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Government Finance Officers Association | AUGUST <strong>2021</strong><br />
Financial Transparency in<br />
an Age of Too Much Data<br />
Government Finance Review<br />
Preparing for the Next<br />
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Risk Management<br />
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contents AUGUST<br />
<strong>2021</strong> | VOLUME 37, NUMBER 4<br />
24<br />
Is a State Bank a Useful<br />
Economic Development Tool?<br />
Exploring lessons learned from<br />
public banking initiatives and making<br />
a case for and against state banks.<br />
by Robert S. Chirinko<br />
36<br />
Financial Transparency in<br />
an Age of Too Much Data<br />
How Kansas City and the city of Los<br />
Angeles are educating and engaging the<br />
public through financial transparency<br />
by Debbie Chiu and Ron Galperin<br />
50<br />
Budgeting Bias<br />
Applying behavioral science to<br />
finance to better understand and<br />
improve the decision making<br />
environment<br />
by Linnea Gandhi and Shayne Kavanagh<br />
Data is no longer just about producing<br />
audits or reports for other decisionmakers<br />
in the city; it’s about conveying<br />
information through visualizations and<br />
connecting communities in new ways.<br />
RON GALPERIN, LOS ANGELES CITY CONTROLLER<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 1
contents<br />
56<br />
Strengthening Risk<br />
Management Before<br />
the Next Big Crisis<br />
A six-step guide for state and<br />
local government leaders<br />
by Mark Beasley, Al Chen, and<br />
Ericka F. Kranitz<br />
68<br />
Paving the Way<br />
Aligning the budget with<br />
your mission and vision<br />
by Celeste F. Baker<br />
74<br />
Against All Odds<br />
How Springfield, Massachusetts<br />
built a fiscally sustainable future<br />
by Timothy J. Plante<br />
Organizational leaders are convinced that<br />
complex and interrelated risks will continue to<br />
emerge—and stakeholder expectations for more<br />
effective risk oversight will continue to grow.<br />
6 Contributors<br />
8 From the CEO<br />
10 Rewind<br />
11 The Committee on<br />
Canadian Issues<br />
by Kate Southard<br />
and Craig Lesner<br />
13 The Committee on<br />
Governmental Budgeting<br />
and Fiscal Policy<br />
by John Fishbien<br />
14 Coronavirus State and<br />
Local Fiscal Recovery Funds:<br />
GFOA Guiding Principles<br />
by Mehreen Haroon<br />
16 Reaching Out: GFOA’s<br />
New Member Community<br />
by Timothy Martin<br />
19 Spotlight on GFOA’s<br />
<strong>2021</strong> Scholarship Recipients<br />
by Genevieve Carter<br />
81 On the Art of Collaboration<br />
at Long Beach<br />
by Katie Ludwig<br />
86 Ch-Ch-Ch-Changes:<br />
Adopting GASB GAAP<br />
by Michele Mark Levine<br />
90 Improving Procurement<br />
Practices in the Wake of<br />
the Pandemic<br />
by Katherine Barrett &<br />
Richard Greene<br />
92 Q&A with David Erdman<br />
by Ryan Lawler<br />
96 10 Steps to Budgeting<br />
for Salary and Wages<br />
2
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Publisher<br />
Chris Morrill<br />
Editor in Chief<br />
Michael J. Mucha<br />
Managing Editor<br />
Marcy Boggs<br />
GOVERNMENT FINANCE REVIEW<br />
www.gfoa.org/gfr<br />
EDITORIAL<br />
gfr@gfoa.org<br />
ADVERTISING<br />
gfoa.org/gfr-ads<br />
PERMISSION & REPRINTS<br />
gfr@gfoa.org<br />
CHANGE OF ADDRESS<br />
gfoa.org/update-membership<br />
SUBSCRIPTIONS<br />
gfoa.org/gfr<br />
SUBMISSIONS<br />
GFOA encourages finance officers, scholars,<br />
private consultants, and other knowledgeable<br />
individuals to submit manuscripts to <strong>GFR</strong>.<br />
All manuscripts should conform to the Editorial<br />
Policy and Guidelines for Authors, which are<br />
available online at gfoa.org. Manuscripts should<br />
be submitted electronically to gfr@gfoa.org.<br />
CONTACT<br />
Government Finance Review<br />
c/o Government Finance Officers Association<br />
203 N. LaSalle Street, Suite 2700<br />
Chicago, Illinois 60601-1210<br />
Phone: 312-977-9700<br />
Fax: 312-977-4806<br />
GFOA EXECUTIVE BOARD<br />
Michael Bryant<br />
President<br />
Mecklenburg County<br />
Government, NC<br />
Marion M. Gee<br />
Past President<br />
Metropolitan St. Louis<br />
Sewer District, MO<br />
Terri Velasquez<br />
President-Elect<br />
City of Aurora, CO<br />
Laura Allen<br />
Town of Berwyn Heights, MD<br />
Lunda Asmani<br />
Town of New Canaan, CT<br />
Laurie M. Brewer<br />
City of Georgetown, TX<br />
Chris Daniel<br />
City of Albuquerque, NM<br />
Bruce H. Fisher<br />
Halifax Regional Municipality, NS<br />
Tanya Garost<br />
District of Lake Country, BC<br />
Anne P. Harty<br />
City of Rock Hill, SC<br />
Dan Huge<br />
Indiana Finance Authority, IN<br />
Rafiu O. Ighile<br />
Howard County Government, MD<br />
Sue Iverson<br />
City of Red Wing, MN<br />
William Jones<br />
City of Mequon, WI<br />
Brandon Kauffman<br />
Kansas Turnpike Authority, KS<br />
Matthew M. Lentz<br />
Upper Moreland<br />
School District, PA<br />
Margaret Moggia<br />
West Basin Municipal<br />
Water District, CA<br />
Kenton Tsoodle<br />
City of Oklahoma City, OK<br />
Chris Morrill<br />
GFOA<br />
<strong>GFR</strong> (Government Finance Review) (ISSN 0883-7856) is published bimonthly in February, April, June, <strong>August</strong>, October, and December.<br />
Subscription price is $35 annually. Opinions expressed herein are the viewpoints of the authors. They may differ from the policies and<br />
recommendations of the Government Finance Officers Association, its committees, and staff. Letters to the editor are welcomed.<br />
Copyright <strong>2021</strong> by the GFOA. Published by the Government Finance Officers Association, 203 N. LaSalle Street, Suite 2700, Chicago,<br />
IL 60601-1210. Periodicals postage paid at Chicago, Illinois, and additional mailing office. Postmaster: Please send address changes<br />
to Government Finance Review, 203 N. LaSalle Street, Suite 2700, Chicago, IL 60601-1210.<br />
4
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CONTRIBUTORS<br />
Celeste F. Baker is the fiscal officer for the Tiffin-Seneca Public Library in Tiffin, Ohio.<br />
For more than 20 years she has enjoyed a long and professionally progressive public sector<br />
career. Baker has accumulated a great deal of budgeting, forecasting, and general accounting<br />
experience, as well as a LEAN Six Sigma Green Belt “Plus” certification. She is passionate about<br />
worksite as well as individual wellness. Celeste began her career in manufacturing and has also<br />
worked in banking. Celeste was previously the director of budget for the North County Transit<br />
District in Oceanside, California. Before that, she was deputy clerk treasurer and then budget<br />
analyst for Lorain County Community College in Elyria, Ohio.<br />
Mark Beasley is a professor of accounting and director of the ERM Initiative at the Poole<br />
College of Management, North Carolina State University. As founding director, Dr. Beasley leads<br />
the ERM Initiative’s efforts to help pioneer the development of this emergent discipline through<br />
outreach to business professionals, with its ongoing ERM Roundtable Series and ERM Executive<br />
Education for boards and senior executives; research, advancing knowledge and understanding<br />
of ERM issues; and undergraduate and graduate business education for the next generation<br />
of business executives. He frequently works with boards of directors and senior management<br />
teams to assist them in strengthening their risk oversight processes.<br />
Al Chen is a professor of accounting, graduate faculty, Department of Accounting, at the Poole<br />
College of Management. His study of advanced manufacturing systems has led him into the<br />
emerging research of environmental cost management and supply chain management. He<br />
develops a value chain research theme through enterprise risk management and supply chain<br />
management, and he has expanded his research into accounting information systems with<br />
special interest in the US adoption of eXtensible Business Reporting Language (XBRL) and<br />
the role of internal auditor in helping companies adapt to the technology-enabled financial<br />
reporting mechanism.<br />
Robert Chirinko is a professor in the Department of Finance at University of Illinois at<br />
Chicago, a member of the Government Finance Research Center Faculty Advisory Panel, and a<br />
research fellow at the Center for Economic Studies in Munich. His research examines business<br />
behavior with a focus on financial markets, capital formation, corporate governance and finance,<br />
macroeconomics, and tax policy. He has held faculty positions at Cornell University (1982-1985)<br />
and the University of Chicago (1985-1992), and full-time visiting positions at Stanford University<br />
(1984-1985), the Federal Reserve Bank of Kansas City (1992-1993), and the University of Illinois<br />
at Urbana/Champaign (1993-1994). He was on the faculty of Emory University from 1994-2007,<br />
where he was the Winship Distinguished Research Professor in the Social Sciences.<br />
Debbie Chiu is the former budget operations manager for the City of Kansas City, Missouri.<br />
She got her start in local government as a mayoral aide, working for Mayor Mark Funkhouser<br />
as a community engagement liaison and a town hall coordinator. Debbie joined the Office of<br />
Management and Budget in May 2011 as a budget analyst, and she then assumed the role of<br />
budget operations manager. She led the budget development analysis team. Debbie also worked<br />
with the resident engagement component of the citywide business and planning process.<br />
Debbie was also a co-leader of the city’s 2018 GFOA Award for Excellence-winning initiative on<br />
engaging residents in the citywide business plan.<br />
6
Ron Galperin is the Los Angeles Controller and the taxpayers’ watchdog at City Hall, making<br />
sure public dollars are spent efficiently and effectively. He is also the elected paymaster, auditor,<br />
and chief accounting officer for the city of Los Angeles, California. Galperin oversees a team<br />
that conducts independent audits, manages city payroll and spending, prepares financial<br />
reports, pursues fraud and waste, and works to create a more transparent and accountable<br />
city for everyone. His reports are improving outreach and housing for those experiencing<br />
homelessness, street maintenance, arts funding, management of special funds, L.A.’s trees,<br />
emergency services and many other city functions.<br />
Linnea Gandhi is the founder of BehavioralSight, an ExecEd Lecturer at The University of<br />
Chicago, and a PhD candidate at Wharton. The BehavioralSight team has taught over 1500<br />
students and worked with over 50 cross-industry client partners, helping address challenges<br />
in human capital, marketing, product development, and strategic decision making. As part<br />
of their commitment to bringing clients like GFOA cutting-edge “pracademic” insight, they<br />
continue to train and collaborate with top experts in their field, including Richard Thaler<br />
(author of Nudge) and Daniel Kahneman (author of Thinking, Fast and Slow).<br />
Shayne Kavanagh is the senior manager of research for GFOA’s research and consulting<br />
center. He’s been a leader in developing the practice and technique of long-term financial<br />
planning and policies for local government. Shayne’s financial planning experience also drives<br />
his research at GFOA. He’s written a number of influential publications on financial planning<br />
and a number of articles on long-term financial planning, financial policies, budget reform,<br />
using technology to improve efficiency, and related topics for magazines including Government<br />
Finance Review, Public Management, School Business Affairs, and Public CIO. Before joining<br />
GFOA, Shayne was the assistant village manager for the Village of Palos Park, Illinois.<br />
Ericka F. Kranitz is a lecturer in the Department of Accounting in the Poole College of<br />
Management, working with the ERM Initiative and teaching accounting-related courses. She<br />
is also a lecturing fellow for the Fuqua School of Business, teaching a risk management course<br />
as part of the Master of Science in Quantitative Management business analytics program.<br />
Recently, she worked for Duke University as an associate director of the Ethics and Compliance<br />
Program, where she was responsible for compliance assurance reviews and managing ethicalrelated<br />
activities. Before that, Kranitz was with the University of Missouri System, where she<br />
was responsible for identifying, developing and delivering training for sponsored programs<br />
and other financial-related compliance requirements for all four campuses.<br />
Timothy J. Plante is the chief administrative and financial officer for the City of Springfield,<br />
Massachusetts, where he directly oversees the city’s financial functions and serves as the<br />
principal city management advisor to the mayor. Under his leadership, Springfield’s finance<br />
division received GFOA’s Distinguished Budget Presentation Award for a 13th consecutive year<br />
in May <strong>2021</strong>. In his newly published book, Springfield Resurgent (available on Amazon), Plante<br />
recounts his 14 years of service to the city, during which time he and his cohorts overcame<br />
tremendous fiscal challenges and put Springfield on the map for strong financial management.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 7
FROM THE CEO<br />
Better Together<br />
Christopher P. Morrill<br />
Executive Director/CEO<br />
Collaboration is a key<br />
value for GFOA. It<br />
helps shape internal<br />
policy decisions and<br />
informs our guidance<br />
for members. It is the basis of GFOA’s<br />
Financial Foundations Framework,<br />
which requires that finance officers<br />
work with their peers throughout<br />
government to develop more effective<br />
solutions to pressing challenges.<br />
As an organization, GFOA is also<br />
stronger when it works with its peers.<br />
For years, GFOA has led the Public<br />
Finance Network, a consortium<br />
of associations representing local<br />
governments and other municipal bond<br />
issuers in Washington, D.C. We also<br />
rely on the strong relationships we have<br />
with our state, provincial, regional,<br />
and international associations,<br />
routinely working together to provide<br />
educational content, identify speakers<br />
for conferences, and get the word out<br />
about industry events like GFOA’s<br />
annual conference.<br />
Over the past year, GFOA has focused<br />
on broadening those connections by<br />
entering into strategic partnership<br />
agreements with several organizations<br />
outside of public finance industry. Each<br />
alliance brings unique benefits to GFOA<br />
members and helps GFOA work toward<br />
its mission of advancing excellence<br />
in public finance to build thriving<br />
communities. Our current strategic<br />
partners are:<br />
• National Institute for Governmental<br />
Purchasing (NIGP). NIGP provides<br />
certification, training, best<br />
practice guidance, and networking<br />
opportunities to the public<br />
procurement profession in the<br />
United States and Canada. Staff for<br />
the two organizations have been<br />
working on coordinating resources,<br />
Each alliance<br />
brings unique<br />
benefits to GFOA<br />
members and<br />
helps GFOA work<br />
toward its mission<br />
of advancing<br />
excellence in<br />
public finance<br />
to build thriving<br />
communities.<br />
developing joint training opportunities,<br />
and planning content for annual<br />
conferences. GFOA and NIGP will<br />
also be identifying opportunities to<br />
improve finance and procurement<br />
collaboration within local government.<br />
This strategic partnership also provides<br />
GFOA members with discounted rates<br />
at NIGP training events on contract<br />
management, construction, sourcing<br />
and solicitation, and more.<br />
• Engaging Local Government Leaders<br />
(ELGL). ELGL’s mission is to engage the<br />
brightest minds in local government<br />
by providing timely and relevant<br />
podcasts, blogs, webinars, social media,<br />
learning cohorts, and conference<br />
gatherings, all of which foster authentic<br />
and meaningful connections that are<br />
grounded in equity and inclusion.<br />
GFOA is working with ELGL to provide<br />
the PAFR Fellowship program, which<br />
connects local governments with<br />
graduate students to help create<br />
popular financial reports.<br />
8
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
• Institute of Public Works<br />
Engineering Australia (IPWEA).<br />
IPWEA is an association of more<br />
than 4,750 professional members<br />
who deliver public works and<br />
engineering services to communities<br />
in Australia, New Zealand, and<br />
Canada. As part of our agreement,<br />
IPWEA now offers its online<br />
Professional Certificate in Asset<br />
Management Planning at to GFOA<br />
members at IPWEA member rates.<br />
• National FORUM for Black<br />
Public Administrators (NFBPA).<br />
NFBPA is the principal and most<br />
progressive organization dedicated<br />
to the advancement of black<br />
public leadership in local and state<br />
governments. GFOA and NFBPA<br />
have agreed to joint marketing<br />
of events, cross collaboration of<br />
resources for conference events,<br />
and continued communication<br />
as both organizations work to<br />
promote diversity in the public<br />
finance profession.<br />
• Local Government Hispanic<br />
Network (LGHN). LGHN encourages<br />
professional excellence among<br />
Hispanic/Latino local government<br />
administrators. GFOA works with<br />
the network to promote diversity<br />
in the public finance profession<br />
through collaboration in learning<br />
and conference events.<br />
• National Civic League (NCL).<br />
NCL works to inspire, support, and<br />
celebrate civic engagement. GFOA<br />
and NCL collaborate on various<br />
projects, and NCL resources have<br />
been instrumental in helping<br />
shape GFOA recommendations<br />
and resources related to public<br />
participation in budgeting. GFOA<br />
staff serves on a panel to revise<br />
NCL’s model city charter, helping<br />
with additional emphasis on longterm<br />
financial planning. One of the<br />
benefits GFOA members receive from<br />
this partnership is complimentary<br />
access to NCL’s quarterly publication,<br />
the National Civic Review.<br />
• ProbabilityManagement.org.<br />
ProbabilityManagement.org<br />
is a non-profit dedicated to<br />
helping organizations work with<br />
uncertainty, using tools, standards,<br />
applications, and training. GFOA<br />
and ProbabilityManagement.org<br />
have worked together on<br />
numerous research projects,<br />
and ProbabilityManagment.org<br />
provides ongoing guidance to<br />
GFOA research staff as well as<br />
assisting with developing our<br />
approach to conducting riskbased<br />
reserve assessments.<br />
GFOA also works with other organizations<br />
and is developing other partnerships<br />
to advance excellence in public finance<br />
and to increase the benefits available to<br />
GFOA members. We urge you to find out<br />
more about GFOA’s strategic partners and<br />
the benefits available to GFOA members<br />
at gfoa.org/strategic-partners.<br />
Sincerely,<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 9
REWIND<br />
rewind<br />
A look back at <strong>GFR</strong> in June 1990<br />
One way to improve<br />
revenues is to collect<br />
more of the taxes<br />
the government is<br />
owed. The idea isn’t<br />
to “nickel and dime”<br />
residents by aggressively going after<br />
small amounts they can’t afford, but to<br />
convince them to pay their fair share.<br />
The June 1990 issue of <strong>GFR</strong> tackled the<br />
underground economy of off-the-books<br />
economic activity in New York City.<br />
The campaign started in December<br />
1986 and aimed to recover part of the<br />
estimated $1 billion this kind of tax<br />
fraud was costing the city annually.<br />
The plan was straightforward, giving<br />
the Department of Finance additional<br />
tax auditors, investigators, collection<br />
agents, and support staff to initiate new<br />
enforcement projects or to enhance<br />
existing projects with new sources of<br />
information. The project would focus<br />
on unreported income from legitimate<br />
activities where the tax evasion of<br />
individuals or businesses was so<br />
blatant that it would allow for successful<br />
prosecution (leaving the illegal<br />
sector—drug sales, prostitution,<br />
illegal gambling—to the police).<br />
The underground economy program<br />
was made up of three major areas:<br />
computer matching, creation of<br />
specialized audit teams, and expansion<br />
of warrant collection. The city also<br />
made it easier for honest taxpayers to<br />
comply with its tax laws, answering<br />
more questions, resolving problems,<br />
and better educating and informing the<br />
public about their tax responsibilities.<br />
The program raised a significant<br />
amount of money, but the city felt that<br />
the compliance effect it produced was<br />
even more important: non-filers who<br />
had been caught were likely to continue<br />
filing returns in the future, which<br />
would continue to increase future city<br />
revenues. The city also reported an<br />
increased disenchantment with tax<br />
evasion, with more citizens expressing<br />
disgust instead of admiration. In other<br />
words, the program seemed to be<br />
convincing citizens that they needed<br />
to do the right thing.<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
10
In Brief<br />
GFOA COMMITTEES | FEDERAL UPDATE | MEMBER COMMUNITIES | GFOA SCHOLARSHIPS<br />
GFOA COMMITTEES The Committee on<br />
The committee is made up of 12<br />
Canadian Issues (CCI) is<br />
members and one advisor. Its cochairs<br />
are Catherine Brubacher,<br />
The Committee<br />
unique among GFOA’s<br />
standing committees.<br />
general manager of corporate<br />
on Canadian<br />
It is tasked with helping<br />
services and city treasurer, City<br />
of Brantford, Ontario; and Tanya<br />
Issues<br />
Garost, chief financial officer,<br />
District of Lake Country, British<br />
Columbia.<br />
BY KATE SOUTHARD<br />
AND CRAIG LESNER<br />
GFOA meet the needs of its Canadian<br />
members, giving the U.S.-based<br />
association’s staff the guidance<br />
and input needed to better serve<br />
its international members. Just<br />
as GFOA’s strategic roles shift to<br />
meet the ever-changing needs of its<br />
membership, CCI’s role also shifts as<br />
our Canadian members’ needs evolve<br />
over time. CCI’s members, however,<br />
are always guided by a shared and<br />
sustained desire for:<br />
1. Providing Canadian context and<br />
perspective,<br />
2. GFOA-sponsored training on<br />
Canadian-relevant issues, and<br />
3. A unified voice to help inform<br />
Canadian fiscal policy.<br />
Providing Canadian context<br />
and perspective<br />
There are more similarities than<br />
differences when it comes to public<br />
finance in the United States and<br />
Canada, but it is not always obvious<br />
where things diverge. GFOA’s<br />
resources are made stronger by the<br />
Canadian context and perspective<br />
provided by members of CCI.<br />
Committee members are local<br />
government employees who also<br />
participate in local and provincial<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 11
IN BRIEF<br />
The committee<br />
is exploring<br />
new avenues for<br />
strengthening<br />
GFOA’s impact<br />
in Canadian<br />
public finance.<br />
membership groups. They identify<br />
the resources and best practices that<br />
are applicable on both sides of the<br />
border and provide the terminology<br />
and context needed to make these<br />
critical resources useful for Canadian<br />
finance officers. With the committee’s<br />
input, GFOA is growing to serve and<br />
support Canadian public finance<br />
professionals—either directly,<br />
as GFOA members, or indirectly,<br />
through their association with one<br />
of our partner associations—with a<br />
more inclusive and broadly applicable<br />
library of materials.<br />
The committee is exploring new<br />
avenues for strengthening GFOA’s<br />
impact in Canadian public finance.<br />
CCI is considering new, Canadianspecific<br />
best practices, and is seeking<br />
out opportunities for joint research<br />
projects between GFOA and Canadabased<br />
peer organizations.<br />
The Canadian public finance<br />
officers who make up the<br />
committee also want to identify<br />
new networking opportunities<br />
that GFOA can facilitate among<br />
its Canadian members and their<br />
U.S.-based counterparts. We may<br />
be separated by miles/kilometres,<br />
but our goals are held in common:<br />
things like building resilient and<br />
thriving communities, striving<br />
for transparency and public<br />
engagement, and cultivating trust<br />
in public finance are not restricted<br />
by borders.<br />
GFOA-sponsored training on<br />
Canadian-relevant issues<br />
GFOA’s staff currently participates<br />
in Canadian associations’<br />
conferences (such as GFOA of British<br />
Columbia; Municipal Finance<br />
Officers Association of Ontario)<br />
and often speaks at local events.<br />
GFOA’s staff continues to work with<br />
provincial and regionally based<br />
local government membership<br />
associations to help identify<br />
the questions asked by local<br />
governments. These are always<br />
changing, but staff have recently<br />
spoken about GFOA’s ethics<br />
initiative and building up trust with<br />
the communities they serve. GFOA’s<br />
growing focus on asset management<br />
means that GFOA staff have worked<br />
to connect governments from<br />
across North America to learn<br />
from and make use of each other’s<br />
experience and advice on how<br />
to make better infrastructure<br />
investment decisions.<br />
CCI is also exploring the potential<br />
for adding a Canadian module to<br />
GFOA’s newly redesigned Certified<br />
Public Finance Officer (CPFO)<br />
professional certification program.<br />
This would help Canadian finance<br />
officers who wish to receive official<br />
recognition for their skillset, and it<br />
would also help local governments<br />
in Canada identify job candidates<br />
with the ability to foster thriving<br />
communities.<br />
A unified voice to help inform<br />
Canadian fiscal policy<br />
While it hasn’t historically been<br />
an area of focus, CCI recognizes<br />
the need for a unified voice across<br />
provinces in advocating for issues<br />
that affect local government<br />
finance in Canada. With CCI<br />
helping to identify opportunities,<br />
GFOA and the committee can<br />
build relationships with peer<br />
organizations, provincial<br />
associations, media, and academia<br />
to create opportunities to advocate<br />
at the federal level about issues<br />
that affect local government<br />
finance.<br />
In 2020, GFOA partnered with the Canadian Network of Asset Managers<br />
to help build and support the Asset Management Competency Framework<br />
for Canadian Communities. The 12 competencies provide guidance for<br />
how to implement an asset management program for your organization.<br />
More information, including the full framework, can be downloaded at<br />
gfoa.org/materials/cnam-framework.<br />
12
The Committee on Governmental<br />
Budgeting and Fiscal Policy<br />
BY JOHN FISHBIEN<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
GFOA’s Committee on<br />
Governmental Budgeting<br />
and Fiscal Policy advises<br />
and guides GFOA<br />
best practices and<br />
recommendations on a range of topics<br />
related to the budget process, financial<br />
policies, and budget presentation. The<br />
Budget Committee also provides advice<br />
on broader financial management<br />
topics. The committee has 25 active<br />
members, two ex-officio members, five<br />
advisors, and two GFOA support staff<br />
members. The committee is chaired<br />
by Scott Huizenga, director, Office of<br />
Management and Budget for the City<br />
of San Antonio, Texas. Its vice-chair is<br />
Judith Marte, chief financial officer,<br />
Broward County School Board, Florida.<br />
Committee members have a diversity<br />
of experiences and organizations that<br />
provide a well-rounded perspective<br />
in developing guidance for GFOA<br />
members and beyond and makes<br />
for interesting discussion at the<br />
committee’s twice-annual meetings.<br />
Best Practices<br />
The 35 best practices the committee<br />
has developed or been actively<br />
involved in are organized in four<br />
major categories: budget policies,<br />
budget process, budget document,<br />
and monitoring and performance<br />
management. These documents are<br />
meant to serve as checklists and<br />
practical advice that government<br />
professionals can use to evaluate<br />
current policies and processes.<br />
The committee is working on a new<br />
best practice on budgetary control,<br />
being developed jointly with the<br />
Accounting, Auditing, and Financial<br />
Reporting Committee. Some of the key<br />
items to be covered include: the intent<br />
of budget controls; primary methods<br />
for modifying budgets, including<br />
budget transfers and amendments;<br />
a system for implementing budgetary<br />
Measuring the cost of government services<br />
is useful for a variety of purposes, including<br />
performance measurement, comparative<br />
analysis, grant administration, disaster<br />
recovery cost documentation, establishing<br />
government charges and fees, and<br />
evaluating service delivery alternatives.<br />
controls; the inclusion of budgetary<br />
controls in financial policies; position<br />
control mechanisms; how changes are<br />
requested and who can make them; and<br />
movement to other classifications.<br />
Another best practice the committee<br />
is working on with the Accounting,<br />
Auditing, and Financial Reporting<br />
Committee involves measuring the<br />
full cost of government services.<br />
Measuring the cost of government<br />
services is useful for a variety of<br />
purposes, including performance<br />
measurement, comparative analysis,<br />
grant administration, disaster recovery<br />
cost documentation, establishing<br />
government charges and fees, and<br />
evaluating service delivery alternatives.<br />
Cost data can be extremely useful<br />
in identifying situations where<br />
governments should evaluate service<br />
delivery alternatives. The full cost of<br />
a service encompasses all direct and<br />
indirect costs related to that service.<br />
A third best practice, which will be<br />
going to GFOA’s Executive Board<br />
for approval, is Communicating<br />
the Budget. The traditional way<br />
of communicating the budget<br />
has focused on producing a large<br />
budget document. However,<br />
through newer technologies and<br />
better understanding of citizens’<br />
needs related to understanding<br />
budget information, better<br />
methods have emerged.<br />
Communication strategies are<br />
always evolving, and a budget<br />
communications plan should<br />
include outreach for different<br />
audiences and diverse approaches.<br />
Finance officers need to find<br />
methods of communicating the<br />
budget processes, performance<br />
measures, and outcomes and<br />
results that engage stakeholders<br />
in ways that are natural to their<br />
communication styles.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 13
IN BRIEF<br />
FEDERAL UPDATE<br />
Coronavirus State and Local Fiscal Recovery Funds:<br />
GFOA Guiding Principles<br />
BY MEHREEN HAROON<br />
A<br />
year and a half into the<br />
COVID-19 pandemic, the<br />
devastating public health<br />
and economic impact<br />
has been felt nationwide.<br />
While the CARES Act launched the<br />
Coronavirus Relief Fund (CRF) in early<br />
2020 to provide immediate assistance<br />
for state and local governments in<br />
responding to the growing emergency,<br />
the American Rescue Plan Act of <strong>2021</strong><br />
(the ARPA, passed in March <strong>2021</strong>)<br />
contained the important Coronavirus<br />
State and Local Fiscal Recovery Fund<br />
(CSLFRF), which shifted the focus of<br />
the federal funds toward providing<br />
response and recovery efforts. GFOA<br />
has provided some guiding principles<br />
for recipients to consider in using the<br />
new CSLFRF funds.<br />
It’s temporary<br />
While the covered period for using<br />
the CSLFRF funds goes far beyond<br />
the strict timeframe that had been<br />
set for the CRF, it’s still a temporary<br />
measure. The funds are nonrecurring<br />
and would be best used for<br />
expenditures that are also primarily<br />
non-recurring and for areas that<br />
require urgent assistance because<br />
of the pandemic. Examples include<br />
stabilizing households and businesses<br />
or providing immediate assistance<br />
to hard-hit industries such as travel,<br />
tourism, and hospitality.<br />
Recipients that are considering<br />
creating new programs or adding<br />
to existing programs that require<br />
an ongoing financial commitment<br />
need to determine in advance how<br />
the program will be funded when<br />
the CSLFRF expires. This doesn’t<br />
mean, however, that governments<br />
shouldn’t consider investments in<br />
