Planning For Fiscal Sustainability in Difficult Times

1. Planning For Fiscal Sustainability in Difficult Times Presented by Mark Moses Deputy City Manager / CFO City of Stockton February 19, 2009

2. Overview Many agencies manage their resources on a year-to-year timeframe. This approach is forgiving under good economic conditions, but often leads to a reactive environment with limited ability to manage effectively. • How does a longer term planning horizon provide the governing body with more choice and control? • How can an agency break the pattern of short-term resource allocation and create a vision of fiscal sustainability that can be defined, measured and achieved?

3. Why plan? “The best way to predict the future is to create it...” – Peter Drucker

4. Why plan?...continued Advantages of planning – • Legitimate sense of control over the future • More resources (esp. time) to adjust to both positive and negative events • Likely to set aside resources in good times • Consistent with a proactive approach to leadership/management

5. Why plan?...continued Advantages of planning – • Provides ability to link financial resources to strategic actions and priorities • Incorporates discipline of considering long-term implications of decisions • Creates vehicle to demonstrate accountability It takes strong, pro-active leadership to implement a planning process in the absence of a fiscal crisis, but it’s never too late to start.

6. Why plan?...continued Why organizations don’t plan – • Focus on crisis management • Lack of organizational discipline • No organizational vision (nothing to plan for) • Don’t see value in a plan that will inevitably change • Indecision (plans require leadership & commitment) • Confusion over where to start

7. Why plan?...continued Consequences of not planning – • Good times • Not many obvious consequences because most news is positive • Revenue estimates are often exceeded • Mistakes are easily compensated for • Missed opportunities to invest in future • Unsustainable habits

8. Why plan?...continued  Consequences of not planning – • Bad times • Reinforces ongoing crisis mode of operations • Sets tone for reactive management • Shrinking array of options to address problems • Trapped with only short-term solutions

9. Alternatives

10. What type of planning is needed? • Strategic plan - incorporating community’s vision & priorities • Financial Plan - multi-year planning model focused on supporting the strategic plan • As contrasted with… • Ad hoc prioritization and assignment of resources revisited annually

11. Why plan now? • The sooner you begin to extend your planning horizon, the sooner you benefit • The process of planning is valuable (even in short term) • The business model for funding local government is very precarious; prompting a serious review of priorities and strategies • A crisis is a terrible thing to waste

12. How precarious is city financing? • A city can go from reasonably healthy to insolvent or nearly insolvent in two years: • GF Fund Balance as % of Expenditures (Target = 15%) • June 30, 2006 10% • June 30, 2007 6% • June 30, 2008 0% City of Vallejo ____ __ _______

13. How precarious is city financing?...continued • Dozens of California cities were adding programs in FY07-08 and even FY08-09 Now these same cities are implementing: • Hiring freezes • Furloughs • Voluntary separation agreements • Layoffs

14. How precarious is city financing?…continued • Would you invest in a business with all of the following attributes? • State looks to you (shifting costs or taking revenues) to solve its budget problems • While revenues decrease… • Cost of services can contractually increase • Demand for services can increase • Pressure to fund current activities makes accumulation of capital (reserves) difficult

15. Breaking the short-term mindset In an environment that doesn’t embrace a planning discipline, planning may be resisted until the organization hits bottom and there is nothing else to do…

16. Prerequisites… • Need a vision embraced by organization’s leadership • Has to be sufficiently discontent with the status quo • Must establish fact that current structure is not sustainable Without these, there is no motivation to support the planning process or change efforts.

17. Achieving a vision of fiscal sustainability Assessment Criteria: • Economic Factors • Financial Performance Factors • Reserves • Operating • Ability to respond to changing conditions • Political Capital • Ability to generate revenues via voting public

18. Fiscal Health Assessment Scorecard:

19. Fiscal Health Assessment Scorecard:…continued • High scores – need to maintain long-term perspective and discipline to stay healthy • Moderate scores – need to focus strategically (difficult to address everything at once) • Low scores – need to break the pattern (likely with outside assistance) Organizations with low scores have limitedability to fulfill their goals, vision.

20. Making it work – Planning Checklist • Provide for a strategic and financial plan • Both the strategic plan and supporting financial plan need to be embraced by entire organization • Ensure sufficient resources to do justice to the process (e.g., facilitation, process design)

21. Making it work – Planning Checklist • Don’t oversell or overstate short-term benefits; this is a discipline that will take time • Additional Resources • CSMFO website/members • GFOA website, materials, research staff

22. Making it work – Planning Checklist…continued • Planning/good fiscal policy are necessary but not sufficient for success: strategic plans need to be executed; the organization still needs to be managed

23. Comments/Questions: Document:79795.1