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Financial Foundations for Thriving Communities
Why build a
5 Pillars of Financial Success
Created by GFOA, the Financial Foundations Framework helps facilitate collaboration and support for public policies and programs. Organized into five pillars, the Framework shows you how to improve your financial position now and create a strong foundation for a thriving community over the long-term.
Each pillar includes different leadership strategies and/or institutional design principles. Understanding that local governments cannot order people to collaborate, leadership strategies help inspire pride and public support for a strong financial foundation. Institutional design principles, meanwhile, are the “rules of the road.” They provide the context for leadership strategies and ensure continuity of good financial practices through changes in leadership.
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Leadership Strategy #1: Promote Collaboration
The only thing better than an inspiring vision is an inspiring shared vision. Turn stakeholders into co-creators as you define the long-term vision.
Leadership Strategy #2: Balance Long-Term Goals with Short-Term Needs
In all things, seek balance. Advocate for both the big picture and day-to-day needs. Break long-term goals in shorter-term milestones to maintain momentum.
City of Portland, Oregon
While the City of Portland has an AAA bond rating, it still faces financial challenges, including increasing pension funding requirements, infrastructure needs, and other legacy liabilities. Portland’s CFO at the time, Ken Rust, used “stoplight” visuals, with red, yellow, and green indicators to differentiate between trends for long-term liabilities, infrastructure, and employee costs. Each indicator was accompanied by a one-sentence description of the current status and future outlook.
In meetings with elected officials and staff decision makers, Rust further explained the indicators and highlighted the most important points. This demonstrated that the relatively simple, yet accessible presentation was built on deep knowledge. This approach not only fortified Rust’s credibility as a leader in long-term thinking, it also helped elected officials to be more conversant in the issues affecting the city’s long-term financial health. With elected officials more readily sharing these issues with the public, they encourage citizens themselves to seriously consider the city’s financial future.
Leadership Strategy #3: Create Open Lines of Communication
Communication is key. Create and promote two-way channels to connect elected officials and staff with the public.
Leadership Strategy #4: Cultivate Trustworthy Reputations
Trust is everything. Build trust through transparency—say what you mean, mean what you say and follow through.
Leadership Strategy #5: Engage Key Stakeholders
Building a sturdy financial foundation is a team effort. We must be proactive and responsive. Let people voice their concerns. Ask for their feedback. Adjust as needed.
Institutional Design Principle #1: Collective Choice Arrangements
Give citizens a seat at the table. They’re more likely to support decisions when they have a say in how public resources are used. Prioritize public feedback.
Institutional Design Principle #2: Networked Enterprises
We’re stronger together. Share services across local governments to save costs. Build collaborative, cross-sector networks to pool resources for addressing community challenges.
City of Pittsburgh,
Sometimes, a local government will find that residents and businesses are leaving the community, steadily eroding its financial foundation. Savvy local leaders will examine the reasons people leave and work with others to form an effective response. One of the best examples of precisely this approach: Pittsburgh, Pennsylvania.
After experiencing population loss for decades, Pittsburgh leaders—representing government, philanthropy, academia, and business— worked together to reverse its fortunes. They coalesced around and committed to a forward-looking and inspiring vision for the city: to become a leader in 21st century industries. Pittsburgh has since become a hub for the robotics and automation industries.
They started by leveraging local strengths—in this case, local universities that specialize in robotics like Carnegie Mellon and the University of Pittsburgh. Of course, not everyone can be a leader in robotics; precise recovery strategies need to be tailored to the context of a local government. Like Pittsburgh, every community has its unique strengths. The question is how to use them to build a long-term vision and plan.
Institutional Design Principle #3: Well-Defined Boundaries
When the game has clear rules, everyone’s set up to win. Create and share expectations about how decisions get made, who has the final say, and timelines.
Institutional Design Principle #4: Monitoring
Financial sustainability relies on everyone following the rules. Hold people accountable. When they understand their reputations are at stake, they’re more likely to play fair.
Leadership Strategy #6: Maintain Oversight
Cooperation is key to thriving communities. Reinforce the importance of cooperation through the power of the purse strings. Encourage a culture of shared values.
Institutional Design Principle #5: Sanctions and Rewards
Incentives can encourage both good and bad behaviors. Know the difference and design institutions accordingly.
County of San
Southern California’s San Bernardino County was facing severe financial distress. Relief efforts included asking departments to give up the padding normally included in their budgets to handle unexpected situations and, instead, rely on the countywide reserve in extraordinary circumstances. This required department leaders, some of them independently elected officials, to trust that county administration would have their backs when the time came.
Accordingly, the county CEO and elected Sheriff negotiated a significant budget reduction to the Sheriff’s Department, with the understanding that the county would agree to cover emergency expenditures as needed. Later that year, the Sheriff’s Office had to conduct a manhunt for a rogue Los Angeles police officer, costing hundreds of thousands of dollars. As promised, the CEO encouraged the Sheriff to do what was necessary for public safety and gathered the funds to cover the extra cost. For his part, the Sheriff otherwise remained within the agreed upon budget.
The CEO was able to provide similar assurances to other county departments, ultimately helping them limit their requests to only what they truly needed to meet service goals for each year. As a result, the county’s General Fund saw savings between $10 million and $20 million.
Institutional Design Principle #6: Proportional Equivalence Between Benefits & Cost
People must get what they pay for and pay for what they get. Be proactive—make sure citizens know what they stand to gain for their tax dollars.
Institutional Design Principle #7: Conflict-Resolution Mechanisms
We can’t please everyone all the time. Disputes around financial decisions will happen. Anticipate that. Prevent destructive conflict. Promote constructive debate.
Institutional Design Principle #8: Minimum Recognition of Rights
Local governments must have autonomy. Use collective decision-making to develop policies and procedures for protecting local choices and addressing unfunded mandates and grants.
Why it matters:
Strong financial foundations create the kind of cities that are built to last, where all people and institutions can thrive. This framework is a blueprint. By following it, we can make an immediate difference in how government business gets done, while ensuring our communities' well-being for generations to come.
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Put the Pillars to Work
Building a strong financial foundation is a long-term project—GFOA is here to help. Order our publication, Financial Foundations for Thriving Communities, for in-depth insights and examples of success. Download the one-pager for easy reference and guidance, or access other free resources like case studies and presentations.
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Are you implementing new strategies in your community? We want to hear from you. Help government finance professionals across the country learn from your experiences and insights.