long-term projects. Investments in<br />
critical infrastructure (as permitted<br />
within the eligible uses) should be<br />
given high priority because they would<br />
provide an ongoing benefit, especially<br />
when aligned with any pre-existing<br />
objectives. Recipients just need to keep<br />
the ongoing operating costs in mind.<br />
You might want to find a partner<br />
Communication at the state and<br />
local level is critical when applying<br />
federal funds toward services shared<br />
by residents. The glaring disconnect<br />
across different levels of governments<br />
stands as a crucial lesson to learn from<br />
as the public health emergency comes<br />
closer to the end, and partnership<br />
efforts can greatly assist in alleviating<br />
much of the existing burden.<br />
The rollout of the CSLFRF is a new<br />
opportunity for finance officials to take<br />
advantage of the additional flexibility<br />
added to the program’s eligible<br />
expenditures. Examples include a<br />
broad use of allowable spending on<br />
government service (to the extent of<br />
revenue loss) and planning for taking<br />
on larger infrastructure projects.<br />
Recipients have a range of areas with<br />
the potential to overlap in community<br />
efforts; therefore, governments should<br />
check for plans that include CSLFRF<br />
funds at all levels within the state,<br />
especially infrastructure projects.<br />
The Treasury encourages such<br />
collaborations in certain contexts, as<br />
stated in the Interim Final Rule on<br />
broadband infrastructure: “Treasury<br />
also encourages recipients to prioritize<br />
14
support for broadband networks<br />
owned, operated by, or affiliated<br />
with local governments, nonprofits,<br />
and co-operatives—providers with<br />
less pressure to turn profits and<br />
with a commitment to serving entire<br />
communities” (IFR, p. 21).<br />
Allowing for greater access to critical<br />
services is essential during this time<br />
of economic recovery. The IFR takes<br />
special note of aiding low-income and<br />
socially vulnerable communities;<br />
partnering with neighboring<br />
recipients could elevate the quantity<br />
and overall reach of services across<br />
communities. For example, an eligible<br />
use of funds noted in the IFR includes<br />
“housing navigation assistance<br />
to facilitate household moves to<br />
neighborhoods with high levels of<br />
economic opportunity and mobility<br />
for low-income residents, to help<br />
residents increase their economic<br />
opportunity and reduce concentrated<br />
areas of low economic opportunity”<br />
(IFR, p. 37). Recipients partnering<br />
for specific causes such as increasing<br />
opportunities for their lower-income<br />
populations could do more for their<br />
jurisdiction’s economic development<br />
than the entities could do separately.<br />
Don’t rush your decisions<br />
CSLFRF funding is divided into two<br />
tranches over the covered period of the<br />
program, which, with a few exceptions,<br />
runs from March 3, <strong>2021</strong>, through<br />
December 31, 2024. Spending plans<br />
must be created and executed within<br />
this timeframe to enhance their overall<br />
budgetary and financial stability.<br />
Recipients should avoid rushed<br />
decisions about using the funds and,<br />
if possible, use alternate sources<br />
of funding first. This would save<br />
the federal funding for recovery<br />
initiatives that might be more relevant<br />
to the CSLFRF and would typically<br />
be ineligible under other assistance<br />
programs.<br />
Guiding principles of other<br />
ARPA programs<br />
Emergency Rental Assistance<br />
Program (ERA). The ARPA established<br />
a number of other programs to<br />
help state and local governments,<br />
and GFOA’s guiding principles can<br />
be of benefit with them as well.<br />
The ERA, which received an<br />
additional $25.55 billion under the<br />
ARPA, provides funding to support<br />
households that are unable to pay<br />
rent or utilities. This is also a limitedterm<br />
program—ending September<br />
30, 2025—and using ERA funding<br />
requires the same timing and careful<br />
consideration as the CSLFRF funds<br />
because the program gives priority to<br />
Investments in<br />
critical infrastructure<br />
(as permitted<br />
within the eligible<br />
uses) should be<br />
given high priority<br />
because they would<br />
provide an ongoing<br />
benefit, especially<br />
when aligned with<br />
any pre-existing<br />
objectives.<br />
programs that would assist vulnerable<br />
households with rent and utility costs.<br />
The Treasury also encourages<br />
partnership opportunities for the ERA<br />
that align with the guiding principle<br />
on partnering efforts. According to the<br />
program’s frequently asked questions<br />
section, recipients are encouraged<br />
to “develop partnerships with courts<br />
in their jurisdiction that adjudicate<br />
evictions for nonpayment of rent to help<br />
prevent evictions and develop eviction<br />
diversion programs.” Expanding<br />
outreach information about the ERA<br />
assistance program with court<br />
officials, legal services, and other<br />
housing stability services are steps<br />
grantees of the program can take<br />
to prevent evictions for nonpayment<br />
of rent.<br />
The Low-Income Housing Water<br />
Assistance Program (LIHWAP). The<br />
LIHWAP received an additional $500<br />
million in emergency funding under<br />
the ARPA. The deadline for obligating<br />
funds is September 30, 2023, and<br />
they are to be expended by December<br />
31. Grantees of the program—<br />
primarily states, territories, and<br />
tribes—may take their time and<br />
consider carefully when obligating<br />
the funding, particularly because<br />
LIHWAP funds give high priority<br />
to households that have the lowest<br />
incomes and pay a high proportion of<br />
household income for drinking water<br />
and wastewater services. As funding<br />
will flow through state, territorial,<br />
and tribal governments to local<br />
housing and community services<br />
departments, enhancing partnership<br />
efforts is strongly recommended as it<br />
will encourage a more collaborative<br />
approach between the grantees<br />
and subrecipients when funds are<br />
distributed throughout vulnerable<br />
communities.<br />
Conclusion<br />
As finance officials develop their<br />
spending plans, the CSLFRF, ERA, and<br />
LIHWAP funds will generate some<br />
important assessments and choices.<br />
The federally funded programs<br />
provide a great opportunity to recover<br />
from the public health emergency<br />
and to rebuild economic stability<br />
within communities. GFOA’s guiding<br />
principles lay out a broad framework<br />
to help you strengthen your strategic<br />
decision-making for short-term and<br />
long-term investments.<br />
Mehreen Haroon is a federal policy<br />
associate at GFOA.<br />
1<br />
Department of the Treasury, 31 CFR Part 35,<br />
the “Interim Final Rule” for Coronavirus State<br />
and Local Fiscal Recovery Funds. (govinfo.gov)<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 15
IN BRIEF<br />
Reaching Out:<br />
GFOA’s<br />
New Member<br />
Community<br />
BY TIMOTHY MARTIN<br />
When Mikaela<br />
Rhoads, internal<br />
auditor for the<br />
City of Iowa<br />
City, Iowa, had<br />
a question about how to handle the<br />
city’s grants management process,<br />
she turned to GFOA’s new Member<br />
Community. Within a few days, she<br />
had responses from members across<br />
the country, offering input and sharing<br />
their policies. Mikaela is just one of<br />
many GFOA members who have joined<br />
the new community to network with<br />
their peers, and this is exactly the kind<br />
of engagement we were hoping for when<br />
we launched the platform back in April.<br />
I’ll talk more about communities in a<br />
moment, but first, we need to talk about<br />
the beginning of GFOA’s new digital<br />
journey—which really began more<br />
than two years ago, when we decided to<br />
overhaul the new GFOA website.<br />
All about the website<br />
By overhaul, I mean building from<br />
the ground up, not just throwing in a<br />
new template. As the process began,<br />
website consultants met with GFOA<br />
members face-to-face to get a good<br />
understanding of what they thought<br />
about our old site, why they visit, and<br />
what they would change. GFOA also<br />
dove into the data from the old website<br />
to see what the numbers showed. One<br />
clear theme emerged. While the old site<br />
was filled with important and useful<br />
information for members—like best<br />
practices and research—important<br />
connections were missing, which left<br />
visitors sometimes missing out.<br />
From there, GFOA’s new Materials<br />
Library was born. When the new<br />
gfoa.org launched in June 2020, it<br />
quickly became a popular feature. The<br />
library allows members to browse<br />
best practices, publications, research<br />
reports, past articles from Government<br />
Finance Review, and more by topic.<br />
We’ve also added member-only content<br />
to the library, with more on the way.<br />
Overall, the site gives GFOA new ways<br />
to bring you the latest information on<br />
public finance. The navigation at the<br />
top allows you to easily log into your<br />
member account, or browse the Events<br />
Calendar or Materials Library, or head<br />
to the new Member Community. Our<br />
drop-down navigation allows you to<br />
find membership information, best<br />
practices, advocacy updates, and<br />
more with just the click of a mouse.<br />
Need quick help? Use the “I Want To”<br />
16
BY THE NUMBERS<br />
3,331,090<br />
PAGEVIEWS<br />
GFOA’s new Materials Library<br />
allows members to search<br />
best practices, publications<br />
and research reports by topic.<br />
2,420,438<br />
UNIQUE PAGEVIEWS<br />
The member communities have provided me with<br />
the opportunity to learn how my peers respond<br />
to the accounting, managerial, and operating<br />
issues at their entities. Although we might work at<br />
different types of entities, I read posts which are<br />
quite relevant to the needs for my community.”<br />
– NORMAN ECKSTEIN, CHIEF FINANCIAL OFFICER & TAX COLLECTOR<br />
TOWNSHIP OF BOONTON<br />
drop-down menu to join GFOA and<br />
view resources such as the GFOA Job<br />
Board, register for training, apply to<br />
award programs, or ask about GFOA<br />
resources. Browse our front page to<br />
find GFOA’s latest updates in different<br />
display options, all designed to get you<br />
the information you need faster.<br />
The website’s first year has been a<br />
success. We’ve had more than three<br />
million page views, and more than 50<br />
percent of visitors scroll all the way<br />
down on the homepage. Other popular<br />
pages include the Jobs Board, Events<br />
Calendar, and awards programs.<br />
GFOA’s website was also built with<br />
considerations for integration.<br />
Members enjoy single sign-on<br />
capabilities between GFOA’s website,<br />
association management system,<br />
and Learning Management System<br />
(LMS). GFOA’s new LMS hosts GFOA<br />
webinars, e-learning courses, and the<br />
virtual conference and since its launch<br />
last summer has already been used by<br />
over 17,000 people.<br />
Member Communities<br />
Now back to communities. GFOA<br />
isn’t just working to build thriving<br />
communities across the country—<br />
we’re working to do it online as well.<br />
Members were continuously asking<br />
for a new way to connect with other<br />
members, and in April <strong>2021</strong>, after<br />
months of planning, GFOA answered<br />
the call with the new GFOA Member<br />
Communities. This online engagement<br />
portal allows members to join forums,<br />
ask questions, upload documents,<br />
network with other members, and<br />
more. Members use the platform to<br />
HOW DO MEMBERS<br />
COME TO OUR WEBSITE?<br />
HOW FAR ARE MEMBERS<br />
SCROLLING ON THE HOMEPAGE?<br />
25% OF<br />
THE PAGE<br />
48%<br />
Organic search<br />
36%<br />
Directly by typing gfoa.org<br />
9%<br />
From an email<br />
4%<br />
From another website<br />
100% 73% 61%<br />
90% OF<br />
THE PAGE<br />
50% OF<br />
THE PAGE<br />
57% 38%<br />
100% OF<br />
THE PAGE<br />
75% OF<br />
THE PAGE<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 17
IN BRIEF<br />
TOP 10 PAGES<br />
#1<br />
Home page<br />
352,924 PAGEVIEWS<br />
#2 Jobs<br />
117,797 PAGEVIEWS<br />
#3<br />
#4<br />
#5<br />
Events Calendar<br />
94,311 PAGEVIEWS<br />
Materials Library<br />
71,588 PAGEVIEWS<br />
COA Award<br />
43,221 PAGEVIEWS<br />
#6 Conference<br />
43,033 PAGEVIEWS<br />
#7 CPFO<br />
34,491 PAGEVIEWS<br />
#8<br />
#9<br />
#10<br />
Budget Award<br />
32,137 PAGEVIEWS<br />
Best Practices landing page<br />
26,998 PAGEVIEWS<br />
GFOA Scholarships<br />
23,420 PAGEVIEWS<br />
build a network to help with everyday<br />
challenges in the public finance<br />
world. Since its launch, more than<br />
2,400 members have logged into the<br />
platform. Nearly 1,000 members<br />
have joined the General GFOA Forum,<br />
a place for members to discuss a wide<br />
range of finance topics. The COVID-19<br />
Forum has more than 700 members<br />
who talk about the challenges of the<br />
pandemic and brainstorm ways to<br />
spend new funding from Washington<br />
D.C. Communities have also been set<br />
up for members of GFOA’s affinity<br />
groups and for CPFOs.<br />
We’re also launching new communities<br />
that allow members to take their ideas<br />
a step further. In July, we kicked off<br />
the GFOA Test Kitchen Community<br />
for members who are interested in<br />
developing and testing new ideas<br />
and practices. While engaging with<br />
GFOA staff from the Research and<br />
Consulting Center in the community,<br />
the idea is to challenge the status quo,<br />
breakdown myths, cultivate and refine<br />
raw thoughts, and move beyond “this is<br />
the way we’ve always done it” to begin<br />
thinking about ways to evolve public<br />
finance for the future.<br />
This platform is free—it comes with<br />
your GFOA membership. To access<br />
it, just visit community.gfoa.org and<br />
log in with your GFOA username and<br />
password.<br />
On the social front, GFOA continues<br />
keeping members up to date every day<br />
through Facebook, Twitter, LinkedIn,<br />
and now Instagram. Combined, our<br />
accounts have more than 36,000<br />
followers—that’s triple the number of<br />
followers we had just four years ago.<br />
Understanding that members consume<br />
information at different times and<br />
through various mediums, we’ve also<br />
launched GFOA Podcasts. You can<br />
subscribe on iTunes or wherever you<br />
listen to podcasts. Topics include Week<br />
in Washington updates and episodes<br />
about leadership, trust, diversity, and<br />
inclusion.<br />
With all the new digital enhancements<br />
over the last year, we still see this as<br />
the beginning of a journey, and we look<br />
forward to continuing to improve and<br />
enhance the ways in which we provide<br />
information and engage with members.<br />
Timothy Martin is GFOA’s senior<br />
manager for member engagement.<br />
A side-by-side comparison of the gfoa.org home<br />
page in 2020 and <strong>2021</strong> during GFOA’s Virtual<br />
Conference. The home page was transformed for<br />
this year’s conference, with real time updates, an<br />
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18
SPOTLIGHT ON:<br />
GFOA’s <strong>2021</strong> Scholarship Recipients<br />
BY GENEVIEVE CARTER<br />
©<strong>2021</strong> DAVIDE BONAZZI C/O THEISPOT.COM<br />
Each year, GFOA is proud to<br />
award more than $100,000<br />
in academic scholarships<br />
to students from across the<br />
country who are interested in<br />
pursuing careers in government<br />
finance. These students are at<br />
all stages of their education<br />
and careers, but they share a<br />
passion for local government.<br />
This year, we asked our <strong>2021</strong><br />
academic scholarship recipients<br />
a few questions about their<br />
goals for the coming year.<br />
Here’s what they had to say.<br />
JUSTIN CASANOVA-DAVIS<br />
The recipient of the $20,000<br />
Goldberg-Miller Public<br />
Finance Scholarship is Justin<br />
Casanova-Davis.<br />
Justin has been the assistant town<br />
administrator for the Town of Brookline,<br />
Massachusetts since October 2018.<br />
Before that, he was a principal budget<br />
analyst for the City of Cambridge,<br />
Massachusetts, Budget Department.<br />
He holds a bachelor’s degree in<br />
political science from Boston College<br />
and a Suffolk Graduate Certificate in<br />
Local Government, Leadership, and<br />
Management. Justin is seeking a Master<br />
of Public Administration degree at<br />
Suffolk University and will graduate in<br />
winter <strong>2021</strong>.<br />
A CHAT WITH JUSTIN<br />
Why did you choose to study<br />
public administration?<br />
I am passionate about public service.<br />
Suffolk has a tremendous program,<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 19
IN BRIEF<br />
SPOTLIGHT ON; GFOA’s <strong>2021</strong> Scholarship Recipients<br />
I’m passionate<br />
about the work<br />
that I do, and<br />
I have been<br />
preparing for<br />
the next step<br />
in my career —<br />
becoming a<br />
city or town<br />
manager.”<br />
– JUSTIN CASANOVA-DAVIS<br />
and I want to continue developing and<br />
acquiring additional skills that will<br />
help me be a better leader and public<br />
servant during my career.<br />
What are your career goals?<br />
I’m passionate about the work that I<br />
do, and I have been preparing for the<br />
next step in my career, becoming a<br />
city or town manager. I ultimately<br />
want to become an ICMA Credentialed<br />
Manager, which in my estimation,<br />
exemplifies a high standard of integrity<br />
and capability as a manager. Most<br />
importantly, I want to serve as a mentor,<br />
encouraging people to pursue careers in<br />
municipal government. I’m passionate<br />
about this mission, particularly about<br />
working on efforts to increase diversity<br />
within our profession.<br />
How will the scholarship you received<br />
help you achieve those goals?<br />
I am profoundly grateful and honored<br />
by the investment in my professional<br />
development by the Girard Miller<br />
Foundation and GFOA. This scholarship<br />
will allow me to complete my Master’s<br />
in Public Administration this fall and<br />
help me achieve my career goals. Part of<br />
any academic program has a financial<br />
burden. This scholarship will help me<br />
further my education and allow me to<br />
continue to grow and enhance my skills<br />
to be an even better public servant.<br />
EMMA BRANDT<br />
Emma is one of two recipients<br />
of the Frank L. Greathouse<br />
Government Accounting<br />
Scholarship; she will receive<br />
$10,000.<br />
Emma is the finance officer for the<br />
Lapeer County Road Commission in<br />
Lapeer, Michigan. Before that, she<br />
was the assistant finance officer for<br />
Lapeer County Health Department,<br />
and she’s also been the records<br />
clerk for the Lapeer County Sheriff’s<br />
Office. Emma holds a Bachelor of Arts<br />
degree in business administration<br />
from Baker College and is pursuing a<br />
Master of Business Administration<br />
degree with an accounting emphasis<br />
from the University of Southern<br />
Indiana; she will graduate in June<br />
<strong>2021</strong>. Since July 2019, Emma has<br />
volunteered as a coordinator for the<br />
Sheriff’s Office Victim Service Unit,<br />
where she helps respond to families<br />
that have lost a loved one to an<br />
unexpected death in Lapeer County.<br />
A CHAT WITH EMMA<br />
Why did you choose this field?<br />
I chose this field when I was a<br />
freshman in high school, after my<br />
first finance class. I am passionate<br />
about accounting and management.<br />
What are your career goals?<br />
My future career goals right now<br />
are to become CFO of Lapeer County.<br />
I also have my eyes on management.<br />
How will the scholarship you<br />
received help you achieve those<br />
goals?<br />
It will help me finish my current<br />
master’s degree, and with the<br />
scholarship, I plan to get a Master<br />
of Public Administration degree.<br />
Not only does this scholarship help<br />
me reach my career goals, but I will<br />
graduate 100 percent debt-free!<br />
CONNIE HO<br />
Connie received the $10,000<br />
Minorities in Government<br />
Finance Scholarship.<br />
Connie Ho has been senior public<br />
affairs specialist at the Irvine<br />
Ranch Water District in California<br />
since April 2017. Connie is also a<br />
2020 Popular Annual Financial<br />
Reporting Fellow. Connie holds<br />
dual Bachelor of Arts degrees<br />
in English and International<br />
Studies through the University<br />
of California at Irvine, and she<br />
is pursuing a Master of Public<br />
Administration degree from<br />
California State University at<br />
Long Beach, with plans to graduate<br />
in June 2022.<br />
A CHAT WITH CONNIE<br />
Why did you choose to pursue<br />
an MPA?<br />
I am looking forward to taking<br />
classes related to public<br />
administration and government<br />
finance. These courses will focus<br />
on strategy, innovation, and<br />
leadership, providing students<br />
with an opportunity to discuss<br />
ways in which new ideas can<br />
be generated, evaluated, and<br />
implemented. The program’s<br />
guiding principles are serving the<br />
public good, advancing democracy,<br />
promoting social justice, and<br />
promoting diverse communities.<br />
20
What is your current job like, and<br />
where do you hope to work in the<br />
future?<br />
I have worked with the finance team<br />
at a special district to ensure that the<br />
website’s finance center webpage has<br />
the most up-to-date information about<br />
audits, statements, and financial<br />
reports. As a graduate student, I helped<br />
a local city government develop its<br />
popular annual financial report and<br />
learned how to research demographic<br />
information and numbers related to<br />
the local area to provide readers with<br />
more context on the essential work<br />
done during the COVID-19 pandemic.<br />
In these roles, I have been able to put to<br />
practice GFOA’s Code of Professional<br />
Ethics to strengthen trust with<br />
the public, modeling the values of<br />
integrity, honesty, and openness while<br />
displaying an appreciation of new<br />
information or ideas that continue the<br />
safety and vitality of the organization.<br />
What are your career goals?<br />
A short-term goal is to receive a<br />
master’s degree to enhance my<br />
public administration and business<br />
administration skills. Long-term<br />
goals would be to work in a project<br />
management role, focusing on<br />
community partnerships to make<br />
the most impact with staff and the<br />
community, and to work on rebuilding<br />
trust in local government.<br />
How will the scholarship you<br />
received help you achieve your<br />
goals?<br />
I appreciate GFOA’s support and am<br />
so honored to be recognized in this<br />
year’s scholarship recipient cohort.<br />
Looking to the future, I plan to use<br />
my graduate coursework, along with<br />
my work experience, to help improve<br />
on the processes and procedures<br />
in government communication to<br />
continue cultivating and maintaining<br />
the public’s trust in government. Clear<br />
communication is a continual process<br />
with evolving possibilities, and I am<br />
excited for what the future holds.<br />
MEGAN LEE<br />
Megan Lee is one recipient<br />
of the three awards for<br />
the Jeffrey L. Esser Career<br />
Development Scholarship;<br />
she will receive $5,000.<br />
Megan is senior district office<br />
administrator for the North of River<br />
Sanitary District in Bakersfield,<br />
California. She is seeking a Bachelor<br />
of Business Administration degree<br />
from Columbia Southern University<br />
and expects to graduate in 2024.<br />
A CHAT WITH MEGAN<br />
Where are you working now, and<br />
where do you hope to work in the<br />
future?<br />
After completing my degree, my<br />
goal is to become a chief financial<br />
officer for a special district or local<br />
government agency.<br />
What are your career goals?<br />
With my BBA and my eight years<br />
of government finance, I plan to<br />
search for a finance manager or<br />
administrative manager position,<br />
leading to my ultimate goal of<br />
being chief financial officer of a<br />
government agency.<br />
How will the scholarship you<br />
received help you achieve<br />
those goals?<br />
It will help tremendously with<br />
the financial burden that college<br />
tuition creates and relieve the<br />
financial pressures, allowing me to<br />
focus exclusively on my studies.<br />
KALINA MENDEZ<br />
Kalina was one of two<br />
recipients of the Frank L.<br />
Greathouse Government<br />
Accounting Scholarship; she<br />
will receive $10,000.<br />
Kalina has been the supervisor of<br />
finance for the Waukegan Park District<br />
in Waukegan, Illinois since September<br />
2017, and she’s been with the park<br />
district since January 2015. Kalina<br />
holds both an Associate of Science<br />
degree in business administration and<br />
a Bachelor of Business Administration<br />
degree from Robert Morris University.<br />
She is seeking a Master of Science<br />
degree in accounting and financial<br />
management from DeVry University’s<br />
Keller Graduate School of Management<br />
and will graduate in May 2022.<br />
A CHAT WITH KALINA<br />
Why did you choose this program?<br />
It includes prep courses to help become<br />
a Certified Public Accountant, which I<br />
have always aspired to earn.<br />
What is your current job like, and<br />
where to you hope to work in the<br />
future?<br />
I have worked for my local park district<br />
for six years, and I love it. I look forward<br />
to staying in the parks and recreation<br />
world. It is very rewarding to work<br />
within your community, so I plan to<br />
stay for as long as I can.<br />
What are your career goals?<br />
After receiving my master’s degree,<br />
I plan to sit for my CPA exam, if I can’t<br />
take the different CPA exam sections<br />
immediately after the correlated prep<br />
course. Upon graduation, I look<br />
forward to moving into a management<br />
role within my local park district.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 21
IN BRIEF<br />
SPOTLIGHT ON; GFOA’s <strong>2021</strong> Scholarship Recipients<br />
It is very rewarding<br />
to work within<br />
your community,<br />
so I plan to stay for<br />
as long as I can.”<br />
– KALINA MENDEZ<br />
How will the scholarship<br />
you received help you achieve<br />
your goals?<br />
I am proud to receive one of the two<br />
Frank L. Greathouse Government<br />
Accounting Scholarships. It will<br />
help me immensely with my tuition,<br />
considering I am still paying toward<br />
my associate and bachelor’s degrees.<br />
Aside from the financial factor,<br />
the scholarship’s three-year GFOA<br />
membership, three complimentary<br />
trainings, and invitation to the Virtual<br />
Conference in July <strong>2021</strong> will provide<br />
me with significant opportunities<br />
for continued professional growth<br />
through training and networking.<br />
ANDRE MORRISON, JR.<br />
Andre received one of three<br />
Jeffrey L. Esser Career<br />
Development Scholarship<br />
awards; he will receive $5,000.<br />
Andre has worked with the City of<br />
Warrensville Heights, Ohio since 2015.<br />
He is seeking a Bachelor of Science<br />
degree in public administration from<br />
Southern New Hampshire University<br />
and plans to graduate in <strong>2021</strong>.<br />
ALEXANDER ROCHER<br />
Alexander was one of four<br />
recipients of the Government<br />
Finance Professional<br />
Development Scholarship;<br />
he will receive $10,000.<br />
Alexander is an accountant at<br />
the City of Plantation, Florida,<br />
where he’s worked since 2018.<br />
Before that, he worked for Broward<br />
County Parks and Recreation.<br />
Alexander holds a Bachelor of Art<br />
degree in business management<br />
from the University of Central<br />
Florida, and he is pursuing a<br />
Master of Science degree in<br />
Public Accounting from Nova<br />
Southeastern University, which he<br />
will complete in winter <strong>2021</strong>.<br />
A CHAT WITH ALEXANDER<br />
Why did you choose public<br />
accounting?<br />
I knew that I wanted to remain in<br />
governmental accounting for the<br />
rest of my professional career.<br />
What are your career goals?<br />
I would like to use my degree and<br />
experience to someday become<br />
a finance/accounting director or<br />
comptroller of a city.<br />
How will the scholarship<br />
you received help you achieve<br />
your goals?<br />
This scholarship will allow me to<br />
finish my program, which will<br />
afford me the additional training<br />
and knowledge needed to progress<br />
in my professional career.<br />
ELIZABETH WHITT<br />
ELIZABETH WHITT<br />
Elizabeth received one of three<br />
Jeffrey<br />
Elizabeth<br />
L. Esser<br />
received<br />
Career<br />
one<br />
Development<br />
of<br />
Scholarship<br />
three Jeffrey L. Esser Career<br />
Development Scholarship<br />
awards; she will receive $5,000.<br />
awards; she will receive $5,000.<br />
Elizabeth has worked with Northwest<br />
Local School District in Ohio as an<br />
accounting supervisor since 2014. She<br />
will complete a Bachelor of Business<br />
Administration degree at Liberty<br />
University in December <strong>2021</strong>.<br />
Elizabeth participates in several<br />
finance organizations including<br />
GFOA and the Ohio GFOA.<br />
A CHAT WITH ELIZABETH<br />
What are your career goals?<br />
After I complete my degree, I will<br />
be obtaining my school treasurer’s<br />
license. My career goals are to<br />
become an assistant treasurer and<br />
eventually transition to a school<br />
treasurer position.<br />
BRANDON SAUNDERS<br />
BRANDON SAUNDERS<br />
Brandon is one of four<br />
Brandon is one of four recipients<br />
recipients of the Government<br />
of the Government Finance<br />
Finance Professional<br />
Professional Development Scholarship;<br />
Development Scholarship;<br />
he will receive $10,000.<br />
he will receive $10,000.<br />
Brandon has been an assistant<br />
regional supervisor and senior exam<br />
staff for the Texas Office of Consumer<br />
Credit Commissioner since May<br />
2016. He has more than a decade<br />
of experience in highly regulatory<br />
environments and government,<br />
supporting risk, compliance, and audit<br />
functions. Brandon holds a Bachelor<br />
of Science degree in finance from<br />
Southeastern Louisiana University<br />
22
and has certificates in Management<br />
Development and Project<br />
Management from the LBJ School<br />
of Public Affairs at the University<br />
of Texas at Austin. Brandon is<br />
pursuing a Master of Business<br />
Administration degree with a<br />
project management specialization<br />
from Louisiana State University,<br />
and he plans to graduate in 2022.<br />
A CHAT WITH BRANDON<br />
Why did you choose to specialize<br />
in project management?<br />
I’ve always had a natural ability<br />
and interest in ensuring that<br />
projects run efficiently. Project<br />
managers help organizations<br />
improve efficiency, and in times<br />
where we are asked to do more<br />
with less, effective resource<br />
management is paramount.<br />
Tell us about your job.<br />
Each day in my role is different,<br />
from developing new staff members<br />
to assisting in agency planning. I<br />
embrace the challenge and growth<br />
from every new task within my role.<br />
What are your career goals?<br />
My future career goals include<br />
continuing to serve as an<br />
organizational resource while<br />
managing projects and people in<br />
financial regulation, compliance,<br />
and consumer protection. I’m<br />
confident that my government<br />
experience thus far will help me<br />
accomplish my professional goals.<br />
How will the scholarship you won<br />
help you achieve those goals?<br />
It will reduce the financial burden<br />
of the current graduate program I<br />
am taking, as well as allowing me<br />
to have the money needed to obtain<br />
and train for other developmental<br />
certifications.<br />
BRENDA WILLIAMS<br />
Brenda Williams is one is one of of four four<br />
recipients of of the the Government Finance<br />
Professional Finance Professional Development Scholarship;<br />
she Development will receive $10,000. Scholarship;<br />
she will receive $10,000.<br />
Brenda has served as deputy treasurer<br />
in the Unclaimed Property Division for<br />
the North Carolina Department of State<br />
Treasurer in Raleigh, North Carolina<br />
since 2013. She holds a Bachelor of Arts<br />
degree in communications from UNC-<br />
Chapel Hill and a certificate in Public<br />
Executive Treasury Management from<br />
the National Institute of Public Finance.<br />
Brenda will complete her Master of<br />
Business Administration from the<br />
University of North Carolina, Kenan-<br />
Flagler Business School this year.<br />
A CHAT WITH BRENDA<br />
What are your career goals?<br />
Upon graduation, I plan to continue<br />
my service within state government.<br />
