budgeting or priority-based budgeting

    • Priority-based budgeting (PBB)– Make decisions about which services will continue and at

    what level– Use community input about service priorities and needs

    • Stakeholder input is essential

    12

    GFOA

  • Address Liabilities

    • Must identify all long-term liabilities to create accurate long-term financial plan and priority-based budget

    • Use long-term financial plan and PBB to model scenarios to address liabilities

    • Critical to bond credit rating and debt financing– Investors view unaddressed liabilities as threat to bond

    repayment• Transparent and inclusive process is essential

    13

    GFOA

  • Advance Culture of Accountability

    • Accounting, auditing and financial reporting are critical – Transparency, integrity and business intelligence

    • Performance management systems are powerful tools – Monitor progress on outcomes and results– Early warning systems– Reveal opportunities to improve service and efficiency– Good metrics key to effective performance management– Team-based approaches produce more robust systems

    14

    GFOA

  • Advance Innovative and Adaptive Culture

    • Make innovation a discipline throughout organization • Incorporate innovation and continuous process

    improvement in management systems– E.g., Lean Process Improvement, The Malcom Baldridge

    National Quality Award• Transform to reduce cost and increase flexibility

    – Consolidation, shared services, P3, community partnerships, volunteer programs

    • Create culture of flexibility and responsiveness

    15

    GFOA

  • Continuous Cycle

    Plan

    Adjust Implement

    Assess

    16

  • Financial Resiliency Checklist – Part 1

    Look to the future – ask the right questions – expect the unexpected Develop long-range financial plan with guiding principles and strategic

    objectives Update financial policies comprehensively (fund balance, reserves, etc.) Establish culture of financial discipline and sound debt management Continuously refine priority-based budgeting – what’s important and

    how much Emphasize team-based approaches, stakeholder involvement and

    transparency Evaluate and manage risks Develop plan to address long-term liabilities

    17

  • Financial Resiliency Checklist – Part 2

    Stress affordability and structural balance – operating expenses match operating revenues

    Reexamine revenues – diversification and dependency on volatile sources Revisit expenses – fixed vs. discretionary Maintain quarterly reporting and monitoring – more often if appropriate Utilize performance management system – monitor progress and reveal

    early warnings Develop strategies for unfunded mandates Highlight and reward innovation, flexibility and responsiveness

    18

  • 19

    Questions?

  • Thriving Through Change: Building Financial Resiliency

    VGFOA 2017 Fall Conference

    W. Patrick Pate

    City Manager, Manassas VA

  • Manassas

    • Washington DC Metro Area

    • Independent VA City

    • About 42,000 residents

    • In migration of 21,000 cars each day (net +7,000)

    • Operating Budget of about $350M & $200M CIP

    • AAA Bond Rating

    • Active Historic District with Amtrak/VRE Train Service

    • Diverse Community

    • Elected Governing Body & School Board

  • Manassas City Budget

    City General Fund Expenditures School System Funding Sources

    City Transfer 45%

    State 42%

    Federal 6% Other Local &

    Fund Balance 4%

    Bonds 3%

    FY 2017 School Board Adopted Budget

    MCPS Revenue by Source

    Debt, Capital, Other

    3%

    General Gov't 10%

    Public Safety 20%

    Public Works 5%

    Health & Welfare

    5%

    Culture, Rec., & Dev.

    6%

    Education 51%

    FY 2017 City Budget General Fund Expenditure by Function

  • Why is this topic important?

    • Mayor’s comment: “we must put the wish list in perspective with the financial realities.”

  • Who Has Fiscal Stress?

    • Changing Demographics

    • Public Demands

    • Political Ideology

    – Trust

    • Shiny New Toys or Maintenance

    • Willingness/Ability to Pay

  • Financial Resilience in Manassas

    Economic Development

    Community Investments

    Sustainable Government

  • Economic Development

    Econ. Dev. Dept./Policies

    Available Resources

    Independent City Status

    Growth from Within (no annexation)

  • Community Investments

    Council Priorities

    Five-Year CIP

    Debt Policies (LGC/APA)

