’Tis the season for budget preparations. The pandemic has wrought havoc on our lives and municipal finances. From the unexpected costs of local emergency management to the unforeseen economic turmoil that will be realized for months to come, towns will have to be creative in order to ensure fiscal resilience. VLCT provides this advice for budgeting amid COVID-19 and global economic uncertainty.
As Bob Dylan sang way back in the ’60s (a time many of us remember fondly, assuming we can remember it at all), “a hard rain is gonna fall.” Well, it fell, and the next budget is going to be a challenging one for most of us in the municipal world. I’ve outlined some best practices for you to consider in planning for that next budget.
- Keep long-term goals in mind when developing your budget. Be aware of future needs and be sure the budget incorporates a way to reach those goals. Your budget is NOT just a one-year commitment: your annual budgets should be the vehicle to finance your Town Plan and Capital Improvement Program goals along with the municipality’s annual operations. If you continually defer these costs, you will most certainly pay for them down the road with higher maintenance, repairs, or exorbitant financing costs. Careful capital investment planning and funding should continue through a crisis. Temporarily suspending funding, rebalancing project loads, or refinancing debt are ways to relieve some fiscal stress in a given year. Just be sure you have a catch-up plan in place for future budgets.
- Analyze your historical data for trends and use that in forecasting. This is particularly important when there is uncertainty about future revenues and expenses. DO NOT use the old incremental budgeting method (adding a percentage increase to the current budget). It’s a poor practice and can lead to disaster. Historical data tells an important story. Look at the past 3 to 5 years of revenues and expenses, and factor in any information you have about what the future may hold for each of your major line items (taxes, salaries, benefits, etc.). Be conservative with revenues and consider eliminating any lower priority programs or costs.
- Pay attention to collective bargaining agreements and other multiple-year contractual arrangements such as leases, consulting, and professional services. Understand your contracts thoroughly and brainstorm options for cost-cutting. You may be able to re-negotiate some lease or service agreements depending on contract language and vendor flexibility. Union contracts are a bit more challenging. Read the contracts carefully and determine where you may have some wiggle room. A discussion with bargaining unit representatives may yield positive results if they are faced with unpalatable consequences but are treated fairly and with respect.
Above all, it is important that your staff who are managing department budgets understand the need to stay lean and avoid “cushions” or “padding,” so you may want to consider use of surplus (if you have it) to cover one-time costs or emergency items. If municipal officials believe that they won’t be left in the lurch in the event of unforeseen expenses, they will be less apt to hoard funds, and you will have some flexibility in maintaining your essential services. The good news is that, if you can make it through this budget crisis, the next time it happens you will be prepared.
The times they are indeed a-changing!
B. Michael Gilbar, Chief Financial Officer