I intend to use the knowledge I gained<br />
through the MBA program to have<br />
a broader impact on the efficiency<br />
and effectiveness of programs and<br />
services provided to the public.<br />
JESSICA TAPIA<br />
Jessica is one of four recipients<br />
of the four awards for the<br />
Government Finance Professional<br />
Development Scholarship; she<br />
will receive $10,000.<br />
Jessica Tapia started as senior<br />
accountant at the Village of Lake<br />
Zurich, Illinois in June <strong>2021</strong>. Before<br />
that, she was an accountant with the<br />
Village of Barrington, Illinois; she has<br />
also worked with the McHenry County<br />
Probation and Court Services as a<br />
court specialist in the Circuit Clerk’s<br />
office and then as a court monitoring<br />
program coordinator for the Probation<br />
Department. She holds a Bachelor of<br />
Business Administration degree from<br />
Elmhurst University and will complete<br />
her Master of Business Administration<br />
degree in December <strong>2021</strong>.<br />
A CHAT WITH JESSICA<br />
Why did you choose to pursue a<br />
master’s degree?<br />
I have a passion for continuous learning<br />
and a quest for more knowledge.<br />
What are your career goals?<br />
The first full-time position I held after<br />
graduating high school was as a court<br />
specialist, and I’ve remained in the<br />
public sector ever since. The experience<br />
of working in government, along<br />
with my undergraduate accounting<br />
coursework, ultimately led me to the<br />
financial public-sector career path. My<br />
goal is to one day be a finance director<br />
for a municipality, and completing an<br />
MBA is an essential part of that role.<br />
How will the scholarship you<br />
received help you achieve those<br />
goals?<br />
This scholarship provides me with<br />
the resources I need to finish a degree<br />
that will further develop the skills<br />
I need to become a financial leader.<br />
Genevieve Carter is a senior<br />
consultant in GFOA’s Research<br />
and Consultant Center.<br />
GFOA SCHOLARSHIPS<br />
GFOA Academic Scholarship<br />
applications open in October<br />
of each year. If you are interested<br />
in one of our scholarships,<br />
please visit gfoa.org/scholarships<br />
for more information.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 23
24
STATE BANKS<br />
Is a State Bank a Useful<br />
Economic Development Tool?<br />
BY ROBERT S. CHIRINKO<br />
LESSONS FROM PRIOR PUBLIC BANKING EXPERIENCES<br />
©<strong>2021</strong> DAN PAGE COLLECTION C/O THEISPOT.COM<br />
Healthy banks and a robust<br />
economy tend to go hand in<br />
hand. Banks perform three<br />
basic tasks—creating money,<br />
facilitating transactions, and<br />
allocating credit—that are<br />
essential for a well-functioning<br />
economy. But there has been<br />
a longstanding concern as<br />
to whether private banks<br />
operating in private markets<br />
are serving the public interest.<br />
So far in <strong>2021</strong>, four states have<br />
introduced legislation to create<br />
a state bank, and in 2019,<br />
similar legislation was enacted<br />
in the State of California for<br />
municipal banks. This concern<br />
has been amplified by the<br />
disproportionate economic<br />
impact the COVID-19 pandemic<br />
has had on small businesses.<br />
The Bank of North Dakota is a public<br />
bank that has been in existence for<br />
more than 100 years, and it is held by<br />
many as the prototype of a successful<br />
state bank. The states of Massachusetts<br />
and Illinois explored starting a state<br />
bank in 2010, and five states very<br />
recently introduced public bank<br />
legislative initiatives. Furthermore,<br />
public banks have been active in many<br />
countries outside the United States.<br />
Three states that had examined the<br />
merits of introducing a state bank—<br />
Vermont (2010), Maine (2011), and<br />
Hawaii (2012)—are not included in<br />
this review. Oregon (2010) is left out<br />
because the initiatives are somewhat<br />
dated and not as consequential as the<br />
others. Lastly, American Samoa has a<br />
state/territorial bank, but the island’s<br />
size and unique location suggest that<br />
its experience will not be instructive<br />
for, say, the State of Illinois.<br />
Bank of North Dakota, 1919<br />
The Bank of North Dakota (BND), the<br />
only state bank in the United States,<br />
was founded in 1919. At this time,<br />
agriculture was the dominant sector<br />
in North Dakota’s economy, and<br />
there was concern that the farmers<br />
were being exploited by out-of-state<br />
grain dealers, farm suppliers, and<br />
Chicago, Minneapolis, and New<br />
York banks. The BND was created<br />
to protect the farmers from these<br />
exploitive practices, caused by a lack<br />
of competition.<br />
The bank’s risk is borne by the State<br />
of North Dakota, “doing business as”<br />
the BND. Should the bank become<br />
financially distressed, all state assets<br />
would be vulnerable for providing<br />
financial support, especially since<br />
the deposits are not FDIC insured.<br />
But the bank’s funding model is<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 25
STATE BANKS<br />
2.1%<br />
Bank<br />
of North Dakota’s return on assets<br />
(compared to 1.6% for federally chartered<br />
banks and 1.3% for state-chartered banks)<br />
Founded in 1919, BND is the only state bank<br />
in the country. The original headquarters in<br />
downtown Bismarck, above, was torn down<br />
and replaced by a new building in 2008.<br />
one of the reasons for its success: the<br />
BND is the depository for all state tax<br />
collections and fees. “And I would bet<br />
that that would be one of the most<br />
difficult things to wrestle away from<br />
the private sector—those opportunities<br />
to bid on public funds,” said former<br />
president and chief executive officer<br />
Eric Hardmeyer. In light of this, along<br />
with the concern that it would compete<br />
with private banks, the BND has<br />
maintained only one office (in the<br />
City of Bismarck). It also now has<br />
satellite lending offices in three<br />
North Dakota cities.<br />
The other key element of success<br />
is the bank’s lending policy, which<br />
has changed focus over time: farms<br />
and municipalities (in the 1930s),<br />
managing state investments and<br />
servicing local banks (in the 1940s<br />
and ’50s), and economic development<br />
and commercial loans (beginning in<br />
the 1960s). Again, Hardmeyer says:<br />
“But that’s only one portion of it. We<br />
take those funds and then, really,<br />
what separates us is that we plow<br />
those deposits back into the State of<br />
North Dakota in the form of loans. We<br />
invest back into the state in economic<br />
development-type activities. We have<br />
specifically designed programs to spur<br />
certain elements of the economy.”<br />
The BND does not originate most loans<br />
(except for student loans). Instead,<br />
it frequently partners with North<br />
Dakota banks, serving as a “bankers’<br />
bank.” Its major role seems to be<br />
more as a supplier of capital rather<br />
than a lead lender, finding lending<br />
opportunities based on its knowledge<br />
of local conditions. It supports local<br />
banks with participation loans and<br />
access to the federal funds market<br />
and the discount window. The BND<br />
lends to borrowers viewed as key to<br />
spurring economic growth, a strategy<br />
akin to an industrial policy in which a<br />
government agency attempts to pick<br />
winners—which is difficult to sustain<br />
on an ongoing basis. For example, in<br />
2009, the BND favored investments<br />
in the energy sector. Over the past<br />
two decades this has been difficult<br />
to sustain, as the price of crude oil<br />
peaked in May 2008; in January 2020,<br />
it had fallen by more than 60 percent.<br />
Still, BND’s profitability has been<br />
notably robust for many years. Based<br />
on its total assets, the bank is about<br />
PHOTO: TWITTER.COM/BANKOFND<br />
26
the 200th largest bank in the United<br />
States. The return on assets is 2.1<br />
percent, substantially higher than the<br />
1.6 percent for federally chartered banks<br />
and 1.3 percent for state-chartered<br />
banks. Similar differences exist for the<br />
return on equity.<br />
Let’s explore two possible reasons for<br />
this impressive performance: the low<br />
cost of funds, or lending acuity. The<br />
first explanation is a prime suspect,<br />
as virtually all state funds must be<br />
deposited with the BND—but this<br />
conjecture doesn’t bear up under<br />
scrutiny. The bank’s interest expenses<br />
as a percentage of total liabilities are<br />
relatively higher than that of other<br />
banks. This is surprising, since 12<br />
percent of the BND’s deposits do not<br />
earn interest—although this effect may<br />
be counterbalanced by the absence<br />
of FDIC insurance and an added risk<br />
premium embedded in BND deposit<br />
rates. Moreover, the BND relies relatively<br />
less on deposits than commercial banks<br />
do. Low funding costs do not appear to be<br />
the reason for BND’s high profitability.<br />
The second reason for the favorable<br />
outcome relative to other banks may be<br />
prudent lending. An examination of the<br />
asset side of the balance sheets shows<br />
that the BND does not extend more<br />
loans than other banks. It is striking,<br />
however, that the funds set aside for<br />
loan losses are much larger for the BND.<br />
This may imply an aggressive approach<br />
to lending and the holding of a highrisk<br />
portfolio of loans. Consequently,<br />
the higher profits, net of expected loan<br />
losses, compensate for extra risk-taking.<br />
This interpretation, however, would be<br />
contrary to the conservative approach to<br />
banking mentioned in BND documents.<br />
An alternative interpretation is that the<br />
relatively high loan loss provision is<br />
consistent with the BND’s conservative<br />
banking policies. However, this<br />
perspective would not explain its high<br />
profitability, instead implying that<br />
profitability should be relatively low.<br />
What separates us is that we ... invest back into<br />
the state in economic development-type activities.<br />
We have specifically designed programs to<br />
spur certain elements of the economy.”<br />
ERIC HARDMEYER | FORMER PRESIDENT OF THE BANK OF NORTH DAKOTA<br />
A third possibility is that funds<br />
are set aside to cover expected<br />
losses in energy-sector loans. This<br />
interpretation is consistent with loan<br />
losses provisions becoming greater<br />
for the BND relative to commercial<br />
banks beginning in 2015. The BND was<br />
setting aside fewer resources for loan<br />
losses before that.<br />
The BND also holds very little cash—<br />
two percent of total assets—compared<br />
to five percent for national banks<br />
and 6.2 percent to 16.5 percent for<br />
state banks. The BND is a very large<br />
net purchaser of federal funds;<br />
these purchases are netted against<br />
the reported cash/assets ratio. In<br />
contrast, national banks are net<br />
buyers of federal funds. The difference<br />
seems to be traceable to the BND’s<br />
role as a “bankers’ bank” for North<br />
Dakota. According to its founding<br />
charter, the BND shall be “helpful to<br />
and to assist in the development of<br />
state and national banks and other<br />
financial institutions and public<br />
corporations within the state...”<br />
(Additional services provided to North<br />
Dakota banks include check clearing,<br />
liquidity management, and bond<br />
accounting safekeeping.) There isn’t<br />
enough information in the BND annual<br />
report to assess the profitability for<br />
the BND in its role as an intermediary<br />
between North Dakota banks and the<br />
federal funds market, but it may be<br />
an important channel explaining the<br />
BND’s enviably high profitability and<br />
in need of further investigation.<br />
Massachusetts, 2010<br />
Legislation enacted in 2010<br />
“... authorized a commission to study<br />
the feasibility of establishing a bank<br />
owned by the Commonwealth or<br />
by a public authority constituted<br />
by the Commonwealth.” The<br />
legislative commission’s report<br />
listed four potential benefits of<br />
a Massachusetts state bank: 1)<br />
stabilizing the state’s economy, 2)<br />
providing local businesses improved<br />
access to credit, 3) augmenting the<br />
lending capacity of community<br />
banks, and 4) helping fund state<br />
government through profits.<br />
The report also confirmed that the<br />
Bank of North Dakota helped support<br />
the lending capacity of community<br />
banks in the state. But it found that<br />
data did not support the other stated<br />
benefits: “The commission finds no<br />
compelling rationale, at this time,<br />
to establish a state-owned bank in<br />
Massachusetts.”<br />
Regarding placing state funds in a<br />
state bank, the commission expressed<br />
concern about the amount of equity<br />
capital needed to start the bank and<br />
the financial capacity of a bank to<br />
service the state’s transactions needs,<br />
especially concerning negative<br />
intra-day balances. The commission<br />
confirmed that small businesses<br />
faced difficulties obtaining credit,<br />
but it believed that those needs would<br />
be better serviced by other state and<br />
quasi-state agencies.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 27
STATE BANKS<br />
Illinois, 2010<br />
The State of Illinois explored the idea<br />
of establishing a state bank in 2010,<br />
contacting the University of Illinois<br />
Institute of Government and Public<br />
Affairs (IGPA) about the prospects.<br />
IGPA was not encouraging for several<br />
reasons:<br />
P<br />
P<br />
P<br />
P<br />
North Dakota is a thinly banked state<br />
where a state bank might add value.<br />
Illinois, on the other hand, has a<br />
broad and deep financial network.<br />
In many instances, small businesses<br />
had difficulty in obtaining credit,<br />
but those problems were linked to<br />
high levels of risk. There was no<br />
obvious market failure regarding<br />
small business lending.<br />
A state bank would likely compete<br />
with community banks, which<br />
would be expected to resist<br />
vigorously.<br />
The bank might be used for the<br />
political or personal advantage of<br />
public officials.<br />
Recent U.S. State Initiatives,<br />
2019 and <strong>2021</strong><br />
California. There is a great deal of<br />
recent interest by state legislatures<br />
in starting a public bank either at the<br />
state or municipal level. (The Public<br />
Banking Institute maintains a website<br />
with a wealth of current information.<br />
Visit publicbankinginstitute.org.)<br />
The State of California enacted<br />
legislation that repealed the state’s<br />
prior prohibitions on municipalities<br />
and counties from opening a public<br />
bank and from depositing their funds<br />
in such an institution.<br />
Public credit is not defined in the<br />
legislation, but it would seem to refer<br />
to the funds held by state agencies.<br />
According to Assembly Bill 857,<br />
October 2, 2019, the public bank is<br />
intended to undertake an aggressive<br />
lending program that helps local<br />
economies and communities,<br />
complementing those undertaken by<br />
credit unions and local community<br />
banks. Before submitting an<br />
application for a public bank, a<br />
study must be conducted to detail<br />
start-up costs, the required amount<br />
of initial capital, “a downside<br />
scenario that considers the effect<br />
of an economic recession on the<br />
financial results of the proposed<br />
public bank,” and “how the<br />
proposed governance structure<br />
of the public bank would protect<br />
the bank from unlawful insider<br />
transactions and apparent conflicts<br />
of interest.” The public banks<br />
authorized by this legislation are<br />
to be owned by municipalities and<br />
counties, not the State of California.<br />
New Mexico. Legislation was<br />
introduced in the State of New<br />
Mexico in February <strong>2021</strong> to create<br />
the Public Bank of New Mexico,<br />
which would receive a permanent<br />
Nine coastal cities and counties in<br />
California, including the City of Monterey<br />
pictured above, have approved<br />
resolutions to participate in a viability<br />
study for creating a regional Central<br />
Coast Public Bank under California’s<br />
Public Banking Act AB 857.<br />
deposit of $50 million from the<br />
state treasurer. These funds are not<br />
to be withdrawn and are, therefore,<br />
effectively equity capital. The<br />
state investment officer would<br />
also deposit $50 million from the<br />
severance tax permanent fund.<br />
The public bank would engage<br />
in normal bank lending, with<br />
an emphasis on supporting the<br />
economic development of small<br />
businesses—presumably ones that<br />
have had difficulty obtaining credit<br />
from private banks. This lending<br />
is meant to complement existing<br />
28
lending programs, not necessarily to<br />
pursue new credit initiatives. This<br />
entity would be distinct from the State<br />
of New Mexico, so the state wouldn’t<br />
be responsible for the bank’s financial<br />
liabilities. This separation could raise<br />
the cost of borrowed funds.<br />
The Public Bank Feasibility Study<br />
was undertaken by the City of Santa<br />
Fe in 2016. Some weaknesses in city<br />
financial management were addressed<br />
by changes in the Santa Fe Treasury<br />
Office, and because of this study, the<br />
city has a framework for establishing<br />
a municipal bank, but it hasn’t moved<br />
forward with it.<br />
New York. The State of New York has<br />
three bills pending in its legislature<br />
pertaining to the creation of a state<br />
bank, all very similar. (Here we focus<br />
on the text of A3309.) The mission<br />
statement and legislative intent are<br />
similar to those from other states<br />
in this article. New York explicitly<br />
acknowledges the potential of using<br />
“the state’s depository assets to<br />
generate additional benefit for the<br />
people and the economy of the state,”<br />
according to the bill, and expresses<br />
concern about “institutional safety<br />
and soundness” and the need for<br />
“insulation from political influence.”<br />
The public bank would invest in<br />
infrastructure; lend to students,<br />
businesses, communities, and lowincome<br />
areas; and partner with extant<br />
institutions. It would be funded by<br />
state deposits, and the default risk<br />
would be borne by the state.<br />
Washington. The State of Washington<br />
has a Senate bill pending. The bill cites<br />
market failure by private banks in<br />
meeting the financing needs of local<br />
and tribal governments and says the<br />
public bank/cooperative is intended<br />
to assist underserved communities,<br />
especially with regard to housing.<br />
The legislation is specific about the<br />
benefit of using state/local/tribal<br />
funds and is sensitive to the potential<br />
risks from a bank on state finances.<br />
Like New Mexico, the Washington<br />
state bank would be a government<br />
instrumentality. The bill explicitly<br />
creates substantial distance between<br />
the liabilities of the bank and state<br />
resources. Bonds couldn’t be issued in<br />
the name of the state of Washington,<br />
but the initial equity capital would<br />
come from a state appropriation, so the<br />
state will bear some distress risk.<br />
The city of Seattle commissioned<br />
a municipal bank study in 2018,<br />
but it was generally unfavorable to<br />
moving forward, especially given the<br />
complexity of the start-up process.<br />
ShoreBank, Chicago, Illinois<br />
Founded in 1973, ShoreBank was a<br />
mission-driven community bank that<br />
had a major positive impact in the area<br />
it served. Its mission was to invest in<br />
and revitalize inner-city communities.<br />
It focused its lending in the South<br />
Shore community in the southeastern<br />
part of Chicago. The area was in<br />
transition from predominantly White<br />
to predominantly Black residents<br />
and, while income was declining,<br />
the community was not in a perilous<br />
condition. Despite its social mission<br />
and thus occasional extension of credit<br />
to high-risk borrowers, ShoreBank was<br />
successful and apparently earned a<br />
rate of return on its assets comparable<br />
to similar financial institutions.<br />
This profitability was due in part to<br />
depositors attracted to its mission<br />
and, in part, to its superior knowledge<br />
of the community.<br />
ShoreBank was in business for 35<br />
years and had grown substantially,<br />
having assets of $2.6 billion prior to<br />
liquidation. There were two reasons<br />
for its financial distress. The bank<br />
had expanded from its original area<br />
to undertake similar mission-driven<br />
community banking in Chicago’s<br />
west side; rural Arkansas; the cities<br />
of Cleveland and Detroit; the Upper<br />
Peninsula of Michigan; the Pacific<br />
Northwest; and with affiliates in<br />
30 countries. The bank expanded<br />
beyond its competency. The 2008<br />
Great Recession was a second<br />
contributing factor. As with most<br />
recessions, communities of color<br />
were more adversely affected, which<br />
had a severely negative effect on<br />
ShoreBank’s cash flow. Its application<br />
for support from the federal Troubled<br />
Asset Relief Program was denied, and<br />
it was liquidated by the FDIC in 2010.<br />
ShoreBank’s expansion to the Pacific<br />
Northwest and other areas contributed<br />
to it’s financial distress and ultimately<br />
led to its liquidation in 2010. In this photo<br />
from 2006, Dave Williams, president of<br />
ShoreBank Pacific and Bonnie Anderson,<br />
vice president for real estate stand<br />
outside a development that ShoreBank<br />
Pacific helped fund in Portland, Oregon.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 29
STATE BANKS<br />
LESSONS LEARNED<br />
Six issues discussed here appear particularly germane to the<br />
issue of starting a state bank:<br />
1<br />
2<br />
3<br />
4<br />
5<br />
6<br />
DEPOSITS held by the state treasurer are an attractive<br />
source of funds, but not all state funds would be eligible<br />
for transfer to a state bank because of laws dictating<br />
how government funds can be invested.<br />
ECONOMIC DEVELOPMENT is a key motivating factor<br />
for starting a state bank. It takes the form of assistance<br />
to small businesses, students, and underserved<br />
communities, promoting infrastructure investments,<br />
or targeting critical sectors that will lead to sustained<br />
growth.<br />
RISK is inherent with any bank, and financial distress<br />
characterizes many state banking experiences. The<br />
legislation introduced in the State of Washington<br />
explicitly recognizes and emphasizes the inherent risks<br />
with a state bank and attempts to insulate taxpayers<br />
from the negative effects of a financially distressed<br />
state bank. Risk is impossible to avoid. Even in the<br />
Washington case, the initial equity capital injection by<br />
the state would be vulnerable and could lose value if the<br />
state bank becomes financially distressed.<br />
EQUITY is one way to attenuate (but not eliminate)<br />
distress risk by providing a permanent source of funds,<br />
but the equity required to start a bank might strain<br />
state finances. In 1919, the BND’s startup capital was<br />
$2 million. This figure corresponds to $364 million<br />
in 2020. For the State of Illinois, for example—since<br />
Illinois had a 2019 population that was 16.6 times larger<br />
than that of North Dakota—the comparable figure for<br />
an Illinois State Bank is $6 billion, which is 14 percent<br />
of Illinois’ 2022 proposed budget.<br />
MISSION CREEP AND POLITICAL INFLUENCE are<br />
ongoing concerns. The history of Chicago’s ShoreBank<br />
highlights how risk-bearing and mission creep can<br />
impede a state bank from fulfilling its original goals<br />
and can lead to financial distress. By contrast, the BND<br />
has an impressive record in this regard. Even though<br />
its board of directors comprises three state politicians<br />
(governor, agriculture commissioner, and attorney<br />
general), the BND has largely stayed on mission over its<br />
100+ year history.<br />
PRIVATE BANK COMPETITION is a potential concern.<br />
It can be attenuated by forming partnerships, focusing<br />
on underserved market gaps, and providing liquidity<br />
and other banking services (to small banks).<br />
Economic development<br />
is a key motivating factor<br />
for starting a state bank.<br />
30
PROS AND CONS<br />
THE CASE FOR A STATE BANK. There are<br />
several reasons why creating a state bank might<br />
improve economic performance. A state bank<br />
would be well positioned to understand the pool<br />
of potential borrowers and therefore enjoy a lower default rate<br />
than private banks. The availability of state deposits provides<br />
a substantial and low-cost source of funds. Both factors would<br />
lower the cost of loans.<br />
The resulting surplus could then be employed to support<br />
projects that would have a major beneficial impact on the<br />
community. A state bank would be positioned to undertake<br />
investments to start addressing the historic legacy of<br />
racism that creates large gaps in income and wealth in some<br />
underserved communities. The social return to these and<br />
other meritorious projects exceeds their private market return.<br />
A state bank like the BND could provide liquidity and other<br />
banking services to smaller banks. It could also reduce credit<br />
risk by pooling loans from different small banks. Small business<br />
underfunding is an ongoing concern.<br />
Creating a state bank would expand the competitive landscape.<br />
Households and firms seeking loans would have more banks to<br />
choose from, and the ability to access alternatives is important<br />
in securing a low-cost loan. The Bank of North Dakota presents<br />
an impressive model of how a state bank can work to the benefit<br />
of the citizens of its state.<br />
THE CASE AGAINST A STATE BANK. There is<br />
no obvious market failure on the part of private<br />
banks in allocating credit and extending loans.<br />
Whether a state bank has superior information<br />
that will allow it to enjoy a lower default rate remains<br />
unproven. Existing studies showing a lower default rate for<br />
mission-driven banks may not control for the less risky pool of<br />
borrowers that work with community banks.<br />
There are many meritorious projects that deserve support, but<br />
the advantage of pursuing these policy goals via a state bank,<br />
rather than direct legislation, has not been established.<br />
While state deposits would create a low-cost source of funds,<br />
they come with a hidden cost: the value of the services that were<br />
being provided by private banks. These costs must be quantified<br />
and considered in an overall evaluation of a state bank.<br />
The lending market, especially with the advent of electronic<br />
banking, is sufficiently developed that an additional bank will<br />
have minimal impact on the competitive environment.<br />
The political history of some states raises serious concerns<br />
about any activities where politicians might influence lending<br />
decisions in ways that aren’t related to economic criteria.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 31
STATE BANKS<br />
Moreover, a state bank would<br />
be tempted to direct funds to<br />
sectors or projects deemed to be<br />
critical for growth, effectively<br />
trying to pick winners and losers.<br />
Such industrial policies have<br />
had a mixed record of success.<br />
While state deposits<br />
would create a lowcost<br />
source of funds,<br />
they come with a<br />
hidden cost: the value<br />
of the services that<br />
were being provided<br />
by private banks.<br />
FINAL QUESTIONS<br />
Mission creep is a force that affects<br />
many institutions in the public and<br />
nonprofit sectors; the history of the<br />
Chicago ShoreBank is a worrisome<br />
example.<br />
While the sustained profitability<br />
of the Bank of North Dakota is<br />
impressive, the general applicability<br />
of this model is limited because the<br />
financial sector in many states is welldeveloped,<br />
and the state’s population<br />
of 762,000 residents is quite small,<br />
only seven percent larger than that<br />
of a typical congressional district.<br />
Are state banks a useful economic<br />
development tool with future promise?<br />
The issues affecting the advisability of<br />
creating a state bank seem to hinge on<br />
four questions.<br />
WHAT ARE THE TRUE COSTS OF<br />
STATE DEPOSITS?<br />
A crucial factor favoring the creation<br />
of a state bank is the transfer of the<br />
state deposits from private banks.<br />
These deposits are a sizeable and<br />
stable source of funds, and they<br />
are arguably the backbone of the<br />
success of the Bank of North Dakota.<br />
The pool of funds available in, for<br />
example, Illinois is extensive:<br />
$7.4 billion as of December 31, 2020.<br />
These funds are in the Illinois<br />
Public Treasurers’ Investment<br />
Pool, which the 2020 Illinois State<br />
Treasurer’s report describes as: “...a<br />
local government investment pool<br />
operated by the treasurer for state<br />
and local government agencies. This<br />
program provides a critical service<br />
for state and local agencies, enabling<br />
them to pool their money and invest<br />
in a safe, liquid investment vehicle<br />
that exceeds industry benchmarks.<br />
Created in 1975, The Illinois Funds was<br />
the first local government investment<br />
pool established in the nation. The<br />
Illinois Funds is comprised of over<br />
1,500 participating entities, holding<br />
approximately 3,000 accounts with<br />
net assets of approximately $7 billion.”<br />
These assets are invested in liquid,<br />
short-term assets, and the fund must<br />
conform to SEC Rule 2a-7, which<br />
stipulates that the average, dollarweighted<br />
maturity of the portfolio be<br />
60 days or less. As of the end of 2020,<br />
the average maturity of the Illinois<br />
Funds was 58 days, so the return<br />
will be close to the return on money<br />
market funds.<br />
These deposits, however, are<br />
not necessarily “free money.” If<br />
transferred to a state bank, they<br />
come with three costs:<br />
P<br />
P<br />
The provision of financial<br />
transactions services for the state.<br />
The foregone value of nontransaction<br />
services received<br />
from private banks in which state<br />
funds had formerly been deposited,<br />
less any fees paid by the state.<br />
However, private discussions with<br />
©<strong>2021</strong> DAN PAGE COLLECTION C/O THEISPOT.COM<br />
32
EXHIBIT 1 | LEGISLATION AND LOCAL EFFORTS BY STATE<br />
More than half the states have<br />
proposed legislation in support<br />
of publicly-owned banks.<br />
THE STATE OF PUBLIC BANKING IN THE U.S. TODAY<br />
According to the Public Banking Institute, more than 25 initiatives<br />
for public banks are actively being pursued across the nation by<br />
progressives and conservatives. 30 of 50 states have proposed<br />
legislation in support of publicly-owned banks, and over 50<br />
organizations are promoting public banks.<br />
Source: Public Banking Institute, publicbankinginstitute.org<br />
State/Territorial Public Bank Established<br />
Legislation Passed, Executive Order Given<br />
Bill, Feasibility Study, Task Force or<br />
Ballot Measure Introduced 2017-20<br />
Pending Legislation<br />
Organized Public Bank Community Groups/<br />
Candidates with Public Bank Platform<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 33
STATE BANKS<br />
EXHIBIT 2 | FACTORS DETERMINING THE COST OF LENDING<br />
Factors Discussion Advantages<br />
Operating Costs<br />
Loan Defaults<br />
Cost of Funds<br />
Many private banks would be larger than a newly established<br />
state bank. Economies of scale and scope suggest that<br />
private banks have a cost advantage.<br />
Lending is risky business, and loan defaults are expected.<br />
A state bank may be better embedded into neighborhoods,<br />
have superior knowledge about its customers, and therefore<br />
may suffer fewer loan defaults. The lower the expected<br />
defaults, the lower the cost of making a loan.<br />
This advantage may be attenuated if a state bank extends<br />
high-risk loans in underserved communities that are<br />
correlated with lower incomes.<br />
– Private Deposits There is no obvious advantage enjoyed by one type of bank<br />
over the other.<br />
– State Deposits In the course of discharging its routine tasks, a state<br />
generates a large amount of core deposits. They are usually<br />
deposited in a private bank. State deposits channeled to a<br />
state bank would be an important and inexpensive source of<br />
funds for a state bank.<br />
Transferring funds from a private to state bank may have<br />
an opportunity cost if the state receives banking and other<br />
services as compensation for the deposits. This opportunity<br />
cost would effectively raise the cost of state deposits at a<br />
state bank. However, private discussions with five financial<br />