    Debt Service Reserves

    School Needs vs. Everything Else

  • Sustainable Government

    Strategic Planning

    Financial Policies

    Dillon Rule

    Regionalism and Partnerships

  • FINAL THOUGHTS/QUESTIONS

  • Building Financial

    Resiliency

  • Roanoke, VA

    Part 1

  • Roanoke challenges

    Since 2008, cut $30.7 million to balance budget

    reduced positions by 10%

    Reduced capital plan by 25% and restructured and

    refocused to maintain critical infrastructure

    Reformed pension for sustainability

    Strengthened financial policies for financial resiliency

    Improved efficiency and customer service through Lean

    process improvement

    Made strategic investments in infrastructure and

    livability

    Built regional partnerships to invest in tourism,

    broadband, and economic development

    3

  • Action producing returns

    Reversed 30 year population decline

    Increased graduation rate from 58% to 87% and improved

    other key education indicators

    Brought crime rate to 34 year low

    2016 was our best year ever for economic development

    with $166 million in private sector investment and 740 new

    jobs

    Neighborhoods and downtown on path to revitalization

    Through strong regional relationships developed

    Broadband Authority, Industrial Facilities Authority

    Recognized nationally for innovation

    4

  • September, 2017

  • Sales Tax important revenue source

    44%

    12%

    3% 11%

    5%

    7% 2%

    1%

    8% 3% 4%

    Real Estate

    Personal Property

    Public Service

    Sales Tax

    Utility Tax

    Business License

    Transient Occupancy

    Motor Vehicle License

    Food and Beverage

    Communications

    Other Local Taxes

    At its peak, Sales Tax was 14.3% of Local revenues

    Local Revenues

  • Economy growing but sales tax declines

    $20.6

    $22.0

    $18.1

    $19.4

    $20.6

    $19.1

    16

    17

    18

    19

    20

    21

    22

    23

    FY06 FY07 FY10 FY13 FY16 FY17Projected

    Mill

    ion

    s

  • Inability to collect internet

    sales taxes hurting

    community and stifling

    economic development

    momentum

    8

  • 9

    Congressman Goodlatte

    Chair, House Judiciary

    Committee

    Senator Warner

    Senator Kaine

  • What can you do?

    10

    Be heard

  • S11

    Financial Sustainability Framework

    • GFOA • National Civic League • University of Southern California • University of San Francisco • Lincoln Institute of Land Policy

    Part 2

  • The Tragedy of the Commons

    Tragedy of

    “The Commons”

  • The Tragedy of the Commons

    S13

  • Tragedy of

    “The Budget”

  • The Tragedy of Local Government?

  • Why This Framework?

    Holistic perspective

    • Accounting records don’t tell the whole story

    Forward-looking

    • Emphasize the long-term

    Makes finance everyone’s business

    • Everyone is involved in using resources, everyone

    needs to be involved in sustaining them

    It works!

    • Proven by real governments, experimental

    evidence, and mother nature!

  • Financial Sustainability Framework

    Leadership strategies:

    1. Create open communication between all participants

    2. Help stakeholders build trustworthy reputations

    3. Convince participants there can be benefits from collective efforts

    4. Ensure key stakeholders remain engaged

    5. Build long-time horizons into fiscal planning

    6. Maintain capabilities to enforce cooperative behavior

    http://www.lincolninst.edu/publications/working-papers/financial-

    sustainability-index

  • Financial Sustainability Framework

    Institutional Design Principles:

    1. Well-defined boundaries

    2. Proportional equivalents between benefits & costs

    3. Collective choice arrangements

    4. Monitoring

    5. Graduated sanctions and credible rewards

    6. Conflict resolution mechanisms

    7. Minimum recognition of rights

    8. Networked enterprises

  • Leadership strategy example

  • 15% solution: what can you do now?

    What do you have the freedom and resources to

    do now to move your organization/community

    toward financial resiliency?

    From “Liberating Structures” by Henri Lipmanowicz and

    Keith McCandless. Inspired by Gareth Morgan

    You cannot cross the sea by merely standing and staring at the water. -- R. Tagore

  • Liberating Structures: 1-2-4-All

    1. Individual silent reflection 1 min.

    2. Generate ideas in pairs 2 min.

    3. Now share ideas in foursome 4 min.

    4. Groups share ideas with all 5 min.

    From “Liberating Structures” by Henri Lipmanowicz and

    Keith McCandless

  • Thank you


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