Characteristics of a Financially Resilient GovernmentThere are eight characteristics of a financially resilient government. You can learn much more about financial resiliency and its characteristics in GFOA’s resiliency whitepaper.
- Diversity. Avoiding a single point of failure or reliance on a single solution.
- Keep a multi-faceted perspective on financial health. Consider more than revenues and expenditures. Keep in mind land-uses, demographics, long-term liabilities, and other factors impacting financial position.
- Maintain a diversity of funds to reduce reliance on the general fund. For example, use internal service funds for support services or special funds to account for non-current liabilities like OPEB.
- Enlarge the base of supportive constituents. Engage those beyond your core constituency. They also may pay taxes, vote in elections, and volunteer to help.
- Redundancy. Having more than one path of escape.
- Maintain a reserve policy to prevent the use of reserves for recurring expenditures. Specify the purpose of reserves in the policy.
- Institutionalize financial planning through governance practices like financial policies. This will help make sure good practice continues beyond the tenure of current officials.
- Engage citizens in financial planning so that citizens come to recognize the value of financial planning and demand it from their government.
- Pursue multiple strategies for long-term financial health.
- Decentralization. Centralized systems look strong, but when they fail, the failure is catastrophic.
- Make managers manage their cost and revenue structures so that budget control does not depend on centralized monitoring.
- Engage departments in identifying financial issues, analyzing them, and developing strategies. This creates strategic financial thinking in the departments.
- Engage departments in financial modeling and forecasting. Use HR to help forecast personnel costs. Use departments to help project the revenues they generate. This improves the quality of the forecast and the credibility of the forecast with audiences.
- Develop an organization-wide strategic framework that departments can innovate within. A strategic framework helps make sure everyone pulls in the same direction and provides for a common basis of discussion about organizational goals and, consequently, what money should be spent on.
- Transparency. Don’t hide your systems. Transparency makes it easier to figure out where a problem may lie. Share your plans and preparations, and listen when people point out flaws.
- Promote transparency in areas like goals and objectives, forecast assumptions, and reserve standards. Transparency leads to trust in the system. People are more likely to support and follow a system they trust.
- Use full-cost (direct and indirect) accounting for programs. This makes the cost of doing business transparent and leads to better decisions on resource allocation.
- Collaboration. Working together to become stronger.
- Build elected officials’ service priorities into the long-term financial plan. Elected officials will be more supportive of a plan that is aligned with their service goals.
- Provide elected officials a role in that planning process – a role they can thrive in. Roles particularly well suited to elected officials are defining service priorities, identifying critical issues that could impact the financial health of the government, and validating key forecast assumptions.
- Orient elected officials to the planning process. Use workshops, one-on-one meetings, and peer interactions to help new and existing officials learn about resilient characteristics.
- Use key indicators to help elected officials stay abreast of financial condition.
- Fail gracefully. Failure happens. Make sure a failure state won’t make things worse.
- Recognize changing conditions to make a soft landing through regular forecasting and environmental scanning. Update forecasts regularly and communicate deteriorating conditions promptly and openly to the board.
- Promote financial plan credibility and open dialogue to learn from and correct failure. A projected imbalance isn’t cause for recrimination – it is an opportunity to take preventative action to avoid crisis.
- Flexibility. Be ready to change when plans are not working. Don’t count on stability.
- Regularly diagnose the strategic environment to know when flexibility may be required. Develop an institutional habit of taking time to look beyond the day-to-day business of government for issues that could impact financial health.
- Create financial models to show the impact of changes.
- Evolve and adapt the financial planning process itself to accommodate new issues and participants, keep up with best practices, and otherwise adapt to the needs of a changing organization.
- Foresight. You can’t predict the future, but you can hear its footsteps approaching. Think and prepare.
- Develop effective forecasting techniques. Use forecasts to identify the parameters within which to develop and execute strategies, rather than to try to “predict” the future. Develop capacity for flexible scenario modeling to show the impact of different possible futures.
- Build capacity among staff and elected officials for diagnosing strategic issues. Strategic diagnosis is like a muscle – if it is not used, it will atrophy.
- Complement financial planning with other long-term plans. Connect long-term financial planning to the long-term plans prepared by operating departments to increase the quality of forecasting and analysis of the economic and financial environment.
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