officers in public institutions, private banks, and private<br />
businesses did not uncover any substantial benefits flowing<br />
from bank deposits.<br />
– Borrowed Funds Borrowings from investors in the form of certificates of<br />
deposit (CDs) or other financial instruments, or from other<br />
banks, would likely be backed either implicitly or explicitly by<br />
the full faith and credit of the state. Due to the fiscal stresses<br />
that exist in many states, the interest cost of CDs and other<br />
bonds would likely be higher than those for private banks.<br />
Independent of the risk premium due to fiscal stress, private<br />
banks, due to their large size, would also have access to<br />
borrowed funds at a relatively lower interest rate.<br />
– Equity It is frequently alleged that the amount of equity capital<br />
carried by private banks is a burdensome cost that a state<br />
bank can largely avoid, and there’s an element of validity<br />
to this concern. But the conclusion that private banks are<br />
disadvantaged does not bear up under closer scrutiny.<br />
Private<br />
State<br />
None<br />
State<br />
Private<br />
None<br />
Of the three main banking functions, allocating credit is the primary one in which<br />
a state bank might have a unique and constructive role to play. A state bank might<br />
be able to allocate credit at a lower cost than private lending to the existing pool of<br />
actual and potential borrowers. Profits from these projects would then be available<br />
to fund meritorious projects that can’t be supported by private lending. Absent a cost<br />
advantage for a state bank, extending credit to underserved communities or projects<br />
with a high social but low market return via cross-subsidization is not sustainable.<br />
The three factors that determine loan costs are operating costs, loan defaults,<br />
and the cost of funds, the latter further divided among private deposits, state<br />
deposits, borrowed funds, and equity (see Exhibit 1). The relative costs for private<br />
and state banks are discussed in column 2 and summarized in column 3.<br />
Our analysis suggests that a private bank may have cost advantages due to<br />
lower operating costs and a low cost of borrowed funds. State banks may benefit<br />
from lower default rates and greater access to state deposits, both of which lower<br />
its cost of making loans.<br />
P<br />
five financial officers in public<br />
institutions, private banks, and<br />
private businesses did not uncover<br />
any substantial benefits flowing<br />
from bank deposits.<br />
The destabilizing effects of<br />
withdrawing state deposits from<br />
private banks, especially smaller<br />
institutions with limited access to<br />
alternative sources of finance.<br />
Quantifying these three costs is<br />
important to confirm that state<br />
deposits are truly cheap money.<br />
When a full evaluation is completed,<br />
it is likely to show that there will be<br />
a substantial net benefit to the state<br />
bank from state deposits. With lower<br />
costs in extending loans, a state<br />
bank will be able to pursue social<br />
lending on a sustainable basis.<br />
HOW VULNERABLE ARE<br />
TAXPAYERS TO STATE BANK RISK?<br />
State banking is risky business;<br />
failure is frequent, and risk is<br />
omnipresent. The state faces three<br />
sources of risk:<br />
P<br />
P<br />
P<br />
Liability risk. To attenuate<br />
liability risk, the state might<br />
commit its resources to guarantee<br />
the state bank’s liabilities.<br />
This guarantee will lower funding<br />
costs, but the benefit must be<br />
balanced against the increased<br />
risk that the state and its taxpayers<br />
would now bear.<br />
Equity risk. Since the state bank<br />
is intended to be owned by the<br />
state, the initial equity capital<br />
must be provided by the state. To be<br />
comparable to the BND, an Illinois<br />
State Bank would need $6 billion<br />
of equity capital. This substantial<br />
sum is at risk, though the risk is<br />
capped by the value of the initial<br />
investment.<br />
Legal risk. The state bank faces<br />
legal risk if it is legally connected<br />
to the state, especially if it<br />
operates under the “doing<br />
business as” structure.<br />
The costs associated with these risks<br />
need to be evaluated and quantified.<br />
34
WHY WOULD A STATE BANK HAVE<br />
BETTER SUCCESS IN SUPPORTING<br />
UNDERSERVED COMMUNITIES?<br />
Perhaps the key motivation for a state<br />
bank is that it would be able to help<br />
underserved communities, especially<br />
in providing loans and credit. Offering<br />
such assistance has been an ongoing<br />
policy goal for at least five decades.<br />
In 1964, President Johnson initiated<br />
actions in his War on Poverty and in<br />
the Economic Opportunity Act. The<br />
latter created work-training programs<br />
(including the Job Corps) and<br />
urban and rural community action<br />
programs. This same set of policy<br />
concerns has faced the Community<br />
Development Financial Institutions<br />
Fund (created in 1994), numerous<br />
enterprise zones, and many other<br />
federal, state, and local government<br />
policy initiatives. Unfortunately,<br />
geographically targeted or place-based<br />
programs “often fail to benefit the<br />
places and people they are intended to<br />
aid” because they are poorly targeted<br />
and poorly tailored to community<br />
needs. Will a state bank be more<br />
successful in overcoming past<br />
obstacles, supporting underserved<br />
communities, and pursuing other<br />
meritorious policy goals?<br />
HOW CAN A STATE BANK BE<br />
INSULATED FROM POLITICAL<br />
INTERFERENCE?<br />
There is a substantial concern<br />
about the politicization of credit and<br />
“mission drift.” Political interference<br />
in public banks is widespread across<br />
the globe and leads to less growth and<br />
less development of the financial<br />
sector. In their chapter on “The<br />
challenge of keeping public banks on<br />
mission,” author Christoph Scherrer<br />
is somewhat pessimistic: “Placing the<br />
mission drift in this larger framework<br />
precludes any easy panacea for<br />
keeping public banks to their public<br />
purpose.” A bank-commissioned<br />
history of the BND notes that “The<br />
Bank of North Dakota is a financial<br />
institution, of course, but it is also a<br />
political institution.” Nonetheless,<br />
following are two possible approaches,<br />
one conventional and one radical.<br />
The conventional approach is to follow<br />
the lead of the Bank of North Dakota. As<br />
Hardmeyer said in an interview with<br />
American Banker: “If you are going to<br />
have a state-owned bank, you have to<br />
staff it with bankers. If you staff it with<br />
economic developers, you are going to<br />
have a very short-lived, very expensive<br />
experiment. Economic developers<br />
have never seen a deal they didn’t like.<br />
We deal with that every day.” It is still<br />
unclear how the politicians have been<br />
kept at bay in North Dakota.<br />
The more radical approach appeals<br />
to naked economic interests. A state<br />
bank is under consideration because<br />
there is the possibility that it will<br />
generate surplus funds that can be<br />
employed to address social issues<br />
outside the scope of private markets.<br />
The radical idea is to have several<br />
state stakeholders with a financial<br />
interest in maximizing the size of<br />
this surplus. Consider the possibility<br />
of creating a consortium of six<br />
independently created state banks for<br />
the Upper Midwest states—Minnesota,<br />
Wisconsin, Illinois, Indiana, Michigan,<br />
and Ohio—that would undertake<br />
lending activity in the following<br />
manner:<br />
1 Each state forms a state bank with<br />
the primary purpose of allocating<br />
capital via lending.<br />
2 The state banks are funded by<br />
state deposits and state-provided<br />
equity capital. Each state is<br />
assigned a share determined by its<br />
contribution of deposits and equity.<br />
3 At the end of each fiscal year,<br />
the profits of all six state banks<br />
are aggregated and distributed<br />
according to shares. In a given state,<br />
these surplus funds will be further<br />
divided between an additional<br />
contribution of X percent to<br />
equity (for example, retained<br />
earnings or accumulated surplus)<br />
and Y percent to a special social<br />
account that is segregated from<br />
the deposits and equity provided<br />
by each state. (n.b.., X percent plus<br />
Y percent sum to one, they are the<br />
same for all six state banks in a<br />
given year and can be changed in<br />
subsequent years.)<br />
4 Based on its contributed deposits,<br />
equity, and accumulated surplus,<br />
each state bank proposes lending<br />
decisions, but the loans must be<br />
approved by at least four of the six<br />
state banks.<br />
5 Each state bank can invest the<br />
special social account funds as<br />
they wish, perhaps in projects<br />
with a high social return but a<br />
low private return that would not<br />
meet the market test. The size of<br />
the special social account can be<br />
adjusted by altering Y percent in<br />
subsequent years.<br />
This approval process would<br />
provide financial incentives<br />
for states to reject substandard,<br />
politicalized projects because they<br />
result in a lower aggregate surplus<br />
and therefore lower shares to all<br />
states. Moreover, these questionable<br />
projects do not provide, to any<br />
important degree, political or other<br />
non-pecuniary benefits to those<br />
outside the state. The proposed<br />
approach may not deter corruption<br />
and mission creep fully. But some<br />
mechanism is needed if a state bank<br />
is to be sustainable and largely<br />
unaffected by political pressures,<br />
and hence a useful economic<br />
development tool with future<br />
promise.<br />
Robert Chirinko is a professor in the Department of Finance at University of<br />
Illinois at Chicago and a member of the Government Finance Research Center<br />
Faculty Advisory Panel.<br />
Read the full report at gfoa.org/state_banks<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 35
FINANCIAL TRANSPARENCY<br />
Financial<br />
Transparency<br />
in an Age of Too Much Data<br />
In these two articles, authors Debbie Chiu and Ron Galperin<br />
look at what their governments are doing to address different<br />
areas of transparency. First, we’ll talk about engaging the<br />
public and educating them through financial transparency,<br />
including telling the story behind the numbers. Another part<br />
of the picture is data visualization—that is, finding ways to<br />
distill large data sets to help the public better understand a<br />
government’s finances.<br />
DEBBIE CHIU<br />
Former Budget Operations Manager<br />
for the City of Kansas City, Missouri<br />
RON GALPERIN<br />
Controller for the City of<br />
Los Angeles, California<br />
36
Kansas City Uses Data to Tell Its<br />
Budget Story and Engage Residents<br />
BY DEBBIE CHIU<br />
With a metro area<br />
of 2.1 million people,<br />
Kansas City spans<br />
319 square miles in<br />
four counties.<br />
Kansas City, Missouri, uses<br />
online transparency tools to<br />
educate the public about the<br />
city’s financial information<br />
and to get them involved in spending<br />
decisions. Using resident engagement<br />
initiatives, the Office of Management<br />
and Budget (OMB) links budget data,<br />
performance data, and storytelling to<br />
explain what’s behind these numbers.<br />
To tell the city’s story, OMB had a lot<br />
of dots to connect. Phase one of this<br />
journey started with long-term trend<br />
analysis of the city’s annual financial<br />
report and an internal departmental<br />
strategic planning process focusing on<br />
structural change management. But<br />
these processes weren’t connected;<br />
separate pieces from different<br />
departments and divisions were<br />
combined into the citywide business<br />
plan to “connect the dots.” The city<br />
went from having parallel but distinct<br />
processes to interlocking all these<br />
components into one cohesive,<br />
streamlined plan.<br />
BUDGET CYCLE. The budget’s cycle of<br />
life starts with the priorities laid out by<br />
the city council. The cycle is a whole<br />
year, starting May 1, the beginning<br />
of the city’s fiscal year. OMB starts<br />
off with a trends analysis, tying the<br />
council priorities with the citywide<br />
business plan, which is submitted to<br />
the mayor and council in early fall.<br />
That’s when OMB starts involving<br />
residents to give feedback—one of<br />
two opportunities they have to give<br />
feedback on the business plan. When<br />
the council adopts the business plan,<br />
by November 1, OMB starts the work<br />
that leads to the submitted budget,<br />
which is essentially a one-year<br />
snapshot of OMB’s business plan.<br />
At that point, residents are involved<br />
again through public budget hearings,<br />
where OMB receives feedback that it<br />
presents to the council. The final step,<br />
then, is when the council adopts the<br />
final budget.<br />
BUSINESS PLAN. The citywide<br />
business plan has three major<br />
components: the city strategic<br />
plan, which highlights the mission,<br />
vision, values, goals, objectives, and<br />
strategies; a financial strategic plan,<br />
which contains financial objectives;<br />
and a five-year planning model,<br />
which provides both the baseline<br />
and balanced scenarios needed to<br />
evaluate the city’s financial and<br />
operational alternatives through the<br />
planning and budget process. The<br />
business plan is a four-year strategic<br />
plan, essentially mimicking the<br />
council terms.<br />
PUBLIC EDUCATION. OMB educates<br />
the public via transparency<br />
initiatives and linkages to<br />
performance. The city has Twitter<br />
and Facebook accounts that it uses to<br />
engage residents, and these accounts<br />
become very active during budget<br />
season with live tweets and posts<br />
from events such as public budget<br />
hearings. OMB also likes to post a<br />
budget fact of the day, highlighting<br />
different departments’ programs<br />
and funding throughout the year.<br />
The city also has a portal called<br />
Open Data KC, where information<br />
and data—essentially a snapshot<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 37
Things to Know about<br />
Kansas City, Missouri<br />
Kansas City, Missouri, has a<br />
population of a little less than<br />
500,000 and a metro area of 2.1<br />
million people. The city covers<br />
319 square miles in four counties.<br />
Kansas City has 20 departments<br />
with more than 300 programs<br />
with 7,100 full-time-equivalent<br />
employees. It is the only municipality<br />
in the nation that doesn’t have local<br />
control of its police department.<br />
The city council has 13 members,<br />
including the mayor. The city is<br />
divided into six council districts that<br />
are revised according to population<br />
at least every five years. The mayor<br />
and six city council members are<br />
elected at large, and the other six<br />
members are elected from within<br />
the districts they serve.<br />
Kansas City is known as a City<br />
of Fountains because it has 200<br />
fountains, second in the world after<br />
Rome. The city’s football team was<br />
the 2019 Super Bowl champion—go<br />
Chiefs! Another claim to fame: Two<br />
seasons of the reality show “Queer<br />
Eye,” along with its predecessor,<br />
“Queer Eye for the Straight Guy,”<br />
which ran from 2003 to 2007, were<br />
filmed in Kansas City.<br />
of budget-related files—can be<br />
downloaded by anyone who is<br />
interested. This includes, for example,<br />
311, performance data, and the city’s<br />
monthly auction that lists towed<br />
vehicles that will be auctioned. All<br />
the reports that OMB presents to the<br />
mayor, the council, and the public are<br />
archived here. Quarterly analysis,<br />
budget documents, and the city’s<br />
business plan are all made available<br />
for anybody who is interested in<br />
reading more about it (see Exhibit 1).<br />
The Tools<br />
OPEN BUDGET. Open Budget is an<br />
interactive tool that OMB uses to<br />
present the city’s budget in a visual<br />
and interactive way. It allows users<br />
to create and share customized links,<br />
and to download budget data. Exhibit<br />
2 shows the submitted budget and<br />
the adopted budget, as well as the<br />
actual budget from the previous year.<br />
The city’s departments, mayor, city<br />
manager, and residents can see how<br />
much was originally submitted for<br />
the budget, how much was approved,<br />
and how much was spent.<br />
REPORTING. The Office of<br />
Management and Budget and the<br />
Office of Performance Management,<br />
known as DataKC, present the<br />
business plan and reports on how<br />
the city is doing—if it is meeting its<br />
marks—and continually update the<br />
city’s performance dashboards (see<br />
Exhibit 3).<br />
NEXTDOOR. Nextdoor is a social<br />
networking site for neighborhoods.<br />
The city communications office and<br />
other departments use it to market<br />
and promote city events or release<br />
news because not everyone is on<br />
Facebook or Twitter. The idea is to use<br />
several platforms to reach as many<br />
residents as possible.<br />
CITY WEBSITE. Submitted and budget<br />
documents, anything related to the<br />
business plan and quarterly analysis,<br />
and other reports provided to the<br />
mayor and council are posted on the<br />
city’s website (kcmo.gov/budget).<br />
The site also provides a link to Open<br />
Budget, Balancing Act, and capital<br />
improvement programs.<br />
Engaging Residents<br />
STORYTELLING. The city’s visitor<br />
engagement efforts center on the idea<br />
of storytelling with budget data. This<br />
is one of many avenues the city uses to<br />
present financial data to the masses.<br />
RESIDENT WORK SESSIONS. Rather<br />
than the traditional annual budget<br />
public hearings that are held in the<br />
spring, OMB conducts resident work<br />
sessions in the late summer and early<br />
fall to present the citywide business<br />
plan to the public. This provides<br />
opportunities for participants to<br />
discuss the city’s proposed goals and<br />
objectives, to set long-term budget<br />
priorities, and to send direct messages<br />
to the city council. They also get to<br />
interact directly with staff and elected<br />
officials.<br />
Because Kansas City covers 319<br />
square miles, OMB divides the city<br />
into north, central, and south sections<br />
and locates meetings in all three areas<br />
to make sure there will be locations<br />
that meet everyone’s needs. Meetings<br />
are also convened in the evening, on<br />
a weekday, and on weekends to give<br />
residents as many opportunities as<br />
possible to participate.<br />
FOCUS GROUPS. OMB holds focus<br />
groups where it asks questions in a<br />
group setting to help engage residents<br />
and get feedback about how they would<br />
like the city to progress in the future.<br />
Sample questions include: What<br />
should be the city’s major priorities<br />
during the next three to five years?<br />
What, if anything, should the city do<br />
better or differently? What are your<br />
dreams or visions for the next five to<br />
10 years? (See Exhibit 4.)<br />
One of these sessions was focused<br />
on ranking seven of the city’s goals.<br />
(See Exhibit 5.) The customer service<br />
and communication departments<br />
simplified the language, making it<br />
easier for residents to understand<br />
38
FINANCIAL TRANSPARENCY<br />
EXHIBIT 1 | KANSAS CITY’S BUSINESS PLAN<br />
EXHIBIT 4 | QUESTIONS ASKED IN RESIDENT WORK<br />
SESSIONS<br />
This question focuses on all of the city’s goals.<br />
Which issue is a higher priority for you?<br />
City goal: Customer service and communication<br />
The business plan can be found at kcmo.gov under the<br />
Office of Management and Budget.<br />
EXHIBIT 2 | OPEN BUDGET<br />
To create an internal culture that focuses on the<br />
customer across all services provided by the<br />
city, supports essential internal and external<br />
communication, and fosters public engagement.<br />
Better and more consistent communication<br />
with staff and public<br />
Expanded resident engagement throughout<br />
the city<br />
Increased transparency<br />
Better internal and external customer service<br />
EXHIBIT 5 | SCORING PRIORITIES—THE CITY’S PUBLIC<br />
SAFETY GOAL<br />
Each person scores the following goals from<br />
1 to 5, based on their own priorities.<br />
EXHIBIT 3 | KC DASHBOARDS<br />
Public Safety<br />
Reduced crime, particularly in young offenders<br />
Improved patient outcomes in the emergency<br />
response delivery system<br />
Improved diversity, succession planning, and<br />
retention in KCPD and KCFD<br />
More effective and efficient municipal court to<br />
better serve the community<br />
Decreased animal-related threats and increased<br />
animal welfare<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 39
City Goals<br />
Trend<br />
Analysis<br />
Department<br />
Strategic<br />
Objectives<br />
Adopted<br />
Budget<br />
CITYWIDE<br />
BUSINESS PLAN AND<br />
BUDGET PROCESS<br />
Submitted<br />
Citywide<br />
Plan<br />
Strategic Priorities<br />
The city council sets the overall<br />
policy for the city by adopting<br />
resolutions and ordinances, making<br />
appropriations and approving<br />
budgets for all departments, and<br />
conducting public hearings on<br />
city affairs. After an ordinance<br />
or resolution is passed or the<br />
budget is adopted, the city council<br />
continues to monitor the results<br />
of its actions through studies,<br />
surveys, and hearings.<br />
The city council’s six main strategic<br />
priorities are: neighborhood<br />
livability, healthy communities,<br />
governance, public infrastructure,<br />
economic development, and public<br />
safety. The city employs innovative<br />
strategies to:<br />
P<br />
P<br />
P<br />
Effectively and efficiently provide<br />
customer-focused services.<br />
Improve public safety.<br />
Develop sustainable, healthy<br />
communities where all<br />
prosper. We lead by inspiring,<br />
collaborating, measuring<br />
progress, and celebrating<br />
success.<br />
Submitted<br />
Budget<br />
the strategies for each objective. In<br />
this exercise, individuals choose the<br />
higher-priority strategy within the<br />
objective, which then allows the city to<br />
see what’s important to residents.<br />
The second part of this exercise is<br />
more of a conversation. Each person<br />
presents their rankings, which leads to<br />
a dialogue between residents and city<br />
employees, the mayor, council, and<br />
the Office of Management and Budget.<br />
OMB also asks residents two important<br />
questions: what they love about<br />
Kansas City and what keeps them up at<br />
night. These questions hone in on the<br />
same topic, allowing residents to talk<br />
about their priorities, and they also get<br />
people thinking.<br />
More than 100 residents participated<br />
in these focus group discussions in fall<br />
2019. The questions were designed to<br />
assess resident priorities, determine<br />
if residents have seen progress on the<br />
plan, and suggest strategies the city<br />
may not have thought of that should be<br />
included in the plan.<br />
SURVEYS. OMB surveys participants<br />
to see how the city is doing—and 100<br />
percent recommended these sessions<br />
Adopted<br />
Citywide<br />
Plan<br />
to their friends and colleagues. Some<br />
people also come back year after year<br />
because they want to stay involved<br />
with the city and provide feedback. In<br />
addition, 30 percent of respondents<br />
said they felt more connected to the<br />
city government after attending these<br />
sessions.<br />
PICK YOUR PRIORITY. This activity<br />
allows residents to choose programs<br />
based on head-to head tournamentstyle<br />
brackets with live instant scoring.<br />
(See Exhibit 6.) It’s like a game show<br />
where residents look at the programs<br />
and use a clicker to vote on which is a<br />
top priority.<br />
The Office of Management and Budget<br />
works with the city’s 20 departments<br />
to identify 16 programs that residents<br />
can vote for. They’re given $1 million<br />
to allocate to programs ranging from<br />
street resurfacing to bike lanes to<br />
sidewalk repair. Residents essentially<br />
pit their choices against those of the<br />
other attendees, and their votes show<br />
us their top priorities.<br />
ONLINE BUDGET SIMULATION. The<br />
City uses an online budget simulation<br />
tool (kcmo.gov/balancingact) that<br />
40
FINANCIAL TRANSPARENCY<br />
EXHIBIT 6 | PICK YOUR PRIORITY TOURNAMENT-STYLE<br />
BRACKETS<br />
EXHIBIT 7 | WHERE THE MONEY GOES<br />
Pick Your Priority<br />
Street<br />
Resurfacing<br />
Youth<br />
Programming<br />
Street Tree<br />
Trimming<br />
Increase<br />
Brush/Leaf<br />
Pickup<br />
Elite 8<br />
Elite 8<br />
Final 4<br />
Final 4<br />
Elite 8<br />
Elite 8<br />
Warrant Sweep<br />
Child Health<br />
Specialists<br />
Sidewalk<br />
Repair<br />
HHW Waste<br />
Drop Events<br />
Final<br />
Matchup<br />
Tax Auditors<br />
Re-purpose<br />
Vacant Parcels<br />
Body Cameras<br />
R-O-W Mowing<br />
Elite 8<br />
Elite 8<br />
Final 4<br />
Final 4<br />
Elite 8<br />
Elite 8<br />
BLS<br />
Ambulances<br />
Community<br />
Prosecutor<br />
Bike Lanes<br />
Comprehensiv<br />
e Plan<br />
EXHIBIT 8 | THE PUBLIC SAFETY PRIORITY<br />
EXHIBIT 9 | A SNAPSHOT OF THE ACTIVITY RESULTS<br />
The Public Safety Department is made up of the Fire<br />
Department, the Municipal Court Department, and the Police<br />
Department. In this Balancing Act category, participants can<br />
give these departments more or less money and submit their<br />
budgets based on their priorities.<br />
residents (or anyone else) can use to<br />
submit their budget choices. Exhibit 7<br />
shows a submitted budget. Residents<br />
are asked if they think this is how<br />
the city should be spending their tax<br />
dollars, and if not, how they would<br />
change the budget. Exhibit 8 shows<br />
Public Safety, which is made up of<br />
the Fire Department, the Municipal<br />
Court Department, and the Police<br />
Department. Participants can give<br />
these departments more money or<br />
less money and submit their budgets<br />
based on their priorities. Exhibit 9 is<br />
a snapshot of the results submitted<br />
through the online tool identifying<br />
changes to various city functions.<br />
OMB starts off with a balanced budget,<br />
so to increase the funding for a program<br />
or department, residents must decrease<br />
the money allocated elsewhere. For<br />
example, if a resident wants to give<br />
more money to the Health Department,<br />
Public Works, and Transportation<br />
Authorities, which consists of bus and<br />
streetcar services, they must reduce<br />
funding for something else by the same<br />
amount. The room gets amazingly quiet<br />
during this exercise because residents,<br />
who usually see just a snapshot of the<br />
budget, had never realized how many<br />
programs the city has. Playing with<br />
the budget and looking at the programs<br />
opens a lot of people’s eyes.<br />
Behind the budget<br />
numbers<br />
What does the city do with all the data<br />
being collected through the public<br />
budget hearings (the work sessions<br />
and social media outlets)? Exhibit<br />
10 shows results from resident work<br />
sessions in 2018 to 2019, focusing on<br />
the topics of neighborhood investment<br />
and youth programs. Dangerous<br />
building remediation was a topic of<br />
great importance, so in response, the<br />
city funded a two-year, $10 million<br />
bond program—this is the $1.3 million<br />
debt service shown in Exhibit 10—<br />
to help with the backlog of either<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 41
FINANCIAL TRANSPARENCY<br />
EXHIBIT 10 | RESULTS FROM WORK SESSIONS—NEIGHBORHOOD INVESTMENT<br />
AND YOUTH PROGRAMMING<br />
P $1.3 million debt service for dangerous building remediation<br />
P $200,000 additional for Land Bank to add sixth mowing cycle<br />
P Transfer of solid waste collection to Neighborhoods and Housing Services<br />
P Additional positions for receivership program and public engagement<br />
P $300,000 to Housing Court home repair program<br />
P $200,000 for youth programming<br />
EXHIBIT 12 | FY 2020 TO <strong>2021</strong>—RESULTS FROM RESIDENT INPUT<br />
P $327,000 for the creation of the Office of Tenant Advocacy Program<br />
– 2 Tenant Advocate positions<br />
– Consultation, mediation resolution services, outside attorney services<br />
P $200,000 to restore funding to the KC Film Commission<br />
P $250,000 to restore funding to Children’s Mercy Hospital<br />
EXHIBIT 11 | RESULTS FROM WORK SESSIONS—INFRASTRUCTURE INVESTMENT<br />
$162.6 million in capital improvements<br />
P $13.7 million for street resurfacing<br />
P $850,000 for Bruce R. Watkins Drive<br />
P $3 million to Paseo Gateway to match $30 million grant<br />
P $2 million for Urban Youth Baseball Academy<br />
P $24.2 million to advance shovel-ready projects<br />
P More than $10 million for fleet replacement debt service<br />
mediating dangerous big buildings or<br />
tearing them down if they’re deemed<br />
too dangerous to remediate. The city<br />
also provided $200,000 in additional<br />
Parks and Recreation funding for youth<br />
programs, which is especially important<br />
during the summer months, when<br />
young people don’t have anything to do.<br />
These programs are a direct result of the<br />
city’s resident and online engagement.<br />
Then there’s infrastructure investment.<br />
(See Exhibit 11.) In Kansas City, street<br />
infrastructure is consistently ranked<br />
as a top priority. Exhibit 11 provides<br />
some detail about the infrastructure<br />
improvements the city has made<br />
because of the feedback from our<br />
resident work sessions and the citizens<br />
survey.<br />
Several projects were included in the<br />
2019 budget because residents spoke out<br />
about them. (See Exhibit 12.) The city<br />
created an Office of Tenant Advocacy,<br />
which included several new positions,<br />
as well as funding for consultation,<br />
media resolution services, and outside<br />
attorney services.<br />
After the budget was submitted in<br />
February 2020, some other changes<br />
were made because of citizen input,<br />
as shown in Exhibit 12. One of the<br />
things residents strongly supported<br />
was restoring funding to the KC Film<br />
Commission, which had been cut from<br />
Award-Winning Resident<br />
Engagement Strategies<br />
P<br />
P<br />
ICMA’s 2019 Program Excellence<br />
Award: Strategic Leadership and<br />
Governance for governments with<br />
populations of 50,000 or more for<br />
“Connecting the Dots: The Evolution of<br />
KCMO’s Strategic Planning Process”<br />
GFOA’s 2018 Award for Excellence in<br />
Government for “Engaging Residents<br />
in KC’s Citywide Business Plan”<br />
42
EXHIBIT 13 | THE CITY’S TWITTER PAGE<br />
the previous budget, and to talk<br />
about why it should receive more<br />
funding. As a result, the city allocated<br />
$200,000 toward Seasons 3 and 4 of<br />
the popular reality show “Queer Eye”<br />
to help get it filmed in Kansas City.<br />
OMB hosted three of these public<br />
budget hearings with more than 100<br />
people at each session. It was exciting<br />
to see this engagement, with people<br />
coming out and talking to the mayor,<br />
council members, and staff from city<br />
departments about their priorities<br />
and what the city should be funding.<br />
(See Exhibit 13.)<br />
Lessons learned<br />
Two key takeaways about<br />
resident engagement and financial<br />
transparency are to start slow and to<br />
think realistically. Also, make sure<br />
your policies and tools relate to the<br />
government’s strategies and planning.<br />
P<br />
Solicit direct participation with<br />
your elected officials. Kansas City<br />
P<br />
P<br />
P<br />
was lucky to have a former mayor<br />
pro tempore and finance chair who<br />
pushed resident engagement to<br />
their colleagues, and to residents,<br />
explaining how important it was<br />
for residents to give feedback on<br />
how the city is doing.<br />
Kansas City has a number of<br />
success stories, but they weren’t<br />
accomplished instantly, or at<br />
the same time. There were also<br />
projects that would have been<br />
great but didn’t work out. Take<br />
the time to determine what your<br />
organization really wants to do.<br />
Plan carefully to determine what<br />
tools you’ll use and how they’ll<br />
help with policies and planning.<br />
Kansas City uses its tools to<br />
incorporate resident feedback,<br />
which helps determine residents’<br />
priorities, and thereby the budget.<br />
Experiment with different<br />
tools—and expect to have issues.<br />
For every 10 things you try out, it’s<br />
likely that only one will work.<br />
P<br />
P<br />
P<br />
P<br />
Publish relevant and curated<br />
information. Instead of dumping<br />
data, make sure the information<br />
you publish has an impact on the<br />
entire organization.<br />
Communicate the importance<br />
of transparency to all your<br />
stakeholders. The residents of<br />
