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1. Recognition

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The First Step is Recognition

Consider Deeper Questions about Financial Distress

Make a Rapid Determination of the Problem         Enlist Others   

The First Step is RecognitionSolutions Sign

The first step in recovery is recognizing that a real problem exists. Someone in a position of authority must:
  • Recognize the problem
  • Gain a substantive understanding of it
  • Start developing countering strategies
  • Enlist the aid of others. 

This person is the “recovery leader.” The leader could be a city manager, finance director, mayor, or hold a comparable position. Ultimately, the leader should build a team of other able officials to carry out the recovery process so that there is a “recovery leadership,” not just a single leader.

Make a Rapid Determination of the Problem

The recovery leader should quickly assess the problem and its severity by asking questions like:
  • Where do our revenues stand and what can we expect for the next six months to a year?
  • Are our expenditures within budget? How much can we rein them in? 
  • What are the most important causes of revenue decreases or expenditure problems? 
  • What are reasonable expectations for future growth? Will growth provide additional revenues or additional costs that make the situation worse?
  • What size imbalance we are facing? Which funds are experiencing distress? How long can the revenue decline be expected to last?

The recovery leader should also think of generic treatments to balance the budget in the short term to buy time for the rest of the recovery process to work.

Consider Deeper Questions about Financial Distress

While the questions in the preceding section are important for formulating an immediate response, the Recovery Leader should also consider questions that impact the recovery journey and have important implications for long-term sustainability. It is also important to send the right messages to stakeholders from the beginning – for example, if the community tax burden is already high, then it is important to recognize early on that increased revenue will likely have a limited role in the recovery plan.
  • To what extent is the problem structural versus cyclical? Will an economic recovery solve the problem or just lessen it?
  • How realistic are revenue raising options? Are constituents willing and able to bear additional taxes? Will higher taxes and fees harm economic competitiveness?
  • How big of a problem are unfunded liabilities like pensions and infrastructure maintenance? 
  • How do we better size and shape government to deliver the most important services with the money we have available?

The Recovery Leader may not be able to provide a comprehensive answer to all of these questions right away. The Initial Diagnosis and Detailed Diagnosis can be used to get more complete answers.

Enlist Others

The recovery leader should recruit others into the recovery process by:
  • Crafting a message to help others recognize
    • The potential scope (which funds?)
    • Magnitude (how serious?) and
    • Duration (how long?) of the problem
  • Demonstrating a convincing understanding of the situation to inspire confidence
  • Preparing immediate generic treatments for near-term relief and to stave off panic 
  • Generating preliminary ideas about how and where to cut costs or find resources as the recovery process moves forward.

Oftentimes more than simple presentation techniques like budget-to-actual reports or year-over-year comparisons are needed. Maybe your audience doesn’t believe the situation is that bad, that an economic recovery will save the day, or that government can just “cut the fat.” Here are some techniques to help with tougher audiences:

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