VGFOA 2017 FallConferenceOctober 19, 2017
PRESENTATION TO
Thriving Through Change: Building Financial Resiliency
PRESENTER: Sheryl D. Bailey, Ph.D.Senior Vice President
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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?
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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
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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
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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
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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
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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)
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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
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GFOA
Long-Term Financial Plan = Foundation
Strategic Plan
Comprehensive Plan
Capital Improvement Plan
Financial Policies
Long-Term Financial Plan
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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
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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
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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
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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
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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
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GFOA
Continuous Cycle
Plan
Adjust Implement
Assess
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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
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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
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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
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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
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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
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FY06 FY07 FY10 FY13 FY16 FY17Projected
Mill
ion
s
Inability to collect internet
sales taxes hurting
community and stifling
economic development
momentum
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Congressman Goodlatte
Chair, House Judiciary
Committee
Senator Warner
Senator Kaine
What can you do?
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Be heard
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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
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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