Kansas City are always hungry for<br />
more information on our social<br />
media, especially Twitter. Use<br />
the formats you have available to<br />
constantly communicate, provide<br />
feedback, and engage residents.<br />
Keep your information up to<br />
date! This has been especially<br />
important during the COVID-19<br />
pandemic.<br />
Communicate results. Use<br />
several platforms to provide<br />
the information about what<br />
residents have said.<br />
Debbie Chiu is the former<br />
budget operations manager for<br />
the City of Kansas City, Missouri.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 43
44
FINANCIAL TRANSPARENCY<br />
Visualizing Data for Residents<br />
of Los Angeles BY RON GALPERIN<br />
The Office of the Controller<br />
for the City of Los Angeles,<br />
California manages<br />
vast amounts of data—<br />
particularly open data and financial<br />
data. The team’s work is based on<br />
three Ts: Transparency, Trust and<br />
Transformation, with the goal<br />
of making Los Angeles the most<br />
transparent city in the United States.<br />
Years ago, organizations that rank the<br />
transparency of governments placed<br />
Los Angeles at the bottom of the list.<br />
Today, the city is ranked at the top.<br />
Greater transparency, which creates<br />
greater accountability, can help build<br />
the public’s trust, which is vital to<br />
continuing democracy. And then,<br />
of course, there’s transformation.<br />
Thanks to technology, the daily<br />
activities of city departments have<br />
changed and are changing radically,<br />
increasing efficiency in operations<br />
and in the delivery of vital services.<br />
We must continue to be innovative<br />
and bring technology to city<br />
government, along with different<br />
ways of thinking about it.<br />
Exhibit 1 illustrates the role of<br />
open data in local government.<br />
There’s a variety of uses for data,<br />
including modernizing operations,<br />
building awareness, and improving<br />
policymaking. Data is no longer just<br />
about producing audits or reports for<br />
other decision-makers in the city; it’s<br />
about conveying information through<br />
visualizations and connecting<br />
communities in new ways.<br />
When I was first elected to office in<br />
2013, I was surprised by just how<br />
technologically behind we were, so<br />
my goal was to bring the Office of the<br />
Controller into the 21st century. I had<br />
been told by colleagues that it would<br />
take two years and cost millions of<br />
dollars to launch an open data portal,<br />
but the first version was completed in<br />
a matter of months at a fraction of the<br />
expected cost. ControlPanel LA, as<br />
we now call it, is the city’s gateway to<br />
raw financial data, data stories and<br />
maps, and dashboards (see Exhibit 2).<br />
It has approximately 1,000 data<br />
sets, charts, graphs, maps, and more,<br />
including filters for all city funds,<br />
EXHIBIT 1 | ROLE OF DATA IN LOCAL GOVERNMENT<br />
The City of Los Angeles is a<br />
four-time recipient of GFOA’s<br />
Popular Annual Financial<br />
Reporting Awards .<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 45
FINANCIAL TRANSPARENCY<br />
and, in some cases, it tracks data in real<br />
time. While financial data may not always<br />
be exciting to the public, this site has had<br />
millions of page views, which shows that<br />
people find this information useful.<br />
ControlPanel LA, L.A.’s first open data website, is a gateway to raw data,<br />
data stories and maps and data dashboards.<br />
EXHIBIT 2 | CENTRALIZING INFORMATION<br />
FILTERING RAW DATA<br />
Every purchase the city makes is shown<br />
in its virtual checkbook, CheckbookLA<br />
(see Exhibit 3), which includes details<br />
about many of those expenditures. Users<br />
can search by keyword, vendor, price,<br />
and more. While making this information<br />
public is vital to an honest government,<br />
it also provides an opportunity for more<br />
companies to bid on city contracts, thereby<br />
increasing competition and benchmarking<br />
the city against other jurisdictions and<br />
the private sector.<br />
It’s important to note that the nature of<br />
L.A.’s audits and reports has significantly<br />
changed in the last few years, along with<br />
the number of people who are engaging<br />
with them and the results we get. This is<br />
why the treasurer’s office works to find<br />
different ways to present information (see<br />
Exhibit 4)—to “bring it to life”—so people are<br />
actually learning something, because we all<br />
know that many government reports are not<br />
necessarily as engaging as they could be.<br />
The City of Los Angeles produces an annual<br />
financial report and, like many others,<br />
it’s a lengthy 430 pages. To make that<br />
information more accessible and engaging,<br />
we’ve created an interactive version of it<br />
that contains more than 60 charts, graphs,<br />
and metrics (see Exhibit 5). Over the years,<br />
we’ve seen how popular it’s been with the<br />
public, which goes to show that visual<br />
elements have the power to convey data and<br />
information in a way that would have been<br />
difficult even a few years ago. (View the<br />
Annual Financial Report at lacontroller.org/<br />
financial-reports/cafr2020/).<br />
EXHIBIT 3 | FILTERING RAW DATA<br />
EXHIBIT 4 | VISUALIZING FINANCIAL DATA<br />
In addition to citizen engagement, it’s<br />
about holding individual city departments<br />
accountable and making sure we know what<br />
our own expectations are by visualizing<br />
performance metrics (see Exhibit 6). For<br />
example, data about library visitors and<br />
the number of materials checked out<br />
gives us insight into the department’s<br />
operations and what improvements, if<br />
any, could be made. Being able to visualize<br />
46
Transforming Local Government<br />
Data + Transparency = Good Government<br />
this information helps residents<br />
understand how their city operates<br />
and how it meets—or doesn’t meet—<br />
its goals.<br />
REVENUE FORECASTING<br />
One of the things the Office of the<br />
Controller is required to do, according<br />
to the city charter, is revenue<br />
forecasting (see Exhibit 7). The<br />
treasurer’s office’s annual Revenue<br />
Forecast Report includes information<br />
gathered from city departments,<br />
recent regional economic reports,<br />
and meetings with local economists.<br />
The report covers revenue estimates<br />
for the remainder of the current fiscal<br />
year and also includes projections<br />
for the coming fiscal year. Although<br />
forecasts inherently involve a level of<br />
uncertainty—as exemplified by what<br />
occurred as a result of the COVID-19<br />
pandemic—our report offers our best<br />
estimates based on the available<br />
information and seeks to promote<br />
practical and responsible budgeting<br />
in the year ahead. In addition to a<br />
written report, my office illustrated<br />
projections in an interactive way for<br />
the city council, the mayor’s office,<br />
and the general public.<br />
At the beginning of March 2020, we<br />
had a pretty good idea of what revenues<br />
were going to look like, and we had<br />
been consistently accurate over the<br />
previous few years. The pandemic<br />
changed those numbers completely.<br />
We issued a revised revenue forecast<br />
and updated our projections with lower<br />
numbers, as so many of the revenue<br />
sources that we depend upon were<br />
down significantly. Major industries<br />
like travel and tourism, retail sales,<br />
and many others were hit hard.<br />
The city went into the pandemic with<br />
strong reserves and several special<br />
purpose funds we could borrow from,<br />
if necessary, going into FY 2020-<strong>2021</strong>.<br />
Indeed, it was necessary for us to<br />
borrow and/or transfer from these<br />
funds to maintain city operations and<br />
provide critical emergency services to<br />
Angelenos. And in response to an everchanging<br />
revenue outlook, the city<br />
passed a “placeholder budget” to be<br />
revised throughout the year to match<br />
the city’s needs and actual revenues.<br />
Because of our adherence to reserve<br />
fund policies, and assistance from the<br />
federal government through President<br />
Biden’s American Rescue Plan, we<br />
were able to weather the storm and<br />
are now pushing ahead with several<br />
programs and initiatives aimed at<br />
promoting a strong economic recovery.<br />
MAPPING<br />
I also believe in harnessing the power<br />
of data in a different visual way that<br />
people don’t usually associate with<br />
numbers—mapping. My office uses<br />
maps to explain, pose questions,<br />
generate ideas and give answers.<br />
We use mapping to contextualize<br />
information we have in our possession<br />
that we need to tell people about (see<br />
Exhibit 8). For example, we created<br />
a map of all the LGBTQ+ resources<br />
in the city of Los Angeles, which is a<br />
way to connect LGBTQ+ individuals<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 47
FINANCIAL TRANSPARENCY<br />
who need help with services, but don’t<br />
know where to look or start. We also<br />
have a map of the noise generated by<br />
Los Angeles International Airport,<br />
tracking every plane that takes off<br />
and lands, and noise emissions. The<br />
purpose of this was to change some of<br />
the conversation about noise, and how<br />
it’s possible to accommodate nearby<br />
residents while also maintaining a<br />
vibrant airport. We’ve also mapped<br />
locations for free tax preparation<br />
services, parking tickets, oil wells,<br />
affordable housing projects, summer<br />
youth programs, and more.<br />
Another important map we’ve created<br />
is Property Panel (see Exhibit 9). The<br />
city of Los Angeles government is the<br />
largest owner of real estate in the city.<br />
We own approximately 7,500 parcels<br />
including small lots, parks, municipal<br />
buildings, and commercial, industrial,<br />
residential, and even retail parcels.<br />
Property Panel maps every public<br />
property within the City of Los Angeles,<br />
including those owned by the county,<br />
the state, the federal government, the<br />
Los Angeles Unified School District,<br />
and the Los Angeles Metropolitan<br />
Transportation Authority.<br />
This was meant to really change the<br />
way that the city thinks about its<br />
portfolio of real estate assets. We have a<br />
great need for community development<br />
and for affordable housing for those<br />
experiencing homelessness, and one<br />
of the best ways to create more of it is<br />
to utilize our own properties. When we<br />
undertook this project, the city didn’t<br />
even know what it owned until we<br />
started mapping these properties.<br />
This information has been a catalyst<br />
for a conversation about how a<br />
new entity can be created to better<br />
manage this real estate and the vast<br />
opportunities these properties can<br />
provide. And Los Angeles isn’t the only<br />
city with a lot of real estate assets, so<br />
this is something other communities<br />
should also consider.<br />
When the pandemic hit in March<br />
2020, the Controller’s Office wanted to<br />
help Angelenos—especially working<br />
and low-income individuals and<br />
families—find useful resources to<br />
help them get by. Our first step in<br />
addressing this problem was to map<br />
EXHIBIT 5 | ANNUAL FINANCIAL REPORT<br />
EXHIBIT 6 | MEASURING CITY PERFORMANCE<br />
EXHIBIT 7 | REVENUE FORECASTING<br />
EXHIBIT 8 | DATA STORIES AND MAPS<br />
48
EXHIBIT 9 | PROPERTY PANEL<br />
EXHIBIT 10 | CONNECTING RESIDENTS TO SERVICES<br />
all the food banks, food pantries and<br />
emergency food distribution centers<br />
in the city. We then expanded that to<br />
all the resources in the county, and<br />
then in the state of California (see<br />
Exhibit 10). Ultimately, we mapped<br />
1,800 of these resources, which we<br />
are keeping updated, and this is the<br />
number one feature on our website<br />
to date.<br />
CONCLUSION<br />
Finance officers often don’t dabble<br />
with data visualizations because<br />
the process seems difficult or seems<br />
like it requires a lot of resources<br />
to get done. But this isn’t the case.<br />
Platforms, software and tools are<br />
available to make the process much<br />
easier than you might think. In my<br />
office, we’ve also engaged several<br />
student interns—young people who<br />
are interested in data and technology<br />
and want to provide their services for<br />
free to improve our city—and they do<br />
a very good job at tackling many of<br />
our data projects. This is something<br />
you can do without spending a<br />
lot of money, and it’s important<br />
because data and transparency<br />
lead to a better government that<br />
works for everybody. By running our<br />
governments well and using all the<br />
resources we have at our disposal,<br />
we can make that happen.<br />
Greater transparency,<br />
which creates greater<br />
accountability, can<br />
help build the public’s<br />
trust, which is vital to<br />
continuing democracy.<br />
Ron Galperin is the controller for<br />
the city of Los Angeles, California.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 49
Budgeting Bias BY<br />
LINNEA GANDHI AND SHAYNE KAVANAGH<br />
Designing for the<br />
Decision-Making<br />
Environment: Who<br />
People Are, Not Who<br />
They Should Be<br />
People are not rational, but we often assume they are. For example,<br />
classical economics is based on the assumption that people are<br />
rational maximizers of their self-interest. Recent Nobel Prize-winning<br />
scientific research, however, has shown that this is not true. Rather<br />
than thinking through decisions rationally and comprehensively,<br />
people use mental shortcuts to make decisions. Much of the time, this<br />
is harmless and even helpful, but sometimes our shortcuts backfire.<br />
Behavioral scientists have cataloged a number of these shortcuts and<br />
when they can go wrong. When these shortcuts fail, they are called<br />
“cognitive biases.” These biases can have a negative effect on all<br />
types of decisions, including budget decisions. But if we know these<br />
biases, we can plan mitigations.<br />
©<strong>2021</strong> STUART BRIERS C/O THEISPOT.COM<br />
50
BUDGETING BIAS<br />
The Anchoring Bias<br />
An example of a common bias is called anchoring.<br />
This means that once we are presented with a<br />
number, we tend to stick close to that number for<br />
future decisions. This can be useful. For example, if<br />
you know the amount your neighbor recently got for<br />
selling their house, that information gives you a good<br />
anchor for negotiating the sale of your own home (and<br />
not selling for too little). But anchoring can backfire<br />
if your anchor isn’t relevant to the decision at hand.<br />
(See Exhibit 1 for a demonstration of how this works.)<br />
Let’s think about how anchoring could apply to budget<br />
decisions. Perhaps the most obvious example is<br />
incremental budgeting, where last year’s budget is<br />
the basis for next year’s budget. If revenues are stable<br />
and the service demands from the community are<br />
consistent from year to year, incremental budgeting<br />
may be a workable short cut for doing budgeting faster<br />
and more easily. But if the government finds itself<br />
in a situation where revenues are not stable and/or<br />
there are new challenges that government needs to<br />
confront, then the “anchor” of what was spent before<br />
may not be so helpful. One way to help overcome this<br />
problem might be to break departmental spending<br />
down into programs, which would shift the focus from<br />
what was spent on that department last year to which<br />
programs are most important for addressing current<br />
challenges. This is known as priority-based budgeting.<br />
EXHIBIT 1 | THE PHONE NUMBER-JELLY BEAN<br />
ANCHORING BIAS<br />
Seventy-seven GFOA members participated in<br />
a survey that randomly assigned them to two<br />
groups. Half were asked to provide the first three<br />
digits of their phone number (which averaged to<br />
473) and the other half were asked to provide<br />
the last four digits (which averaged to 4348).<br />
All participants were then asked to estimate the<br />
number of jelly beans in the jar depicted below.<br />
Of course, the phone numbers that the<br />
respondents provided were completely irrelevant<br />
to the number of jelly beans, but when we<br />
analyzed the average guesses, the people who<br />
provided the smaller number for their phone<br />
(the three digits instead of four) all provided a<br />
clearly lower guess on the number of beans.<br />
Learn more about priority-based<br />
budgeting by reading GFOA’s<br />
“Anatomy of a Priority-Driven<br />
Budget Process” whitepaper<br />
at gfoa.org/materials/<br />
priority-based-budgeting.<br />
Anchoring can<br />
backfire if your anchor<br />
isn’t relevant to the<br />
decision at hand.<br />
LAST 3 DIGITS<br />
LAST 4 DIGITS<br />
744<br />
2010<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 51
BUDGETING BIAS<br />
Another example of anchoring is when benchmark<br />
statistics from comparable governments are used as a<br />
basis for making decisions about reserves, rates, and<br />
more. Though having a reference point can be helpful<br />
in some cases, benchmarks can be a hindrance if they<br />
are not sufficiently relevant to your own government’s<br />
context. In a recent GFOA webinar, Natalie Morrison,<br />
manager of financial planning and analysis at<br />
WaterOne, shared a story about how this affected her<br />
firm’s ability to provide affordable rates to its customers.<br />
“For water affordability, it is very common to<br />
compare your rates to your neighbors and then<br />
also use a benchmark percentage for the average<br />
bill as a percentage of median household income.<br />
Everyone uses either their neighbors’ rates or<br />
this generic threshold to determine affordability—<br />
which may or may not actually mean the utility is<br />
affordable based on the specific demographics of<br />
the service territory.<br />
As WaterOne took a closer look at how our lowestincome<br />
customers might be disproportionately<br />
burdened by their water bill, we liked to use the<br />
analogy that “when we are buying shoes, we<br />
shouldn’t be measuring our neighbor’s feet”—<br />
meaning that we want to make decisions based<br />
purely on what is best for our rate payers and<br />
what our publicly elected board determines to be<br />
affordable for our rate payers.”<br />
Benchmarks can be a hindrance if<br />
they are not sufficiently relevant to<br />
your own government’s context.<br />
Exhibit 2 contains a presentation with benchmarking<br />
data and a new graphic that avoids peer comparisons. If<br />
the objective is to provide affordable water to low-income<br />
households, avoiding peer comparisons seems like a clear<br />
improvement. The first graphic might imply that lowincome<br />
residents are paying too little! The new graphic<br />
emphasizes how little income these residents actually<br />
have, so anything WaterOne can do to help them save<br />
money could make a big difference.<br />
The key takeaway here is, first, to think carefully about<br />
the relevance of the anchors you are providing to decisionmakers.<br />
Whether serving as a comparative reference<br />
point or a standalone value, they can and will shape<br />
subsequent decisions. For example, if a budget needs to be<br />
rethought, providing historical numbers might reduce the<br />
amount of change people will engage in. Or a comparative<br />
benchmark might not be relevant to your own context.<br />
Second, recognize the weaknesses of incremental<br />
budgeting. Sometimes a shortcut is OK. Look for parts<br />
of the budget where shortcuts work well and use them<br />
there. Avoid shortcuts for parts of the budget where a<br />
more critical examination is required to better serve<br />
the community.<br />
©<strong>2021</strong> JAMES STEINBERG C/O THEISPOT.COM<br />
52
EXHIBIT 2 | WATERONE <strong>2021</strong> BUDGET (REVENUE & RATES)<br />
Local Utility Comparison: Typical Monthly Bill Amount as a % of Median Household Income<br />
WaterOne<br />
0.6%<br />
Olathe<br />
Miami RWD2<br />
Gardner<br />
Water 7<br />
Spring Hill<br />
KCMO<br />
Bonner Springs<br />
DeSoto<br />
BPU<br />
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%<br />
In the graph above, the typical monthly amount is compared to median household income for WaterOne. This<br />
provides a measurement of community affordability. In the graph below, low usage typical monthly amount is<br />
compared to the 20th percentile income, representing a comprehensive view of household affordability for WaterOne.<br />
Water Costs as a Percentage of Basic Needs*<br />
Housing<br />
Food<br />
Income After<br />
Basic Needs**<br />
$735<br />
Non-water<br />
essential<br />
expenses<br />
WaterOne 3.7%<br />
Taxes<br />
Healthcare<br />
Total Income $3,515<br />
* Amount was calculated based on an individual in the 20th percentile for income.<br />
** Please note costs related to transportation, childcare, energy, and other household needs are not included in Basic Needs calculation.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 53
BUDGETING BIAS<br />
Recency Bias<br />
Budgeting is also afflicted by the recency bias. This<br />
means that whatever is more recent is what comes to<br />
mind more easily, and that which comes to mind more<br />
easily tends to be thought of as more probable or likely<br />
or prevalent. For example, when formulating an annual<br />
budget, a current “hot topic” might be over-weighted<br />
versus long-term, persistent (and ultimately more<br />
important) challenges that the local government faces.<br />
One design solution might be to link strategic and longterm<br />
planning to the budgeting process, where decisionmakers<br />
are reminded of all the big issues facing the<br />
local government before making budget decisions.<br />
To mitigate recency bias, design<br />
a way for decision-makers to<br />
“zoom out” and see the big picture.<br />
Another example of recency bias might be when a<br />
citizen comes to a public meeting to complain about<br />
an issue they are concerned about, but that is not<br />
representative of broader community sentiment. That<br />
issue—and the citizen’s perspective on it—is then overweighted<br />
in the discussion. The solution here might be<br />
to make a habit of taking regular surveys or to use more<br />
representative approaches to community engagement—<br />
and to document the results and keep them in front of<br />
decision-makers.<br />
The commonality between the two solutions offered<br />
above is to design a way for decision-makers to “zoom<br />
out” and see the big picture, and not put too much<br />
emphasis on the most recent information they’ve been<br />
exposed to.<br />
©<strong>2021</strong> DAN PAGE COLLECTION C/O THEISPOT.COM<br />
54
Assume people will make mistakes<br />
Finally, designing the decision-making environment<br />
is not only about mental shortcuts gone awry.<br />
Sometimes people just make mistakes in their<br />
budgets. Of course, department managers know they<br />
might make a mistake and, understandably, are<br />
more concerned about under-budgeting than overbudgeting.<br />
Therefore, they tend to build some “slack”<br />
or “padding” into their budgets. When all departments<br />
do this, the total amount of padding can really add<br />
up. One way to address this situation is by creating<br />
an annual pooled contingency that departments<br />
can draw from if they have unplanned, unavoidable<br />
expenditures. This is a bit like an insurance program<br />
for department budgets. Local governments that<br />
have used this approach have found that having this<br />
“insurance” in place makes departments feel less<br />
need for their own budgetary padding, resulting in<br />
significant, ongoing savings. You can read more about<br />
how to set up a pooled contingency and the benefits<br />
in “Don’t Go It Alone,” an article in the June <strong>2021</strong><br />
issue of Government Finance Review (available at<br />
gfoa.org/gfr-june-<strong>2021</strong>).<br />
The finance officer can anticipate other common<br />
mistakes people make and prepare mitigating<br />
strategies.<br />
The budget officer needs to<br />
design a decision-making<br />
environment that anticipates the<br />
effects of biases and fallibility.<br />
Conclusion<br />
Cognitive biases and people’s natural fallibility mean<br />
that the budget officer needs to design a decision-making<br />
environment that anticipates the effects of biases and<br />
fallibility. This article has provided examples of some of<br />
the most essential biases and mistakes and suggested<br />
solutions. We encourage you to learn more about the<br />
growing field of behavioral science and how it can be applied<br />
to budgeting. Be on the lookout for additional articles from<br />
GFOA and consider checking out the webinar series on<br />
behavioral science that GFOA recently offered (see above).<br />
Linnea Gandhi is the founder of BehavioralSight, an<br />
ExecEd Lecturer at The University of Chicago, and a<br />
PhD candidate at Wharton.<br />
Shayne Kavanagh is the Senior Manager of<br />
Research in GFOA’s Research and Consulting Center.<br />
This article is based on a webinar series presented<br />
by GFOA called “Using Behavioral Science for<br />
Better Decision-Making and Budgeting.”<br />
We have provided this article to bring you<br />
some of the insights from the webinar series.<br />
A recording of the webinars is available at<br />
gfoa.org/materials/behavioral-science-<strong>2021</strong>.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 55
Strengthening Risk<br />
Management Before<br />
the Next Big Crisis<br />
A SIX-STEP GUIDE<br />
56
RISK MANAGEMENT<br />
BY MARK BEASLEY, AL CHEN, AND ERICKA F. KRANITZ<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
As we begin to emerge<br />
from the pandemic,<br />
most business leaders,<br />
including those at the<br />
helm of state and local governments,<br />
are seeking ways to learn from this<br />
experience and to strengthen their<br />
level of preparedness for the next risk<br />
management crisis. In fact, our recent<br />
research finds that a strong majority<br />
of organizations (73 percent) report<br />
that there will be significant changes<br />
in their approach to continuity<br />
planning and crisis management<br />
processes. 1 These levels are even<br />
higher for state and local governments<br />
and nonprofits (84 percent of those<br />
surveyed). Some organizations are<br />
realizing that their approach to<br />
managing risks is woefully lacking in<br />
robustness and maturity.<br />
Each year, through the work of<br />
the Enterprise Risk Management<br />
(ERM) Initiative at North Carolina<br />
State University, we work closely<br />
with business leaders across all<br />
sectors, including state and local<br />
governments, helping them identify<br />
opportunities to enhance their<br />
processes for getting their arms<br />
around the ever-changing risk<br />
landscape. 2 During the COVID-19<br />
experience, we have provided handson<br />
coaching for government leaders<br />
and other executives about effective<br />
tactics and emerging best practices<br />
related to risk management processes.<br />
This included a municipality with<br />
a population of 500,000 and a $215<br />
million budget, along with a larger<br />
municipality that has a population<br />
of more than one million people and<br />
an operating budget exceeding $1.5<br />
billion. ERM has also advised two<br />
large state agencies.<br />
Building on the reality that managing<br />
risks will remain challenging for all<br />
organizations, this article includes<br />
insights from our ongoing work to<br />
formulate a six-step guide. State and<br />
local government leaders can use this<br />
guide to refresh their organization’s<br />
risk oversight capabilities to be ready<br />
for the inevitable next crisis, before it<br />
happens.<br />
It’s not getting easier<br />
State and local government<br />
leaders have had a front-row seat in<br />
navigating the extraordinary events<br />
of the past year. They are still called<br />
upon to help manage many responses<br />
to risks triggered by the ongoing<br />
pandemic situation, including<br />
oversight of COVID-19 testing and<br />
vaccine distribution efforts, issuance<br />
of evolving social distancing<br />
community guidelines and policies,<br />
and responding to increased<br />
demands for existing services while<br />
managing a host of other issues<br />
related to social unrest, public<br />
safety, homelessness, cyber threats,<br />
political elections, and so on. At the<br />
same time, government leaders have<br />
had to address risks affecting core<br />
operations that have been disrupted,<br />
and as they anticipate what’s next.<br />
Leaders are looking for ways to<br />
better anticipate risks, especially as<br />
senior executives are being asked<br />
to provide more information about<br />
risks affecting their organizations.<br />
They are looking for new ways to<br />
elevate their organization’s approach<br />
to navigating the ever-emerging risk<br />
landscape. Organizational leaders<br />
are convinced that complex and<br />
interrelated risks will continue<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 57
RISK MANAGEMENT<br />
to emerge—and stakeholder<br />
expectations for more effective risk<br />
oversight will continue to grow.<br />
Many leaders are embracing a<br />
more enterprise-wide approach to<br />
risk management that is centered<br />
on better anticipating risks that<br />
may emerge and affect what is<br />
strategically important. But many<br />
leaders are unsure of what steps<br />
they should take. Our objective in<br />
this article is to highlight how state<br />
and local government leaders can<br />
either jumpstart or strengthen their<br />
enterprise-wide risk management<br />
efforts to obtain strategic value.<br />
See the sidebar for a more detailed<br />
description of ERM.<br />
Keep things simple:<br />
Use a frame of reference<br />
Organizations can keep things<br />
simple by using a six-step framework<br />
to evaluate and enhance the<br />
enterprise-wide risk management<br />
processes. Because the concept of<br />
ERM isn’t new, leaders have varying<br />
levels of understanding (and<br />
misunderstanding) about ERM’s<br />
role and key elements. Therefore,<br />
the concept needs to be defined at<br />
the outset to make sure everyone<br />
is on the same page about ways<br />
in which ERM might be helpful<br />
and what comprises an effective<br />
risk management process. This<br />
has generally been accomplished<br />
through a brief overview at an<br />
existing meeting of the executive<br />
team. Keeping the process relatively<br />
simple and aligned with current<br />
business practices is generally<br />
a successful strategy. There will<br />
always be opportunities to enhance<br />
and make further improvements<br />
over time.<br />
The approach we tend to use is<br />
linked to six key elements of an<br />
effective ERM process, which are<br />
illustrated in Exhibit 1. Its circular<br />
nature highlights the fact that<br />
ERM is intended to be a continual,<br />
ongoing process, since risks will<br />
never stop emerging. The five<br />
inset ovals highlight critical<br />
components that business leaders<br />
should take to launch an ERM<br />
process that can provide proactive<br />
risk insights for strategic decisionmaking.<br />
These five elements are<br />
influenced by the organization’s<br />
culture and leadership, which sit<br />
at the center, emphasizing the<br />
importance of setting the tone at<br />
the top. These elements are also<br />
in line with the Committee of<br />
Sponsoring Organizations of the<br />
Treadway Commission (COSO)<br />
Enterprise Risk Management<br />
framework issued in June 2017. 3<br />
Let’s briefly walk through the six<br />
steps that directly correspond to<br />
the six elements of an effective<br />
ERM process.<br />
What Is ERM?<br />
The goal of enterprise risk management (ERM)<br />
is to help organizational leaders identify and<br />
manage risks that could have a significant<br />
impact on the organization’s ability to achieve<br />
its mission-critical strategic goals. In its<br />
simplest form, ERM is a way of thinking<br />
about current and emerging risks, as well as<br />
missed opportunities, so leaders can be better<br />
prepared to manage risks more nimbly and<br />
proactively and to creatively adapt to changing<br />
circumstances. Having an ongoing process<br />
and mindset that focuses on understanding<br />
and managing risks proactively helps make<br />
leaders better prepared and resilient, and<br />
better able to pivot and adapt to changing<br />
circumstances. The concept of ERM focuses<br />
on the entire organization, with the goal of<br />
providing a comprehensive, holistic, top-down<br />
view of risks when they emerge. It helps make<br />
risks visible across functional areas and<br />
allows leaders to see their inter-relationships.<br />
EXHIBIT 1 | SIX ELEMENTS OF AN ERM PROCESS<br />
Communication<br />
and Monitoring<br />
Risk<br />
Reponse<br />
Core Value<br />
Drivers and<br />
Strategy<br />
Culture and<br />
Leadership<br />
Risk<br />
Assessment<br />
Risk<br />
Identification<br />
58
84%<br />
of state and local<br />
governments report<br />
that there will be significant<br />
changes in their approach to<br />
continuity planning and crisis<br />
management processes.1<br />
STEP<br />
1<br />
Start with a strategic lens<br />
The goal of ERM is to help<br />
management better anticipate<br />
risks that might emerge, impeding<br />
the government’s ability to<br />
provide mission-critical products<br />
and services. The key is to get<br />
individuals focused on what’s<br />
most important—that is, make sure<br />
everyone has a clear understanding<br />
of what the government works at<br />
every day to fulfill its core mission.<br />
We like to refer to these as the entity’s<br />
“crown jewels.” So, an effective ERM<br />
process starts with Step 1, which is<br />
highlighted by the top oval labeled<br />
“Core Value Drivers and Strategy” in<br />
the ERM cycle shown in Exhibit 1.<br />
Most state and local governments<br />
provide a multitude of services<br />
such as public safety, parks and<br />
recreation, education, healthcare and<br />
childcare services, and libraries. We<br />
begin by engaging in conversations<br />
with government leaders to ensure<br />
there is a consistent and clear<br />
understanding of what is strategically<br />
most critical to the organization’s<br />
mission and strategic success. These<br />
conversations are often conducted<br />
in a management meeting or an<br />
educational training session or<br />
workshop to ensure that key leaders<br />
agree about what is most important to<br />
the entity’s strategic success. Leaders<br />
from throughout the organization<br />
need to be included. A successful<br />
restart after COVID-19 needs<br />
enterprise-wide input from Human<br />
Resources, Finance, Budget and<br />
Planning, Information Technology,<br />
and core operational units including<br />
Waste Management, Public Safety,<br />
and Transportation, because<br />
the focus will be on anticipating<br />
risks that could have a significant<br />
strategic impact on the entire<br />
organization, not just an individual<br />
function or unit.<br />
Developing a strategic lens should<br />
occur before considering risks<br />
that might impact the ability to be<br />
successful. Without consensus about<br />
what is strategically most important,<br />
management may be going in<br />
competing directions about what<br />
risks are of the highest priority for the<br />
state or local government to manage.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 59
RISK MANAGEMENT<br />
STEP<br />
2<br />
Use a strategic lens to identify risks<br />
With a strong strategic point of focus,<br />
management is in a position to begin<br />
identifying risks that might affect the<br />
government’s ability to deliver those<br />
mission-critical services or new<br />
strategic initiatives (as shown by<br />
the “Risk Identification” oval in<br />
Exhibit 1). It’s helpful to start by<br />
asking two important questions about<br />
these mission-critical services:<br />
1. What has to go right to deliver<br />
these services?<br />
2. What assumptions are we<br />
making about our organization’s<br />
ability to provide these services?<br />
Once management thinks about these<br />
key elements, we then flip the first<br />
question to “What might emerge from<br />
within or external to the organization<br />
that might keep these from going<br />
right?” Answers to this question<br />
provide insights about potential risks<br />
on the horizon that are important to<br />
executing the government’s missioncritical<br />
deliverables. Internal (from<br />
within the governmental entity)<br />
and external events (outside the<br />
control of the governmental entity)<br />
that might derail a process are great<br />
candidates to consider for potential<br />
risks that could emerge and impact<br />
strategic success.<br />
Similarly, once the assumptions are<br />
pinpointed about the state or local<br />
government’s ability to continue<br />
delivering mission-critical services,<br />
we then ask, “How do we know these<br />
assumptions are valid?” and “What<br />
is the impact to our success if an<br />
assumption is flawed?” For example,<br />
will critical IT systems support the<br />
increased volume of online business<br />
and core activities for employees<br />
working remotely? Answers help<br />
to tease out strong candidates<br />
for potential risks to what is<br />
strategically important for the state<br />
or local government to achieve.<br />
Exhibit 2 provides a simple<br />
illustration of how these questions<br />
might help identify potential<br />
risks that might impact a local<br />
government’s ability to secure books<br />
and database resources for libraries<br />
that serve their local community.<br />
EXHIBIT 2 | RISK IDENTIFICATION TEMPLATE<br />
MISSION-CRITICAL<br />
SERVICE<br />
KEYS TO SUCCESS OF DRIVER<br />
What must go right for value driver to<br />
be successful? (Key people, processes,<br />
technologies, etc.)<br />
BIG ASSUMPTIONS<br />
What are the big assumptions being made?<br />
Example:<br />
Local library staff<br />
select books and<br />
databases for<br />
acquisition<br />
POTENTIAL<br />
RISKS TO MISSION-<br />
CRITICAL SERVICE<br />
• Librarians need to be knowledgeable about<br />
appropriate books and databases.<br />
• The process of prioritizing books and<br />
databases for purchase needs to be accurate<br />
and reliable.<br />
• The system for entering books and<br />
databases for purchase needs to be accurate<br />
and reliable and secure.<br />
RISKS TO KEYS TO SUCCESS OF DRIVER<br />
What challenges might emerge to prevent<br />
“keys to success”?<br />
• Library staff is culturally competent to<br />
make selections that the community needs<br />
and desires.<br />
• IT infrastructure can support the databases<br />
selected.<br />
• The community can access the books and<br />
databases they desire.<br />
RISKS TRIGGERED BY ASSUMPTIONS<br />
What might challenge our assumption in<br />
the future?<br />
• Turnover in library staff may lead to<br />
deterioration of institutional knowledge.<br />
• Management overrides process, leading to<br />
biased decisions.<br />
• Systems used to select books and databases<br />
may crash or be inaccurate.<br />
• Shifting community demographics may be<br />
overlooked when making book selections.<br />
• Databases selected may not be compatible<br />
with entity’s legacy IT systems.<br />
60
40%<br />
of state and local<br />
governments<br />
provide explicit guidelines in the<br />
form of scales for individuals to<br />
use as they rank order risks.1<br />
STEP<br />
3<br />
Prioritize top risks<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
Most state and local governments<br />
face a plethora of risks, so a number of<br />
potential issues are identified in this<br />
step. Management needs a process<br />
to help them assess which risks are<br />
most important (as reflected by the<br />
“Risk Assessment” oval in Exhibit<br />
1). A common approach is to rank<br />
risks based on impact, likelihood,<br />
preparedness, and velocity. A fivepoint<br />
scale numbered from 1 (low)<br />
to 5 (high) could be used to assess<br />
these elements of a given risk:<br />
• Impact refers to how big an<br />
effect the risk would have on<br />
the organization, such as from a<br />
financial perspective or in terms<br />
of reputational damage.<br />
Example: The pandemic could<br />
have a negative economic impact<br />
on income tax revenues of more<br />
than 50 percent. (This would be<br />
considered high impact.)<br />
• Likelihood, or probability,<br />
considers the chance of the risk<br />
occurring in a given period of<br />
time, usually two to three years.<br />
Example: There is a high probability<br />
that actual tax revenues will<br />
decrease by 25 percent or more<br />
than the amounts budgeted over<br />
the next fiscal year. (This would be<br />
considered a high likelihood.)<br />
• Preparedness reflects whether<br />
the organization believes it has<br />
steps in place to manage the risk,<br />
should it occur.<br />
Example: Fund balance reserves<br />
and budget cuts will only sustain<br />
the current level of activity through<br />
the next fiscal year. (This would be<br />
a low level of preparedness.)<br />
• Velocity considers the speed of onset,<br />
or how fast the risk might emerge.<br />
This element needs to be considered<br />
along with all other factors—for<br />
example, a risk may be determined<br />
unlikely, but it might evolve quickly<br />
and have a high impact if it appears.<br />
So, risk responses would need to be in<br />
place for trends that are fast-moving<br />
with disruptive potential.<br />
Example: The pandemic’s onset<br />
has been fast-moving, with little<br />
advance warning about the<br />
potential extent and damage to<br />
business operations. (This would<br />
be considered high velocity.)<br />
Risk scores can be developed<br />
from the assessments of each risk<br />
to rank-order risks from highest<br />
to lowest to pinpoint which risks<br />
deserve the most attention.<br />
The COVID pandemic prompted<br />
many state and local government<br />
leaders to realize that they must<br />
understand their top risks in<br />
order to effectively focus their<br />
limited resources on what is most<br />
important strategically to the<br />
organization overall.<br />
Our <strong>2021</strong> State of Risk Oversight<br />
Report finds that about 40 percent<br />
of state and local governments<br />
and nonprofit organizations<br />
provide explicit guidelines in<br />
the form of scales for individuals<br />
to use as they rank order risks.<br />
Those that do not provide these<br />
kinds of scales (or templates)<br />
sometimes just simply ask<br />
individual leaders to submit their<br />
ranking of top 10 risks from the<br />
list of risks identified in Step 2.<br />
The rankings from individuals<br />
can be aggregated to quickly<br />
pinpoint a consensus view of top<br />
risk concerns.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 61
RISK MANAGEMENT<br />
STEP<br />
4<br />
Develop risk response<br />
Many risks are interrelated, so it’s a<br />
good idea to assign a “risk owner” for<br />
each risk theme to keep management<br />
informed about top risks and<br />
communicate with a high-level<br />
internal risk committee. Risk owners<br />
help management keep an eye on all<br />
aspects of their assigned risks.<br />
The risk owner is usually the person<br />
who leads a business function most<br />
closely related to the risk theme. For<br />
example, the vice president of Human<br />
Resources would likely be the risk<br />
owner for risks related to attracting<br />
and retaining key talent. Each risk<br />
owner is a “champion” responsible for<br />
developing a deep understanding of a<br />
group of related risks, identifying root<br />
causes. They will evaluate responses<br />
to prevent and/or manage the risk<br />
and monitor the risks for changes,<br />
both positive and negative. The risk<br />
owner is responsible for overseeing<br />
the organization’s approach to<br />
managing a particular risk theme,<br />
such as talent, and identifying a<br />
team of subject matter experts to help<br />
address the organization’s responses<br />
to the underlying individual risk<br />
statements.<br />
who have direct responsibility for<br />
the activity or area related to the<br />
particular risk statement. Therefore,<br />
the risk owner, in conjunction with<br />
other members of management,<br />
would also determine what additional<br />
measures, if any, the organization<br />
needs to implement to enhance the<br />
effectiveness of its risk management.<br />
A useful tool, referred to as a bow-tie<br />
analysis, helps in evaluating the<br />
root cause and the effectiveness of<br />
risk responses. Exhibit 3 provides<br />
an example of a completed bow-tie<br />
analysis.<br />
Let’s walk through an example of how a<br />
risk owner could use the bow-tie format<br />
to analyze an individual risk statement.<br />
The hypothetical risk is related to<br />
an outdated information technology<br />
system that can no longer support the<br />
government’s current environment<br />
(see Exhibit 3). The risk is in the center<br />
of the bow-tie—it is the “knot.”<br />
A bow-tie analysis begins with a focus<br />
on possible root causes (which are<br />
illustrated in the far-left column<br />
of Exhibit 3). In this example,<br />
the unprecedented level of<br />
unemployment claims may be<br />
stretching the IT system capabilities.<br />
Also, employees who are working<br />
remotely may unintentionally create<br />
IT system vulnerabilities because of<br />
a lack of awareness and insufficient<br />
training. Many governments have<br />
older IT systems, and the capabilities<br />
of these systems, along with the IT<br />
support team, may not be able to keep<br />
ahead of the emerging cyber threats.<br />
Next, the risk owner summarizes<br />
the measures currently in place to<br />
prevent these risks (see the second<br />
column from the left in the bow-tie<br />
analysis in Exhibit 3). Examples<br />
include cross-training employees<br />
and hiring part-time workers to<br />
keep up with the increased volume<br />
of claims. Organizations can also<br />
address cyber risks by conducting<br />
annual training and using thirdparty<br />
software to scan the network<br />
for unauthorized access attempts.<br />
The risk owner oversees the process<br />
to determine if the organization’s<br />
current risk management approach<br />
adequately addresses each of the<br />
top risks and, if not, what additional<br />
responses or adjustments are<br />
necessary (as shown by the oval<br />
“Risk Response” in Exhibit 1).<br />
The goal is to consider how the<br />
organization is already managing<br />
the risk by taking steps to reduce<br />
the likelihood of its occurrence.<br />
This is achieved by understanding<br />
the root causes of the risk and<br />
finding ways to prevent those root<br />
causes from emerging. Risk owners<br />
also need to assess how prepared<br />
the organization is to manage the<br />
impact or consequences of a risk<br />
event. They also need to engage<br />
other subject matter experts<br />
The goal is to<br />
consider how the<br />
organization is<br />
already managing<br />
the risk by taking<br />
steps to reduce<br />
the likelihood of<br />
its occurrence.<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
62
To the right of the center of the<br />
bow-tie analysis in Exhibit 3, the<br />
risk owner identifies consequences<br />
and responses for managing the<br />
risk event. For example, many<br />
state and local governments have<br />
already experienced a backlog<br />
of claims, given the increased<br />
volume and the time it takes to<br />
process unemployment benefits. A<br />
ransomware attack on a government’s<br />
IT systems could make it difficult or<br />
impossible to provide core business<br />
processes for a period of time. Both of<br />
the above examples could also have a<br />
negative impact on the government’s<br />
overall reputation. Possible actions<br />
for managing the impact of risk<br />
events may include eliminating<br />
non-value-added manual processes<br />
and evaluating a new IT system, or<br />
expanding its capacity, should these<br />
risks continue for a longer term.<br />
A key ERM principle that has emerged<br />
during the past year is that risk<br />
owners must learn how to respond<br />
to risks quickly and effectively,<br />
without expecting perfection. The<br />
risk owner, in conjunction with other<br />
members of management, would also<br />
determine what additional measures<br />
the organization would need to<br />
implement in order to enhance<br />
the effectiveness of how they are<br />
managing the risk.<br />
Risk owners must<br />
learn how to respond<br />
to risks quickly and<br />
effectively, without<br />
expecting perfection.<br />
EXHIBIT 3 | BOW-TIE ANALYSIS TEMPLATE<br />
CAUSES<br />
RESPONSE TO<br />
PREVENT RISK<br />
OWNER OF<br />
RESPONSE<br />
CONSEQUENCES<br />
RESPONSE TO<br />
MINIMIZE IMPACT<br />
OWNER OF<br />
RESPONSE<br />
• Significant<br />
increase in<br />
volume of<br />
unemployment<br />
claims in a short<br />
period of time.<br />
• Current manual<br />
processes are<br />
inefficient and<br />
not designed for<br />
current situation.<br />
• Evolving cyber<br />
risks may outpace<br />
capabilities<br />
and knowledge<br />
of IT support<br />
especially due<br />
to employees<br />
working remotely.<br />
• Improper data<br />
handling, storage,<br />
and/or disposal of<br />
information.<br />
• Cross-training of<br />
employees.<br />
• Part-time<br />
employees hired<br />
for the near-term.<br />
• Regular review of<br />
exception reports<br />
and metrics for<br />
unusual activities.<br />
• Required annual<br />
training on best<br />
practices.<br />
• Utilize a third<br />
party software to<br />
scan network.<br />
Individual #1<br />
Individual #2<br />
The current<br />
information<br />
technology<br />
systems are<br />
outdated and<br />
may not be<br />
able to support<br />
the extent<br />
and nature of<br />
activities in<br />
the current<br />
environment.<br />
• Significant<br />
backlog of claims.<br />
• Individuals<br />
unable to<br />
obtain status<br />
information.<br />
• Negative impact<br />
to reputation and<br />
public image.<br />
• Various data<br />
systems attached<br />
by malware.<br />
• Business<br />
interruption to<br />
core processes.<br />
• Management<br />
may be unable<br />
to make reliable<br />
and/or timely<br />
business<br />
decisions due<br />
to inaccurate or<br />
incomplete data.<br />
• Increase crosstraining<br />
of<br />
employees.<br />
• Reduce and/<br />
or eliminate<br />
manual processes<br />
considered<br />
low-risk.<br />
• Evaluate<br />
long-term IT<br />
options, such as<br />
a new system or<br />
expanded server,<br />
to allow for<br />
increased volume<br />
and efficiency.<br />
• Stronger access<br />
requirements<br />
(two factor) to key<br />
systems.<br />
• Regular review<br />
of metrics and<br />
data analytics<br />
to support<br />
management<br />
decisions.<br />
• Ongoing required<br />
education.<br />
Individual #3<br />
Individual #4<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 63
RISK MANAGEMENT<br />
STEP<br />
5<br />
Communicate and monitor risks<br />
To be truly effective, ERM should<br />
foster rich dialogue about the<br />
management of the top risks on<br />
the horizon that might derail<br />
mission-critical services. Effective<br />
communications about risks among<br />
the management team can help<br />
foster conversation that will help<br />
in making decisions. (This links to<br />
the “Communications” aspect of<br />
the last insert oval in Exhibit 1.)<br />
A growing number of organizations<br />
are creating management-level<br />
risk committees to oversee and<br />
coordinate risk management efforts<br />
across the enterprise. Our <strong>2021</strong><br />
State of Risk Oversight Report reveals<br />
that 62 percent of organizations<br />
surveyed have a managementlevel<br />
committee in place in <strong>2021</strong>,<br />
as compared to 22 percent over a<br />
decade ago. A management-level<br />
risk committee is an internal<br />
committee made up of senior leaders<br />
involved in strategic decisions<br />
throughout the entire organization.<br />
The committee’s role is to evaluate<br />
and assess the effectiveness of the<br />
organization’s response plans for<br />
specific risks. Communications<br />
from risk owners to risk committees<br />
help management engage in an open<br />
discussion as to whether the entity’s<br />
risk response plans are reasonable<br />
and if leadership is comfortable<br />
with the level of residual risk<br />
accepted. The committee should<br />
meet regularly with the risk owners<br />
to review a summary about each of<br />
the assigned risks and the related<br />
risk responses.<br />
40%<br />
of organizations<br />
surveyed have<br />
a management-level risk<br />
committee in place, compared<br />
to 22% over a decade ago.1<br />
Many entities are asking risk<br />
owners to prepare one-page risk<br />
templates that summarize all the key<br />
information related to a particular<br />
risk. (See Exhibit 4 for an example.)<br />
These templates are intentionally<br />
designed to be one-page summaries<br />
that provide a high-level overview<br />
for all members of the management<br />
team about a given risk. Of course,<br />
if more information is needed, the<br />
risk owners can be asked to provide<br />
it. Many organizations find these<br />
summaries very helpful.<br />
(KRIs). Most organizations have<br />
several metrics, or key performance<br />
indicators, for monitoring historical<br />
activities. One example would be<br />
actual expenditures as compared<br />
to the appropriated and approved<br />
budget. These performance<br />
indicators (or KPIs) focus on the<br />
past and are usually based on<br />
internal data.<br />
To identify KRIs that are relevant<br />
to each risk, think about the<br />
following questions.<br />
Communication is essential to any<br />
organization, but even more so as<br />
the organization works through<br />
these ERM efforts. Many of these<br />
risk statements will be interrelated,<br />
so communications need to be<br />
transparent, and information<br />
should flow regularly throughout all<br />
levels of the organization and to the<br />
board or governing body.<br />
Risk committees need metrics to help<br />
in their assessments (as indicated<br />
by “Monitoring” in the last oval in<br />
Exhibit 1). A lesson learned from<br />
dealing with COVID-19 and other<br />
events of the past year is that all<br />
types of entities must consistently<br />
monitor and communicate an<br />
organization’s internal and external<br />
risks using key risk indicators<br />
• How would you know if one of<br />
your top risks was increasing?<br />
• What would the warning signs be?<br />
• Who is monitoring this?<br />
• How would management be<br />
informed?<br />
• What are the process and<br />
culture to support escalation?<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
64
EXHIBIT 4 | EXAMPLE OF A 1-PAGE RISK REPORT<br />
Value Driver Theme: Talent Management<br />
Tier 1 Risk Statement: There is a concern that we may struggle to attract and retain talent we need for strategic success.<br />
Risk Owner: Jane Doe<br />
High-Level Summary of the Risk Issue (i.e., what’s happening, what are the root causes):<br />
Job candidates and existing employees may no longer view our business and industry as interesting and attractive.<br />
Our compensation packages may not be sufficiently competitive to attract and retain needed talent.<br />
What are We Doing Now to<br />
Prevent the Risk from Occurring<br />
(Preventive Response):<br />
What are We Doing to Minimize<br />
Consequences of Risks If They<br />
Occur (Reactive Response):<br />
Need for Additional Responses<br />
to Better Manage Risk Responses<br />
Our website and other external<br />
communications in online hiring sites<br />
are emphasizing how our organization<br />
is innovative and dynamic and having<br />
an impact on our customers’ lives.<br />
We have recently completed a<br />
compensation benchmarking<br />
analysis and have made market<br />
adjustments to key positions.<br />
We have entered into a contract<br />
with a professional staffing agency<br />
to provide temporary staffing<br />
needed for key positions.<br />
Each key business function is<br />
cross-training individuals to<br />
ensure there is backup redundancy<br />
for key processes that must be<br />
operational.<br />
We need to evaluate our existing<br />
benefits package to bring it up<br />
to date with expectations in the<br />
marketplace.<br />
We need to boost our work<br />
schedules to allow for more<br />
work-hour flexibility and<br />
work-from-home options.<br />
How is this Risk Trending?<br />
Increasing at a steady pace<br />
on a month-by-month basis.<br />
How Fast Is this Risk<br />
Changing Over Time?<br />
(i.e., what is its Speed of Onset)<br />
Escalation of this risk may occur<br />
at a gradual and moderate pace<br />
(probably quarter over quarter<br />
versus oversight).<br />
What Information Might Be<br />
Helpful in Monitoring this Risk?<br />
(e.g., Key Risk Indicators):<br />
• Turnover in key positions<br />
• Percentage of employee<br />
complaints (or exit interviews)<br />
citing industry concerns or<br />
compensation/benefit concerns<br />
• Trends in number of applications<br />
submitted for employment<br />
When Would We Know<br />
that a Different Action<br />
Should be Taken?<br />
• When turnover exceeds ____<br />
positions in key roles<br />
• Employee complaints begin to<br />
escalate to ____ percentage<br />
• Key processes are interrupted<br />
and can’t be completed on time.<br />
What is Our Greatest Concern About this Risk?<br />
If we can’t reduce the risk of losing key talent and improve our recruiting efforts for new talent, the entity is likely to face delays in<br />
service deliveries that will lead to significant criticism and backlash from residents and other key stakeholders who are vocal in<br />
expressing their frustration in the media and other visible platforms.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 65
RISK MANAGEMENT<br />
STEP<br />
6<br />
Set the tone (culture and leadership)<br />
The success of any significant<br />
initiative requires the right level<br />
of support at the highest levels of<br />
the organization, and ERM is no<br />
exception. The right tone at the<br />
top creates a culture that sees risk<br />
oversight as essential. This is why<br />
the entire larger oval in the ERM<br />
cycle diagram (in Exhibit 1) is<br />
shaded gray, indicating that culture<br />
and leadership are foundational<br />
to effective risk oversight. If the<br />
culture of an organization does not<br />
embrace the importance of risk<br />
management, then implementing<br />
an ERM process will not help.<br />
It is vital to establish an<br />
environment in which individuals<br />
feel comfortable bringing<br />
concerns to management’s<br />
attention. An organization can’t<br />
effectively respond to risks<br />
if it doesn’t know they exist.<br />
Leadership should communicate<br />
throughout the organization<br />
the importance of anticipating<br />
and managing risks that could<br />
derail the organization’s strategic<br />
efforts. And leadership should<br />
ensure that the organization’s<br />
culture has a positive impact on<br />
its risk oversight efforts.<br />
The right tone at<br />
the top creates a<br />
culture that sees<br />
risk oversight as<br />
essential.<br />
The time is now<br />
Given the events of the past year,<br />
many organizations have had to<br />
quickly pivot to break down silos and<br />
build trust as leaders work together<br />
to maintain stability of the business<br />
and to manage the risks to the current<br />
business model. Many organizations<br />
are taking the time now to evaluate<br />
what worked and what did not over<br />
the past year and to learn from their<br />
experiences to determine the gaps in<br />
their ERM practices.<br />
While ERM would not have prevented<br />
events like COVID-19 from affecting<br />
state and local governments, it can<br />
improve the preparedness and agility<br />
of government management teams in<br />
navigating risks that could have an<br />
enterprise-wide impact—like those<br />
caused by the pandemic. Government<br />
leaders realize that they need to<br />
move away from siloed thinking and<br />
instead work together to identify<br />
and manage those risks, as well as<br />
potential opportunities. ERM should<br />
help leaders work together to become<br />
more resilient and forward-thinking.<br />
Mark Beasley is a professor of<br />
accounting and director of the ERM<br />
Initiative at the Poole College of<br />
Management, North Carolina State<br />
University. Al Chen is a professor<br />
of accounting, graduate faculty,<br />
Department of Accounting, at the<br />
Poole College of Management.<br />
Ericka F. Kranitz is a lecturer in<br />
the Department of Accounting in the<br />
Poole College of Management.<br />
Beasley, Chen, and Kranitz serve<br />
in leadership positions within the<br />
Enterprise Risk Management (ERM)<br />
Initiative at NC State University<br />
(erm.ncsu.edu). The ERM Initiative<br />
provides thought leadership<br />
about ERM practices and their<br />
integration with strategy and<br />
corporate governance. Faculty in<br />
the ERM Initiative frequently work<br />
with boards of directors and senior<br />
management teams, helping them<br />
link ERM to strategy and governance.<br />
NOTES<br />
1<br />
<strong>2021</strong> State of Risk Oversight: An Overview of Enterprise Risk Management Practices, April <strong>2021</strong>.<br />
2<br />
The ERM Initiative is a thought leader advancing enterprise risk management practices, with an emphasis on the integration of ERM with strategic<br />
planning and governance (erm.ncsu.edu).<br />
3<br />
See Enterprise Risk Management: Integrating with Strategy and Performance, COSO, 2017.<br />
66
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Paving the Way<br />
Aligning the Budget with<br />
Your Mission and Vision<br />
BY CELESTE F. BAKER<br />
68
PAVING THE WAY<br />
A Tale of Two Entities:<br />
Cleveland Metroparks and the City of Lakewood, Ohio<br />
©<strong>2021</strong> DAN PAGE COLLECTION C/O THEISPOT.COM<br />
Agood budget tells a story<br />
about an organization<br />
that is not captured by<br />
the financial statements. It describes<br />
what is important to the organization,<br />
how it funds its mission and vision,<br />
and how it provides value to the<br />
community. Laying this out in writing<br />
is important to all stakeholders,<br />
including employees. Governments<br />
need to provide the transparency that<br />
citizens expect, especially in times<br />
of financial uncertainty. This article<br />
shares two entities from my hometown<br />
that do this very well.<br />
I spoke with William Chorba, chief<br />
financial officer of Cleveland<br />
Metroparks, and Peter Rancatore,<br />
finance director of the City of<br />
Lakewood, Ohio, on the process<br />
involved in aligning an organization’s<br />
budget with its mission and vision.<br />
Both municipalities are in Cuyahoga<br />
County, Ohio. Both are Ohio State<br />
Auditor and GFOA award winners.<br />
With calendar year <strong>2021</strong> budgets of<br />
$155.9 million and $135 million,<br />
respectively, the two are similar in<br />
size as far as estimated resources,<br />
number of employees, and diversity<br />
of services. Both are seen as leaders<br />
in innovation. And their budgets<br />
illustrate ambitious yet attainable<br />
vision and strategic plans; the<br />
documents are robust, detailed, and<br />
comprehensive.<br />
Cleveland Metroparks<br />
Cleveland Metroparks includes the<br />
Cleveland Metroparks Zoo and many<br />
other assets, including rivers, golf<br />
courses, and trails. The mission and<br />
vision of the Metroparks is summed<br />
up in three words: conservation,<br />
recreation, and education. Each<br />
affects the other. The strategic plan<br />
has five primary goals: protection,<br />
relevance, connections, “come<br />
out and play,” and organizational<br />
sustainability. The mission and vision<br />
of Metroparks’ Finance Department<br />
provides an example (see Exhibit 1).<br />
William Chorba provided detailed<br />
insight into the processes and<br />
philosophy behind the Metroparks’<br />
long history of award-winning budgets,<br />
noting that the entire organization<br />
is poised to receive public feedback<br />
on its mission and vision, which<br />
encourages frequent interaction; and<br />
that interaction can be through the zoo,<br />
golf courses, restaurants, and parks.<br />
The organization conducts monthly<br />
board meetings that the public is<br />
encouraged to attend—and to speak at.<br />
For a large project such as a bridge that<br />
spans the Rocky River, which took two<br />
to three years, public working sessions<br />
were held to assure that the structure<br />
was not only functional and safe,<br />
but also aesthetically pleasing. The<br />
Metroparks is active on social media<br />
as well and is able to get local news<br />
coverage. It maintains and updates its<br />
website frequently. The organization<br />
capitalizes on the expertise of its team<br />
members, who are introduced to the<br />
finances and budget when they join<br />
the staff to promote understanding<br />
and accountability.<br />
Spanning more than 24,000 acres, Cleveland Metroparks includes more than 300 miles of<br />
trails, eight golf courses, eight lakefront parks and a nationally-acclaimed zoo.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 69
PAVING THE WAY<br />
The organization<br />
capitalizes on the<br />
expertise of its team<br />
members, who are<br />
introduced to the<br />
finances and budget<br />
when they join<br />
the staff to promote<br />
understanding<br />
and accountability.<br />
The budget process starts in July<br />
for a calendar year budget, and the<br />
budget module is set up by the Finance<br />
Department. Each department<br />
provides a first pass at sharing what<br />
it envisions for the next year; the<br />
Finance department does the same,<br />
but without sharing. Then they come<br />
together to see how close their visions<br />
are. The remainder of the process<br />
is highly interactive and involves<br />
working with the chief executive<br />
officer, chief finance officer, and<br />
department heads. The goals are<br />
alignment, buy-in, opportunity,<br />
and risk assessment, and together,<br />
everyone involved develops scenarios<br />
along a continuum of pessimism<br />
and severity. Collaboration with<br />
the department heads continues<br />
throughout the year. At the board<br />
meetings, the budget is discussed in<br />
terms of variance review. This way,<br />
the organization can update its<br />
forecast if any headwinds or<br />
opportunities present themselves.<br />
Monthly budget adjustments allow<br />
for a great deal of agility.<br />
Over the past year the COVID-19<br />
situation, along with mild weather,<br />
increased the demand for public spaces<br />
such as parks, zoos, and golf courses.<br />
Unfortunately, the increased demand<br />
was not met with any federal financial<br />
relief, as special park districts weren’t<br />
included in any aid packages. In<br />
addition, supply chain disruptions had<br />
an impact on construction projects.<br />
In response, the Metroparks focused<br />
on projects that provided quick wins<br />
and were not affected by shortages,<br />
such as concrete aggregate and<br />
blacktop. The monthly capital<br />
planning meetings allow for the team<br />
to keep looking at new opportunities.<br />
The Metroparks is on a 10-year levy<br />
cycle, so the budget is developed for<br />
the 10 years. “Imagine a highway—<br />
you can change lanes, but you have<br />
to stay within the guardrails,” Chorba<br />
said. The entire budget document was<br />
partially overhauled earlier in <strong>2021</strong>,<br />
and the language and graphics that<br />
had gotten stale were updated. But<br />
the budget document still follows<br />
GFOA’s best practices and remains<br />
true to the Metroparks’ strategic goals<br />
and objectives.<br />
The current Metroparks strategic plan<br />
was developed in 2012 with the intent<br />
of providing long-term direction and<br />
goals for the Park District. This period<br />
includes two major milestones: the<br />
10-year levy renewal, in 2014, and<br />
the Centennial 100 Year Anniversary<br />
of Cleveland Metroparks, in 2017.<br />
Therefore, taking a fresh look at the<br />
Park District’s goals and priorities<br />
leading up to those events, and for<br />
the years that followed, was an<br />
opportunity and a challenge that<br />
Cleveland Metroparks took very<br />
seriously. The organization worked<br />
with its staff, professional consultants,<br />
and the community to create the<br />
strategic plan that is still in use today.<br />
Historically, most of Cleveland<br />
Metroparks’ resources were devoted to<br />
preserving and enhancing facilities<br />
and programs within park reservation<br />
borders and to serving established<br />
constituencies. The current strategic<br />
plan addresses ways in which the<br />
Park District can have an even greater<br />
impact by addressing different levels<br />
and scales of concern, including<br />
reservations, their surrounding<br />
communities, the district’s core<br />
service area (Cuyahoga County and<br />
Hinckley Township in Medina County),<br />
and the larger Northeast Ohio Region.<br />
The broadening of scope and the<br />
district’s desire to make a significant<br />
impact led it to refine the Metroparks’<br />
vision and mission.<br />
EXHIBIT 1 | THE MISSION AND<br />
VISION OF METROPARKS’ FINANCE<br />
DEPARTMENT<br />
MISSION<br />
Finance is responsible for careful<br />
stewardship of taxpayer assets by<br />
timely and accurately capturing<br />
and reporting financial activities<br />
and ensuring compliance with state<br />
regulations and Cleveland Metroparks<br />
bylaws related to financial matters.<br />
SERVICES PROVIDED<br />
Finance objectives are met by<br />
systematic, detailed budgetary<br />
control over board-approved<br />
appropriations through its people,<br />
systems, policies, and processes.<br />
The Purchasing Division is a key<br />
functional area within Finance,<br />
completely controlling the<br />
procurement process to ensure<br />
fairness, transparency and fiduciary<br />
control in accordance with legal and<br />
ethical standards. Other Finance<br />
functional areas are Internal<br />
Audit, Accounts Payable, Revenue<br />
Accounting, Expense Accounting<br />
and Payroll.<br />
FISCAL 2020 PRIORITIES<br />
• Maintain excellence in financial<br />
stewardship and accountability<br />
(organizational sustainability)<br />
• Improve business continuity<br />
preparedness for the Park District<br />
(organizational sustainability)<br />
• Drive a culture of continuous<br />
improvement in Accounting, Internal<br />
Audit, Payroll, and Purchasing<br />
(organizational sustainability)<br />
• Improve and increase utilization of<br />
Munis (organizational sustainability)<br />
70
EXHIBIT 2 | THE CITY OF<br />
LAKEWOOD’S <strong>2021</strong> KEY INITIATIVES<br />
• The City of Lakewood’s proposed<br />
$155.9 million budget for all<br />
funds in <strong>2021</strong> will focus on the<br />
key initiatives of public safety<br />
and human services, commerce,<br />
public health and welfare, our<br />
environment, and transparency in<br />
public finance by:<br />
• Continuing to collaborate across<br />
divisions on interdepartmental<br />
issues to deliver efficient and<br />
improved core services.<br />
• Following established procedures<br />
in our COVID-19 playbook to keep<br />
employees and citizens safe,<br />
while responding quickly and<br />
appropriately to the pandemic,<br />
whether it’s serving senior citizens<br />
with meals or providing EMS<br />
services for safe transport to a<br />
healthcare facility.<br />
City of Lakewood<br />
In 2012, the City of Lakewood elected<br />
a new Mayor and embarked on an<br />
ambitious goal to update a 20-year-old<br />
mission and vision statement and<br />
a strategic plan. The effort involved<br />
numerous listening sessions, guided<br />
by a reputable municipal consulting<br />
firm. The city spent considerable<br />
time in 2013 asking two questions:<br />
“Where are we today?” and “Where<br />
do we want to go?”<br />
The 1993 Community Vision was<br />
based on resident input that began at<br />
the first community meeting in May<br />
2012. More than 130 residents and<br />
community leaders participated in<br />
the update process, along with a crosssectional<br />
group of 30 city employees<br />
who participated in a facilitated<br />
self-evaluation of the organization as<br />
a workplace. The process identified<br />
strengths, opportunities and<br />
comments in the following areas:<br />
strategy and vision, organization and<br />
culture, accounting and finance, and<br />
responsiveness and execution.<br />
The result was a set of goals: economic<br />
development, safe and secure city,<br />
vibrant neighborhoods, and sound<br />
governance. But, as the saying goes,<br />
the devil was in the details. For one<br />
thing, the vision document was too<br />
large and too structured to allow the<br />
city to change with the times and<br />
challenges—bedbugs, the opioid<br />
crisis, an influx of new residents<br />
from a variety of backgrounds and<br />
needs, and federal clean-water<br />
mandates, to name a few. There was<br />
inconsistent buy-in from the rest<br />
of the organization, especially the<br />
Finance Department. And over time,<br />
the existing structure, departments,<br />
managers, and employees were left to<br />
decide how they fit in with proposed<br />
business practices and goals, instead<br />
of bringing them along and showing<br />
them how they were part of the change<br />
and how this was communicated<br />
through the budget. New employees<br />
weren’t trained regarding their<br />
importance in the process, either.<br />
• Further developing the city’s<br />
financial integrity through financial<br />
processes and reporting that<br />
examine dollars spent.<br />
• Engaging in a collaborative budget<br />
process that includes dialogue<br />
with the mayor, staff, council, the<br />
court, and the public.<br />
• Being supportive and responsive<br />
to the needs of community<br />
members and businesses,<br />
especially as we listen to our small<br />
business task force and help our<br />
businesses and citizens survive<br />
the pandemic financially.<br />
• Improving and modernizing the<br />
infrastructure throughout our<br />
community, including our parks,<br />
water and sewer systems, and our<br />
community gathering places.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 71
PAVING THE WAY<br />
EXHIBIT 3 | PAGES FROM THE CITY OF LAKEWOOD’S <strong>2021</strong> BUDGET DOCUMENT<br />
In 2020, the city had a new elected<br />
mayor and made several changes to<br />
the administrative staff, including<br />
bringing on a new finance director.<br />
City staff revisited the previous<br />
document and considered the<br />
hard lessons that had been learned<br />
before creating the FY <strong>2021</strong> City<br />
of Lakewood’s Strategic Planning<br />
Mission. Their goal for the city was<br />
to deliver exceptional essential core<br />
municipal services, go above and<br />
beyond the call of duty, and promote<br />
a high quality of life for residents,<br />
businesses, and visitors.<br />
As an example, the mission and vision<br />
and accomplishments for the Finance<br />
Department in 2020 included:<br />
• Financially navigating the<br />
COVID-19 pandemic in a way<br />
that minimizes both immediate<br />
negative financial impacts and<br />
the loss of public services, while<br />
also maintaining a long-term<br />
perspective on the city’s operational<br />
and capital needs.<br />
• Receiving the Government Finance<br />
Officers Association (GFOA) award<br />
for the preparation of the city’s 2019<br />
annual financial report.<br />
• Completing the 2019 financial<br />
audit by the auditor of state with no<br />
citations, resulting in the prestigious<br />
Auditor of State Award with<br />
Distinction, which is earned by fewer<br />
than five percent of all governments<br />
in the State of Ohio.<br />
• Creating a <strong>2021</strong> and Beyond Strategic<br />
Plan.<br />
• Adopting a transparent, collaborative<br />
budget by December 31 that includes<br />
key personnel while examining both<br />
the operational and capital needs<br />
and structures of each of the city’s<br />
divisions and departments.<br />
• Participating in and expanding<br />
financial reporting programs that<br />
provide transparency and financial<br />
integrity.<br />
• Submitting an annual financial<br />
report that is compliant with GFOA’s<br />
rigorous standards.<br />
• Submitting a document for<br />
consideration in GFOA’s<br />
Distinguished Budget Presentation<br />
Award Program.<br />
Peter Rancatore, the city’s finance<br />
director, explained the processes<br />
This collaborative<br />
process ensures<br />
institutional<br />
knowledge and<br />
helps prioritize<br />
capital planning.<br />
necessary in updating the mission<br />
and vision and the resulting budget<br />
document. He pointed out that the<br />
new budget document features more<br />
pictures and charts, and the format<br />
was streamlined (see Exhibit 3). Charts<br />
help illustrate the information in a way<br />
that words cannot. The city’s financial<br />
policies are also laid out, as well as<br />
the internal controls that are in place<br />
to assure the public of the financial<br />
oversight. An independent auditing<br />
firm provides assistance with this<br />
review and also directs the Finance<br />
Department on current topics. Future<br />
documents will include fraud policies<br />
that are now under development.<br />
72
The new budget document also<br />
includes a glossary for citizens,<br />
breaking down financial language<br />
and putting it in layman’s terms. The<br />
city hopes to provide readers with<br />
some idea of the challenges it faces,<br />
along with its goals. This is especially<br />
important because 50 to 55 percent<br />
of the city’s income is generated by<br />
Lakewood’s income tax.<br />
Rancatore was very appreciative that<br />
the whole Finance Department took<br />
ownership, he said; their involvement<br />
made the whole process come together.<br />
And in turn, the Finance Department<br />
is able to look back and see what is<br />
being accomplished through the lens<br />
of the city’s mission, goals, and values.<br />
Rancatore noted that he brought his<br />
philosophy and approach from similar<br />
work at a previous post, treating<br />
the budget as a living document. He<br />
encourages and motivates his staff,<br />
along with internal stakeholders, to<br />
create continuous improvements<br />
each year. Being flexible allows for<br />
relevancy as the environment dictates.<br />
What about your own budget?<br />
Wherever you might be on the<br />
spectrum of budget development, from<br />
mathematical exercise to developing<br />
your first budget for submission to<br />
GFOA, you’ll find some ideas below<br />
that will help make your mission and<br />
vision clear to your community.<br />
• No matter how big the challenge you<br />
are facing is, start by picking three<br />
changes you would like to make<br />
first. You can do more later. This is<br />
what Peter Rancatore was referring<br />
to when he described the budget as<br />
a living document, with this year’s<br />
success being built upon in coming<br />
years. William Chorba also allowed<br />
for flexibility by making sure the<br />
Metroparks budget responds to<br />
environmental changes.<br />
• Your three choices should be the<br />
ones most likely to be adopted and<br />
to achieve immediate success.<br />
• When those three are<br />
accomplished, pick the next three.<br />
• Don’t be afraid to reach out to your<br />
colleagues for support, advice,<br />
and expertise. Most people are<br />
happy to help.<br />
• Celebrate your successes.<br />
• Remember that things change—<br />
staffing, economy, priorities,<br />
opportunities. You might find<br />
yourself taking a step backward<br />
now and again; just be prepared<br />
for it, reassess, and adapt.<br />
Celeste F. Baker is the fiscal officer<br />
for the Tiffin-Seneca Public Library<br />
in Tiffin, Ohio.<br />
Department heads are included in<br />
budget discussions, along with the<br />
mayor, finance director, assistant<br />
finance director, and the budget<br />
manager. This collaborative process<br />
ensures institutional knowledge and<br />
helps prioritize capital planning—what<br />
gets moved forward in the five-year<br />
plan and what can be postponed or<br />
eliminated. When two departments’<br />
goals or challenges come together or<br />
conflict, all the managers involved are<br />
brought into the room until the issues<br />
are resolved. This promotes greater<br />
understanding and awareness, builds<br />
teamwork, and really tears down<br />
silos. An overview of the discussions<br />
includes reflection on the future,<br />
long-range planning, and the role of<br />
bargaining units. When vacancies<br />
occur, hiring is not the immediate goal;<br />
instead, there is an examination of the<br />
performance and responsibilities of<br />
the particular position, with potential<br />
opportunities and modifications to the<br />
organizational structure analyzed.<br />
In essence, the process answers the<br />
question, “What opportunities does<br />
this create?”<br />
View the Cleveland Metroparks budget:<br />
gfoa.org/clevelandmetroparksbudget<br />
View the City of Lakewood budget:<br />
gfoa.org/cityoflakewoodbudget<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 73
74<br />
Against All Odds<br />
How Springfield, Massachusetts<br />
Built a Fiscally Sustainable Future
AGAINST ALL ODDS<br />
BY TIMOTHY J. PLANTE<br />
If COVID-19 and the devastating events of 2020 had happened<br />
a decade earlier, the third largest city in the Commonwealth of<br />
Massachusetts would have completely gone under.<br />
That was Springfield’s unfortunate<br />
reality. Haunted by economic<br />
decline, poor school performance,<br />
crime, underfunded pensions, and<br />
underwhelming housing values,<br />
Springfield was simply a broken city.<br />
Springfield’s problems started back<br />
in the early 1980s when budgets<br />
were cut following the passage of<br />
Proposition 2½, a Massachusetts law<br />
that limits property taxes and the<br />
ability to support core city services. By<br />
the early to mid 1990s, Springfield’s<br />
police force was down to 400 officers.<br />
In 2004, violent crime on city streets<br />
was nearly four times the national<br />
average. Businesses were decamping<br />
for nearby locations, hollowing out<br />
the downtown districts and leaving<br />
gaping economic holes throughout the<br />
city. It wasn’t long before Springfield<br />
lost control of its bottom line.<br />
For a variety of reasons, a city with a<br />
$442 million budget simply wasn’t<br />
living within its means. After years of<br />
political inaction, a reckoning was long<br />
overdue. When the tab was tallied up<br />
in 2004, Springfield found itself staring<br />
down a $41 million deficit, with few<br />
prospects for getting out of the red.<br />
State law prohibited the city from<br />
operating at a deficit, so Springfield<br />
essentially papered over its structural<br />
deficits. While the city prepared<br />
and submitted balanced budgets to<br />
the state, its account balances were<br />
negative. There’s no nice way to explain<br />
this away—it was extraordinary<br />
malfeasance for a city of this size.<br />
When the smoke cleared—that is,<br />
when a full accounting reconciliation<br />
was completed in 2004—the<br />
Massachusetts state government<br />
moved in and created the five-member<br />
Springfield Finance Control Board in<br />
return for a $52 million no-interest<br />
loan to cover the city’s shortfall.<br />
Over the following years, the Finance<br />
Control Board helped spearhead<br />
initiatives that got to some of the root<br />
causes of the city’s many problems.<br />
But to be effective, Springfield<br />
needed systems to collect, store,<br />
track, and analyze city data—and it<br />
had none. Everything from revenue<br />
and expenses to reconciliations<br />
was handled through paper-driven<br />
processes and paper-reliant systems.<br />
Unsurprisingly, nothing happened<br />
in real time. Procurement and<br />
payables were routed multiple times,<br />
and approvals could take weeks.<br />
Adjustments required months.<br />
People were making day-to-day<br />
decisions using months-old data. From<br />
an analytics perspective, there was<br />
zero visibility. The only positive aspect<br />
of the formerly manual processes and<br />
terrible chart of accounts was that it<br />
gave the finance team tremendous<br />
motivation to make lots of changes, if<br />
only to escape the painful red tape that<br />
was in place.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 75
AGAINST ALL ODDS<br />
To be effective, Springfield<br />
needed systems to collect,<br />
store, track, and analyze<br />
city data—and it had none.<br />
Revolutionary changes<br />
In July 2007, the city implemented<br />
a financial management software<br />
program called Munis, and the<br />
data started to trickle in. Things<br />
started improving when the finance<br />
department received data it could use<br />
to proactively manage the city. It was<br />
finally possible to see the vacancies,<br />
the savings, the surpluses. Back taxes<br />
started to roll in as the city pursued<br />
and collected on liens. The finance<br />
department could inquire about a<br />
purchase, intervene on non-standard<br />
procurements, redirect budget<br />
dollars, and take corrective actions.<br />
The city could aggregate purchases,<br />
determine economic order<br />
quantities, and finally negotiate<br />
volume discounts from suppliers.<br />
These are hardly earth-shattering<br />
improvements for most major<br />
enterprises, but for Springfield, it was<br />
nothing short of revolutionary. Within<br />
that first year, the city generated more<br />
than $30 million in free cash. Soon,<br />
this number grew to $50 million,<br />
accumulated simply because the<br />
new data made it possible to control<br />
spending.<br />
The next step was being able to<br />
see, understand, and control labor<br />
costs—which in the mid-to-late<br />
2000s accounted for approximately<br />
68 percent of what was then a $486.5<br />
million annual budget. At the time,<br />
employees were using paper timesheets<br />
to log their hours, and labor expenses<br />
were entered into spreadsheets.<br />
Worse, each of the city’s 30 departments<br />
had its own payroll staff, making<br />
it virtually impossible to aggregate<br />
citywide data or detect actual trends.<br />
Instead, the finance department<br />
could only perform infrequent, basic<br />
spot-check audits, using data that was<br />
months old. Without an automated<br />
reconciliation process, data was<br />
inconsistent, payroll deductions were<br />
mismanaged, and internal controls<br />
were altogether inefficient.<br />
When Mayor Domenic J. Sarno took<br />
office in 2008, he moved swiftly to<br />
address the situation, believing that<br />
automation and data analytics would<br />
provide real-time visibility into<br />
©<strong>2021</strong> ALEX NABAUM C/O THEISPOT.COM<br />
76
citywide spending, and that this would<br />
be the key to finally getting a grip on<br />
workforce and payroll challenges.<br />
After all, you can’t manage what you<br />
can’t see. In 2009, the city deployed an<br />
automated workforce management<br />
system and integrated it with its<br />
existing HR management and payroll<br />
systems. This allowed Springfield<br />
to centralize city and school payroll<br />
teams into a single payroll department,<br />
where a combined staff shares<br />
processes and information for all 6,300<br />
city employees.<br />
REUTERS/ZACH HOWARD<br />
The system ultimately shed light on a<br />
lot of murky areas. It allowed the city to<br />
easily identify and immediately correct<br />
many instances of timecard fraud, and<br />
to negotiate for important changes in<br />
labor contracts. City departments and<br />
schools now had the tools to reign in<br />
overtime costs and to more efficiently<br />
deploy full- and part-time employees.<br />
The total savings in salaries and<br />
overtime topped $900,000 within the<br />
first year of implementation.<br />
From adversity to advantage<br />
The city had finally regained control<br />
of its finances, and by summer 2009,<br />
the Springfield Finance Control Board<br />
returned control to local leaders. By<br />
then, many of the savings generated by<br />
Springfield’s technology investments<br />
and data-driven processes were being<br />
successfully reallocated to improve<br />
education, public safety, economic<br />
vitality, and local neighborhoods.<br />
After a long period of doubt, citizens<br />
and the business community were<br />
beginning to regain confidence in what<br />
the city could do on their behalf, and<br />
many believed that Springfield’s best<br />
days were ahead.<br />
But on June 1, 2011, Springfield was<br />
again thrown into turmoil when the<br />
city experienced the worst natural<br />
disaster in its history: an EF-3 tornado<br />
(with wind speeds of 136 to 165 miles<br />
per hour). Trees were uprooted,<br />
streetlights and wrought-iron fences<br />
were bent into pretzels; street signs<br />
flew like frisbees. Tens of thousands<br />
of citizens lost power, dozens of people<br />
were sent to hospitals, and hundreds of<br />
families were displaced. The tornado<br />
affected approximately 40 percent of<br />
Springfield’s citizens. More than 500<br />
buildings were destroyed, and property<br />
values suffered a loss of more than<br />
$428 million. The city was looking at<br />
an extraordinary unplanned cost, and<br />
for a city just regaining its financial<br />
footing, the tornado could have been a<br />
knockout blow.<br />
In the aftermath, the finance team<br />
assumed the responsibility of<br />
tracking all expenditures related to<br />
the disaster: contractors, employee<br />
time, equipment, supplies, and so<br />
on. But New England isn’t exactly<br />
Tornado Alley, so the city had no prior<br />
experience in disaster recovery at this<br />
scale. It also lacked sufficient time<br />
and resources to research and review<br />
every damage assessment in depth. As<br />
the Federal Emergency Management<br />
Agency (FEMA) and the Massachusetts<br />
Emergency Management Agency<br />
started denying claims, the city was<br />
After a tornado caused over $400 million<br />
in damages in 2011, Springfield was able<br />
to utilize FEMA dollars to the fullest extent<br />
thanks to data from the financial and<br />
workforce management systems the city<br />
had put in place.<br />
authorizing expenditures of millions<br />
of dollars, unsure if it would recoup a<br />
penny in reimbursements.<br />
The city hired a consultant to<br />
navigate the maze of federal and state<br />
regulations driving disaster recovery<br />
funding. Its team had spent years in<br />
New Orleans, Louisiana, working for<br />
cities and towns affected by Hurricane<br />
Katrina. They knew FEMA’s rules<br />
and regulations inside and out and<br />
helped the city realize that it could be<br />
more cost-effective to replace certain<br />
facilities than to repair them. For<br />
example, the original damage estimate<br />
for the State Armory in Springfield was<br />
$4.5 million. But the estimate for a full<br />
replacement of the building was $18<br />
million—which FEMA agreed to pay.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 77
AGAINST ALL ODDS<br />
This time, Springfield<br />
was prepared for the storm<br />
because of all the other<br />
storms it had weathered.<br />
Soon after, Springfield applied to<br />
enter a FEMA pilot program that<br />
would allow the city to reallocate<br />
recovery funds toward projects in<br />
other locations. Suddenly, those<br />
FEMA dollars represented an<br />
extraordinary opportunity. Rather<br />
than restoring damaged buildings to<br />
their former condition, we could invest<br />
in the community in ways we never<br />
previously had the financial means to<br />
do. Goals that had been languishing<br />
on the city’s to-do list became feasible<br />
for the first time, creating a pivotal<br />
moment for the city’s recovery.<br />
In the end, Springfield only had to pay<br />
a small fraction—just 13 percent—of<br />
a $97 million rebuilding effort. The<br />
city’s recovery was successful largely<br />
because of the financial and workforce<br />
management systems it had put in<br />
place to provide real-time visibility into<br />
labor spending. This data was critical in<br />
allowing the city to secure the greatest<br />
amount of FEMA reimbursements<br />
available to it—funding that made it<br />
possible to restore the city and revive<br />
its neighborhoods.<br />
In the last decade, Springfield has<br />
regained its footing in all key areas,<br />
bringing in major economic engines<br />
and creating a number of middleclass<br />
jobs. Springfield’s public schools<br />
are regaining their vibrancy as high<br />
school graduation rates rise and<br />
college acceptances increase. The city<br />
formed new and effective contracts<br />
with first responders, making<br />
streets and neighborhoods safer.<br />
And by driving forward market-rate<br />
housing initiatives and community<br />
engagement programs, the city is<br />
attracting new residents.<br />
Instead of a $41 million deficit,<br />
Springfield city government created a<br />
$50 million surplus, paying back the<br />
entire multimillion state loan ahead<br />
of schedule and improving its credit<br />
rating. Springfield has seen more<br />
than $4.5 billion in new economic<br />
development—an unprecedented level<br />
of investment in the city’s vitality.<br />
Weathering the storm—again<br />
To say that the city’s technology<br />
upgrades, process improvements, and<br />
extensive collaboration with public<br />
and private leadership over the past<br />
decade put Springfield in a position to<br />
weather the greatest storm in modern<br />
history—the COVID-19 pandemic—is<br />
an understatement.<br />
Emerging from the early months of<br />
the pandemic, Springfield closed its<br />
2020 fiscal year on June 30 with an $8<br />
million surplus. This was a remarkable<br />
feat and certainly unexpected, given<br />
the city’s financial history. For too long,<br />
the prevailing attitude throughout<br />
New England was simply don’t do<br />
what Springfield does. But this time,<br />
78
Springfield was prepared for the storm<br />
because of all the other storms it had<br />
weathered.<br />
After declaring a state of emergency<br />
on March 16, 2020, the mayor was<br />
thereafter in constant contact with<br />
Massachusetts Governor Charlie Baker<br />
to talk about the city’s needs. The<br />
governor called on legislators to ensure<br />
that federal funding came directly to<br />
Springfield, rather than being allocated<br />
through the state, and Springfield<br />
secured direct entitlements to any<br />
funding of more than $50,000.<br />
By mid-April, Springfield had<br />
implemented a hiring and spending<br />
freeze. And, going against federal<br />
guidance, the city refrained from<br />
paying vendors for services not<br />
rendered, in an effort to minimize<br />
revenue losses. These companies<br />
had access to funding through the<br />
Paycheck Protection Program and had<br />
laid off their staff, in addition to not<br />
providing any services.<br />
Making the most of its past experience,<br />
the city generated millions in cash,<br />
which it kept and reinvested. When<br />
cities and towns reached out to the<br />
state for help, this time they were told<br />
to go talk to Springfield.<br />
In the first 14 months of the pandemic,<br />
the city spent $38.1 million on its<br />
COVID-19 response and recovery—<br />
and it expects to be reimbursed for<br />
every dollar. Once again, Springfield’s<br />
technology infrastructure makes this<br />
possible: Every expense related to<br />
COVID-19 is tracked, from equipment<br />
and resources to labor hours.<br />
When 30 firefighters were out at<br />
the same time with COVID-19, the<br />
department generated an enormous<br />
amount of overtime—but these hours<br />
were easily segregated and reimbursed<br />
in full by FEMA. The same goes for<br />
labor and additional equipment<br />
purchased to streamline meal<br />
preparation and distribution at feeding<br />
sites set up across the city. Since the<br />
start of the pandemic, Springfield has<br />
provided 7.5 million meals to foodinsecure<br />
students and families. Anyone<br />
is welcome to pick up breakfast, lunch,<br />
dinner, a snack, and a gallon of milk,<br />
seven days a week. And it’s all funded<br />
by federal grants and reimbursements.<br />
Of course, Springfield’s 62,000-squarefoot<br />
Culinary Nutrition Center,<br />
which opened in 2019 at a cost of $21<br />
million, played a significant role in<br />
supporting these efforts to care for our<br />
community. None of this would have<br />
been possible without this facility and<br />
its staff. In fact, previous investments<br />
in technology, city infrastructure, and<br />
community-based programs allowed<br />
Springfield to achieve countless<br />
advantages, along with the strategic<br />
relationships the city built and the<br />
experience it gained along the way.<br />
When Springfield brought in an<br />
industrial hygienist in spring 2020 to<br />
help its schools prepare for bringing<br />
kids back into the classroom, it learned<br />
that only six of its 60 public schools<br />
required HVAC upgrades. Eight of<br />
Springfield’s schools are new, having<br />
been built since 2007, and most others<br />
had received substantial updates. As<br />
a result, the total cost for air cleaning<br />
equipment was just $6 million.<br />
The schools also benefited from a<br />
fully implemented technology policy,<br />
which meant there was no delay in<br />
transitioning students to remote<br />
learning. Every student in Grades 2–12<br />
was already equipped with access to<br />
a take-home laptop. The city’s only<br />
additional expense was $3.5 million to<br />
purchase laptops for kindergartners<br />
and first graders, as well as iPads for<br />
pre-K students, and it coordinated<br />
delivery through one of its longtime<br />
transportation partners as part of<br />
a negotiation to keep their drivers<br />
employed, while also delivering meals<br />
to seniors and unhoused families<br />
throughout the city.<br />
Today, Springfield is on track to<br />
generate $15 million in free cash by<br />
the close of FY<strong>2021</strong>, and it has plans to<br />
maximize those funds, jumpstarting<br />
many of the projects that were paused<br />
abruptly in March 2020. The city has<br />
already received an influx of money to<br />
revitalize its economy and create jobs.<br />
Springfield is working to address food<br />
insecurity across the city and delivering<br />
aid to its nonprofits, businesses, bars,<br />
and hospitality venues.<br />
But challenges persist, like the extra<br />
costs associated with the massive rise<br />
in the volume of residential trash and<br />
looming concerns that companies<br />
might not return to their long-vacant<br />
downtown office spaces now that<br />
their teams have gotten accustomed<br />
to working from home. Springfield<br />
city government, however, has faced a<br />
decades-long uphill battle to revitalize<br />
the city, and no matter the challenge, it<br />
has no intention of slowing down.<br />
Perseverance pays<br />
When Springfield reluctantly fell under<br />
the control of the Finance Control<br />
Board in 2004, it was the culmination<br />
of decades of bad decisions, bad<br />
circumstances, and, yes, some bad<br />
luck. The decline of the manufacturing<br />
sector and the near-total erasure of<br />
blue-collar jobs throughout the latter<br />
half of the 20th century had gutted<br />
many once-vibrant cities and left them<br />
struggling financially. Springfield was<br />
not immune to these trends. It took<br />
many years to reach that low point,<br />
and the city government realized that<br />
it would take many more years to pull<br />
itself out.<br />
Here we are again—this time, emerging<br />
from a global health and economic<br />
crisis. But Springfield is far more<br />
prepared and confident in its ability to<br />
recover quickly. It has rebounded from<br />
dark days before and is stronger for it.<br />
Here’s to a brighter, more prosperous<br />
future for Springfield and every<br />
midsize city in America.<br />
Timothy J. Plante is the chief<br />
administrative and financial officer for<br />
the City of Springfield, Massachusetts.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 79
How a Proud City Built a Fiscally Sustainable Future<br />
Discover how local leaders revitalized the City of Springfield, Massachusetts,<br />
through strong financial management, technology upgrades, savvy data<br />
analysis, and people power.<br />
It’s an inspiring story that<br />
everyone in government<br />
can learn from.<br />
Receive your free book at<br />
ukg.com/gfoabook<br />
TIMOTHY J. PLANTE | Introduction by MAYOR DOMENIC J. SARNO<br />
80
In Practice<br />
FINANCE | ACCOUNTING | PERSPECTIVE | INTERVIEW<br />
FINANCE<br />
On the Art of<br />
Collaboration<br />
at Long Beach<br />
BY KATIE LUDWIG<br />
For the leaders of the City<br />
of Long Beach, California,<br />
Budget Office, collaboration<br />
is part of their day-to-day<br />
job, but they don’t take it<br />
for granted. The team works hard to<br />
nurture a culture of collaboration<br />
within and outside of the Budget<br />
Office, which they believe allows them<br />
to serve their community better.<br />
The Budget Office leadership team<br />
consists of Budget Manager Grace H.<br />
Yoon, Budget Management Officer<br />
Rhutu Amin Gharib, Revenue<br />
Management Officer Geraldine Alejo,<br />
and Budget Analysis Officer Greg<br />
Sorensen, who just recently became<br />
a part of the team. For the City of<br />
Long Beach, the budget function falls<br />
within the Department of Financial<br />
Management (longbeach.gov/finance),<br />
which is one of 23 departments. For<br />
FY <strong>2021</strong>, the city had a $2.8 billion<br />
budget, spread across 37 funds. The<br />
Department of Financial Management<br />
has nearly 250 employees and consists<br />
of seven bureaus: Budget, Accounting,<br />
Business Services, Commercial<br />
Services, Fleet Services, Treasury, and<br />
Administration. The Budget Bureau<br />
has about 15 employees.<br />
Rhutu, the budget management<br />
officer, has been with the department<br />
since 2006, working her way up from<br />
a budget analyst position. She has<br />
been in her current role for six years<br />
and oversees the functions related to<br />
internal Budget Bureau operations<br />
and management. This includes<br />
implementing all the processes<br />
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IN PRACTICE | FINANCE<br />
involved in developing the upcoming<br />
year’s budget, facilitating major fiscal<br />
milestones such as closing out the old<br />
fiscal year and getting the new one<br />
started, and managing the calendar<br />
that maps out all the projects that<br />
staff must complete throughout the<br />
year. Along with Geraldine and Greg,<br />
Rhutu oversees the citywide review of<br />
budget amendments and fiscal impact<br />
statements of city council letters.<br />
Geraldine, the revenue management<br />
officer, started with the City of Long<br />
Beach in 2008 as a graduate student<br />
intern. She worked her way up from<br />
an analyst to the management level<br />
and did a few stints in other city<br />
departments, but she has always come<br />
back to the Budget Office. “For me, the<br />
Budget Office has become my home.<br />
Even with the pressure and the stress<br />
and the complexities, the challenges<br />
and the people have always been that<br />
home base for me to come back to,”<br />
she said. Her responsibilities include<br />
forecasting general fund revenue,<br />
including sales tax, property tax, and<br />
franchise fees, and reviewing current<br />
performance to ensure that the city’s<br />
financial projections are based on the<br />
most up-to-date information available.<br />
Grace, the budget manager, oversees<br />
the entire budget operation. “My<br />
job is really just to cheerlead Rhutu,<br />
Geraldine, and the rest of the budget<br />
team on,” she said. “We work very<br />
closely together.”<br />
Grace believes that the value of<br />
collaboration is greatest when a crisis<br />
hits. “How much team capital do you<br />
have to draw on when there’s a crisis<br />
or when there’s a fire? For me, I think<br />
the test and the value of collaboration<br />
isn’t when things are smooth-flowing<br />
or when we’re just having fun—it’s<br />
when the crisis hits. It’s when the<br />
stress runs high. It’s when there’s<br />
pressure from all sides to meet<br />
sudden, unexpected deadlines. That’s<br />
when you really see the power and<br />
the value of a culture of teamwork,<br />
friendship, and collaboration, and<br />
that’s why I think it’s so prudent to<br />
invest in it prior to any crisis.”<br />
New demands<br />
Grace explained that the last two<br />
budget years have been quite<br />
challenging for her team. They’ve<br />
navigated through historic changes<br />
for the city, including a move into a<br />
new City Hall building, rolling out a<br />
new enterprise resource planning<br />
system, and then the pandemic. “I<br />
truly do not think we would have been<br />
able to get through it as successfully as<br />
we did if it weren’t for the foundation<br />
of trust and collaboration that we have<br />
in place,” she said.<br />
The city’s fiscal year runs from<br />
October through September, so<br />
normally the budget team starts its<br />
development process in January. The<br />
city paused the development of its<br />
FY <strong>2021</strong> budget when the COVID-19<br />
82
pandemic hit in March 2020 as staff<br />
in every department were diverted to<br />
assist with the response and recovery<br />
efforts. The process did not start<br />
back up until late May 2020, leaving<br />
the Budget Office with extremely<br />
limited time to implement an entire<br />
budget process and prepare a budget<br />
book, which is normally presented to<br />
the mayor in early July, followed by<br />
meetings with the city council and<br />
the community in <strong>August</strong>. The budget<br />
is usually adopted in September,<br />
according to deadlines specified in the<br />
city charter. Given the significantly<br />
truncated timeframe, the team had to<br />
quickly brainstorm and rethink how<br />
they would meet all the deadlines and<br />
prepare a budget that would serve the<br />
city well in the coming year.<br />
Grace described the strategies that<br />
the team came up with to meet these<br />
new demands, including developing<br />
updated projections and creating<br />
a multifaceted budget balancing<br />
approach. “Before the pandemic,<br />
our general fund shortfall was $9<br />
million. Post-pandemic, it was $30<br />
million. That’s a different nut to<br />
crack.” The team also implemented<br />
an expedited timeline for reviewing<br />
budget proposals and a modified<br />
proposed budget book that was<br />
designed to communicate the<br />
critical budget topics with key data<br />
reports that needed to be developed<br />
manually, since numbers were not<br />
yet available in the budget system<br />
due to the time constraints.<br />
True partnership allows teams to<br />
emerge from crises stronger than<br />
they were before, Grace said, adding<br />
that collaboration provides “a certain<br />
sense of hope that we can continue<br />
to tackle problems and address<br />
things as a team in the future.”<br />
Grace also credits collaboration<br />
with having a positive impact on<br />
staff longevity. “When there is<br />
collaboration and trust, there’s<br />
this acknowledgment of people’s<br />
personal and professional lives that<br />
leads to longevity; and when people<br />
stay around, because they feel valued<br />
in that sense, that makes our unit<br />
stronger and the city stronger because<br />
then there’s more institutional<br />
knowledge,” she explained.<br />
Grace noted that the Budget Office<br />
had very high levels of staff turnover<br />
in the past because of the quickpaced,<br />
high-pressure working<br />
environment. She is pleased that<br />
this trend has slowed. “We haven’t<br />
had turnover in years,” she said.<br />
“If people leave, it’s because they’re<br />
getting promoted. Not every<br />
analyst is necessarily looking to be<br />
promoted, and that’s wonderful.<br />
We’ll keep our analysts forever if<br />
they want to stay, but we’re also<br />
super supportive of their growth<br />
and want to support them if they<br />
want to leave and pursue other<br />
management opportunities.”<br />
External collaboration<br />
Geraldine believes that a strong<br />
partnership between the Budget<br />
Office and the other departments is<br />
necessary for the team to do its job<br />
effectively. She noted that to fully<br />
understand any challenge the city<br />
might be experiencing in managing<br />
its funds, the Budget Office must<br />
work closely with departments<br />
to understand the finer details.<br />
Information from the departments<br />
about the current and future state<br />
of their operations, coupled with<br />
the Budget Office’s big-picture<br />
evaluations, help put together a<br />
cohesive story. “It allows us to explain<br />
where we land or where we could<br />
land in the future for each and every<br />
one of our funds,” she explained.<br />
In another example of external<br />
collaboration, Grace and John Gross,<br />
the chief financial officer/director of<br />
financial management, meet weekly<br />
with City Manager Thomas B. Modica<br />
and his executive team. “We talk<br />
every week about various issues and<br />
strategy because Budget touches<br />
all the departments and all the<br />
operations,” Grace said. She believes<br />
these weekly check-ins are important<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 83
IN PRACTICE | FINANCE<br />
to ensuring that the budget remains<br />
connected to the city’s strategic<br />
goals. Because the last couple of<br />
years have been so abnormal, Long<br />
Beach couldn’t follow the typical<br />
playbook for developing the budget<br />
or managing internal and external<br />
communications. These weekly<br />
meetings help ensure that Grace and<br />
her team can adapt to any shifting<br />
priorities and plans, and ultimately<br />
allow the Budget Office to support the<br />
city in serving the community better.<br />
Rhutu mentioned that in addition<br />
to the weekly meetings with the city<br />
manager, Grace also participates<br />
in a weekly meeting with all the<br />
department directors and shares<br />
pertinent information from the<br />
meetings with the entire Budget<br />
Office staff. This information from<br />
executive and director-level meetings<br />
helps them do their jobs better, Rhutu<br />
said. With the information coming<br />
from these meetings, Budget Office<br />
staff will often pull together meetings<br />
with several departments to get<br />
everyone on the same page, so they<br />
don’t have to relay information back<br />
and forth to multiple departments.<br />
“Not only is collaboration within our<br />
group really great, but it has worked<br />
its way into how we operate with<br />
other city departments,” Rhutu said.<br />
Similarly, Geraldine also mentioned<br />
how important it is for the Budget<br />
Office to convene other departments<br />
as partners in solving problems. “We<br />
bring together the relevant parties<br />
because we can’t make decisions or<br />
strategize or figure out problems<br />
on our own as a budget office,”<br />
explained Geraldine. “Department<br />
collaboration is key. There is nothing<br />
we can do without them.”<br />
Geraldine described the budget book<br />
itself as the physical representation<br />
of citywide collaboration. “Yes,<br />
the Budget Office puts it together,<br />
everything from the words on the<br />
paper to the numbers in the book,<br />
but absolutely all of the details,<br />
everything, is a huge collaborative<br />
effort,” she explained.<br />
As part of their continuous<br />
improvement efforts, the Budget<br />
Office team regularly reflects on how<br />
they can improve their relationship<br />
with the other city departments.<br />
Grace acknowledged that she and<br />
her team give the departments a<br />
lot of deadlines and demands that<br />
contribute to their ongoing stress,<br />
and as such they regularly reflect<br />
on how they can do a better job<br />
communicating and listening to<br />
them to understand their needs and<br />
any shifting priorities. She knows<br />
that not everyone will be satisfied at<br />
every step of the budget process, but<br />
she believes that adopting a growth<br />
mindset and working to improve<br />
will lead to “a stronger team that’s<br />
ultimately best for the city and best<br />
for the community.”<br />
Because we allow<br />
everyone to live up to<br />
their potential, give them<br />
space, and empower<br />
them, it automatically<br />
makes them just want to<br />
put in that extra work.”<br />
GRACE YOON, BUDGET MANAGEER<br />
Three pieces of advice<br />
When asked what they would<br />
recommend to other public finance<br />
leaders looking to develop a culture of<br />
collaboration, Grace outlined three<br />
key pieces of advice.<br />
Be purposeful, work at it, and<br />
make a conscious investment in<br />
collaboration. “Culture is not an<br />
accident; it takes hard work. Also, if<br />
it’s as valuable as we say it is, then we<br />
shouldn’t shy away from the things<br />
that might erode it,” Grace said. “So,<br />
if there’s a miscommunication or a<br />
conflict, that’s something we need to<br />
work on right away. We don’t want<br />
to let it fester.” She explained that<br />
the budget team is made up of a very<br />
diverse group of personalities. Some<br />
are loud; some are quiet. Some are<br />
spontaneous, and others are more<br />
methodical. As a result, the team<br />
has to be very purposeful in how it<br />
communicates and works together.<br />
“It’s easy to think that collaboration<br />
or connection is something natural<br />
and easy—but it’s really not. It takes<br />
work and investment and, sometimes,<br />
difficult conversations. We’ve had times<br />
where there was miscommunication<br />
between people, and we’d have to just<br />
directly talk about it, and work through<br />
it. I think, ultimately, that it’s not about<br />
being this perfect team or this perfect<br />
image where everyone is just nice and<br />
talking happily with each other; it’s<br />
about creating that environment where<br />
people can be authentic.”<br />
“I think that no matter what, any<br />
team is going to have challenges. It’s<br />
just a matter of how upfront they are<br />
about it, and whether it’s addressed<br />
or acknowledged,” said Grace. “It’s<br />
just normal. It’s natural. People are<br />
different; people work differently.<br />
I think it’s smart to expect it, and<br />
not be surprised that collaboration<br />
and building a culture of teamwork<br />
is something that you have to work<br />
toward.”<br />
Focus on each individual’s strengths.<br />
“If you focus on the individual<br />
strengths gifts, and talents that people<br />
bring, you can treat each person<br />
as an investment in your team and<br />
culture. Otherwise, you’re trying to<br />
hammer people into a certain box,<br />
and you’ll just get frustrated,” Grace<br />
explained. “When their strengths<br />
are used strategically, they feel more<br />
empowered, and they have successes<br />
and wins that align with where their<br />
abilities are.”<br />
Grace explained that in the Budget<br />
Office, the hierarchy of manager,<br />
officer, and analyst is just for<br />
organizational purposes, and that<br />
operationally, the bureau is quite flat.<br />
“The analysts are smarter than us,” she<br />
said. “They have to tell us what’s going<br />
on. They correct us, and we need them<br />
to do that. We need them to have that<br />
voice. We’re better for that.”<br />
“There’s very much a sense of<br />
empowerment, that the leaders are not<br />
84
just the people who have a title who<br />
are on top, but everyone can step up<br />
and take ownership,” she said, adding<br />
that this leads to staff taking greater<br />
initiative and developing projects<br />
independently. If they see something<br />
that doesn’t make sense, they will<br />
follow up on it on their own.<br />
Rhutu believes that empowering<br />
staff in this way also makes them<br />
more accountable. “Because we allow<br />
everyone to live up to their potential,<br />
give them space, and empower them,<br />
it automatically makes them just want<br />
to put in that extra work,” she said.<br />
Foster an atmosphere of gratitude<br />
and patience. “It sounds potentially<br />
cliched, but I really think it’s a truly<br />
powerful engine that can drive a<br />
team forward and avoid burnout or<br />
stagnation,” Grace said.<br />
An atmosphere of gratitude and<br />
patience also reinforces the idea of<br />
empowering staff because it means<br />
we appreciate and acknowledge them<br />
for their specific efforts, and at the<br />
same time lets them know that it’s OK<br />
to make a mistake. The Budget Office<br />
staff maintains a shared spreadsheet<br />
each year that they call the “Things<br />
to Improve List.” “We encourage all<br />
our staff, as things are happening, if<br />
things don’t work out, to throw it on<br />
the list,” said Grace. “Getting better<br />
and improving shouldn’t be a taboo<br />
topic.” She wants her staff to feel<br />
emboldened to try new things and<br />
hopes that the list shifts the mindset<br />
from one of failure and defensiveness<br />
to learning and doing better in the<br />
future.<br />
For Rhutu, fostering this kind of<br />
atmosphere means being relatable<br />
as a manager. She cited Grace and<br />
John Gross as examples. “Grace is<br />
one of the smartest people I know,<br />
and she will be ready to explain any<br />
topic to you at your level and welcome<br />
questions and discussion,” she said.<br />
She went on to explain that Grace<br />
always has a positive attitude, but<br />
at the same time she’ll acknowledge<br />
when a colleague might be having a<br />
bad day and allow that person space<br />
to have those feelings. Similarly, she<br />
said John will sometimes drop in on<br />
a Budget Office staff meeting and<br />
sit on the floor and refuse a chair.<br />
Quirky behaviors like this show that<br />
no one in the office is better than<br />
anyone else, and they have endeared<br />
him to the staff over the years.<br />
Rhutu said that Grace and John<br />
have inspired her to be as relatable<br />
as possible, which reinforces the<br />
culture of staff empowerment.<br />
“Relatability allows you to feel like<br />
it’s OK not to meet the mark because<br />
everybody is not going to do that<br />
every time. But we are a team, and<br />
we can tackle it together,” she said.<br />
Katie Ludwig is a senior manager<br />
in GFOA’s Research and Consulting<br />
Center.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 85
IN PRACTICE | ACCOUNTING<br />
Ch-Ch-Ch-Changes: Adopting GASB GAAP<br />
BY MICHELE MARK LEVINE<br />
On May 20, <strong>2021</strong>,<br />
the Governmental<br />
Accounting Standards<br />
Board (GASB) issued<br />
an Exposure Draft<br />
(ED) titled Accounting Changes and<br />
Error Corrections. With this ED, GASB<br />
is looking to bring more consistency to<br />
the reporting and disclosure of events<br />
that result in changes to previously<br />
reported information or potentially<br />
distort trend analysis. The clarity will<br />
likely be welcomed by most interested<br />
parties, although the additional<br />
reporting and disclosure requirements<br />
may not be welcome by all preparers.<br />
For those with opinions—pro or con—<br />
GASB is soliciting public comments<br />
on the proposals, which are due by<br />
<strong>August</strong> 31, <strong>2021</strong>.<br />
The scope of the ED includes proposed<br />
definitions of, and accounting and<br />
reporting standards for, (1) accounting<br />
changes, including changes in<br />
accounting principles, changes in<br />
accounting estimates, and changes to<br />
or within the financial reporting entity;<br />
as well as for (2) corrections of errors in<br />
previously issued financial statements.<br />
The ED also clarifies that the first-time<br />
adoption of GASB generally accepted<br />
accounting principles (GAAP) is neither<br />
an accounting change nor an error<br />
correction.<br />
One key aspect of the ED is a proposed<br />
disclosure requirement for a schedule<br />
disclosing the effects of accounting<br />
changes and error corrections on<br />
beginning position, effectively serving<br />
as a crosswalk from previously issued<br />
financial statements to the adjusted<br />
and/or restated financial statements<br />
(“crosswalk schedule”).<br />
Changes in accounting principle<br />
The ED proposes defining a change<br />
in accounting principle as the<br />
application of an accounting principle<br />
to transactions or other events<br />
(hereafter collectively referred to as<br />
“transactions”) of a similar type that<br />
are different from—and preferable<br />
to—the accounting principle<br />
previously applied to that type of<br />
transaction.<br />
The proposed definition of a change<br />
in accounting principle excludes<br />
initial adoption and application<br />
©<strong>2021</strong> ANNA GODEASSI C/O THEISPOT.COM<br />
86
of an accounting principle to<br />
transactions that:<br />
• Are clearly different in substance<br />
from those previously occurring,<br />
• Are occurring for the first time, or<br />
• Were previously insignificant in<br />
their effect.<br />
Also excluded from the definition of a<br />
change in accounting principle are (1)<br />
implementations of new authoritative<br />
GAAP pronouncements and (2) changes<br />
from the application of a non-GAAP<br />
accounting principle to the application<br />
of a GAAP accounting principle, for<br />
transactions and events that were<br />
previously significant—the latter being<br />
error corrections, which are separately<br />
addressed in the ED and discussed below.<br />
Changes that must be justified as being<br />
preferable to the previous practice<br />
(including changes in accounting<br />
principle and changes in estimation<br />
methodologies, discussed below) must<br />
be preferable based on the qualitative<br />
characteristics of financial reporting<br />
in GASB’s conceptual framework,<br />
which are:<br />
• Understandability,<br />
• Reliability,<br />
• Relevance,<br />
• Timeliness,<br />
• Consistency, and<br />
• Comparability. 1<br />
A change in an accounting principle<br />
(other than a change that results<br />
only in reclassification in financial<br />
statements, which are discussed<br />
below), absent specific transition<br />
guidance, 2 is proposed to be accounted<br />
for retroactively, by:<br />
• Restatement of financial statements<br />
for each individual prior period<br />
presented, by applying the newly<br />
adopted accounting principle (“new<br />
principle”), if practicable; and<br />
• Restatement of the beginning net<br />
position, beginning fund balance,<br />
or beginning fund net position, as<br />
applicable (hereafter collectively<br />
termed “beginning position”) for the<br />
cumulative effect, if any, of the change<br />
on prior periods, to earliest period<br />
presented applying the new principle.<br />
That earliest period will be either:<br />
– The earliest period presented, or<br />
– The earliest period for which it<br />
is practicable to apply the new<br />
principle, if later.<br />
This proposal would represent a<br />
change from the current authoritative<br />
guidance on the accounting for changes<br />
in accounting principle, which requires<br />
adjusting the beginning position in the<br />
period of the change for the cumulative<br />
effect of changing to a new principle. 3<br />
Required disclosures for a change in an<br />
accounting principle, absent specific<br />
transition guidance, are proposed to be<br />
composed of:<br />
• The nature of the change, including<br />
identification of the financial<br />
statement line items (other than<br />
totals and subtotals) affected,<br />
• The reason for the change, including<br />
why the new principle is preferable,<br />
except when implementing new<br />
GAAP (because the new GAAP is<br />
assumed to be preferable), and<br />
• The reason it is not practicable to<br />
restate prior periods presented, if<br />
applicable.<br />
• Additionally, the effect of the change<br />
is proposed to be included in the<br />
crosswalk schedule discussed below.<br />
Changes in accounting estimate<br />
A change in accounting estimate is<br />
proposed to be defined as one that<br />
results from changes to the inputs<br />
(such as data, assumptions, and<br />
measurement methodologies) used to<br />
determine the accounting estimate,<br />
which is an output.<br />
A change in an accounting estimate<br />
is proposed to be accounted for<br />
prospectively, by recognizing the<br />
effects of the change in the reporting<br />
period in which the change occurs. This<br />
does not represent a change from the<br />
current authoritative guidance on the<br />
accounting for changes in estimates, 4<br />
but it does more clearly state that the<br />
classification includes changes in<br />
estimation methodologies, which are<br />
now sometimes erroneously treated as<br />
changes in accounting principles.<br />
Required disclosures for a change in an<br />
accounting estimate are proposed to be<br />
composed of:<br />
• The nature of the change, including<br />
identification of the financial<br />
statement line items (other than<br />
totals and subtotals) affected, and<br />
• The reason for the change, if the<br />
change is the result of a change<br />
in measurement methodology,<br />
including why the new methodology<br />
is preferable, as discussed above.<br />
Changes to or within the<br />
financial reporting entity<br />
A change to or within the financial<br />
reporting entity is proposed to be<br />
defined as one that results from:<br />
• The addition or removal of a fund,<br />
including from a government’s<br />
blended component units (CUs),<br />
• A change in the presentation of a<br />
governmental or enterprise fund as<br />
major or nonmajor,<br />
• The addition or removal of a CU (note<br />
exclusions, discussed below), or<br />
• The change in presentation of a<br />
CU (bended versus discrete).<br />
A change to or within the financial<br />
reporting entity is proposed to exclude:<br />
• Acquisitions, mergers, and transfers<br />
of operations that result in the<br />
addition or removal of a discretely<br />
presented CU, and<br />
• CUs reported because of<br />
the reporting government’s<br />
noninvestment majority equity<br />
interest.<br />
A change to or within the financial<br />
reporting entity is proposed to<br />
be accounted for by adjusting the<br />
beginning position for the effect of the<br />
change, as if the changed occurred as of<br />
the beginning of the reporting period.<br />
Current GAAP include changes in the<br />
reporting entity as a special type of<br />
change in accounting principle, 5 which<br />
requires restatement of prior periods<br />
when they occur. 6 Current GAAP<br />
more narrowly defines this category,<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 87
IN PRACTICE | ACCOUNTING<br />
however, limiting it to changes in<br />
which legal entities are included in<br />
the reporting entity, rather than also<br />
including changes within the entity<br />
(such as changes in the presentation<br />
of a governmental or enterprise fund<br />
from major to nonmajor or vice versa,<br />
and the addition or removal of funds).<br />
The proposal to include such fund<br />
reclassifications would call attention<br />
to and require explanation of events<br />
that routinely occur as a result of<br />
governments annually applying the<br />
quantitative test for major funds.<br />
Proposed disclosure requirements<br />
for a change to or within the financial<br />
reporting entity include the nature<br />
and reasons for each change, and the<br />
effect of the change is proposed to be<br />
included in the crosswalk schedule<br />
discussed below.<br />
Error corrections<br />
Accounting errors are proposed to be<br />
defined as resulting from mathematical<br />
mistakes, mistakes in the application<br />
of accounting principles, or the<br />
oversight or misuse of facts that existed<br />
at the time the financial statements<br />
were issued, specifically those about<br />
conditions that existed as of the<br />
financial statement date, that could<br />
reasonably be expected to have been<br />
obtained and taken into account at<br />
that time.<br />
A correction of an error (other<br />
than a correction that results only<br />
in reclassification in financial<br />
statements, which are discussed<br />
below) is proposed to be accounted for<br />
retroactively by restating financial<br />
statements for each individual prior<br />
period presented, and for restating<br />
the beginning position for the earliest<br />
period presented, for the cumulative<br />
effect of the change on periods prior to<br />
the first period presented. This does<br />
not represent a change in the currently<br />
required accounting for corrections of<br />
errors in previously issued financial<br />
statements. 7<br />
Disclosure for an error correction is<br />
proposed to require the inclusion of:<br />
• The nature of the error and its<br />
correction, including identification of<br />
the financial statement line items (not<br />
sub/totals) affected.<br />
• The effect of the correction on the<br />
change in net position, fund balance,<br />
or fund net position, as applicable,<br />
of the prior period.<br />
Additionally, the effect of the error<br />
correction is proposed to be included<br />
in the crosswalk schedule, discussed<br />
below.<br />
Accounting and disclosure for<br />
changes in accounting principle<br />
and corrections resulting in<br />
reclassification only<br />
Changes and corrections that have<br />
no effect on beginning position are<br />
proposed to be reported by applying<br />
the reclassification to all prior periods<br />
presented for an error correction, or<br />
for all prior periods, if practicable, for<br />
a change in accounting principle.<br />
Required disclosures under these<br />
circumstances are proposed as follows:<br />
• For changes in accounting principle,<br />
– The nature of, and reason for,<br />
the accounting change, including<br />
why new principle is preferable<br />
(except when implementing new<br />
GAAP), and<br />
– The reason why reclassification<br />
of prior periods presented for<br />
an accounting change is not<br />
practicable, if applicable, or<br />
• For an error, the nature of the error<br />
and its correction.<br />
Display of the aggregate effect<br />
of accounting changes and error<br />
corrections<br />
The ED proposes to require that the<br />
aggregated amount of adjustments of<br />
beginning position from all accounting<br />
changes and error corrections be<br />
displayed for each financial statement<br />
column, excluding totals. This would<br />
be a new requirement for preparers.<br />
Crosswalk schedule<br />
The ED proposes to require<br />
governments to disclose, in a table<br />
that reconciles beginning balances,<br />
as previously reported, to beginning<br />
balances, as restated for each<br />
financial statement column (excluding<br />
totals), for the following occurrences<br />
during the period that resulted<br />
in restatement (unless separately<br />
displayed in the financial statements):<br />
• Each change in accounting principle,<br />
• Each change to or within the<br />
reporting entity, and<br />
• Each error correction.<br />
Governments would disclose each<br />
of the above items separately for<br />
each reporting unit, combined to<br />
avoid unnecessary duplication. This<br />
would also be a new requirement for<br />
preparers.<br />
Required and other<br />
supplementary information<br />
(RSI and SI)<br />
The ED proposes to require that:<br />
• For periods that are included in both<br />
the basic financial statements (BFS)<br />
and RSI/SI, the reporting in RSI/SI<br />
should follow that in the BFS, and<br />
– For periods present in RSI/SI but<br />
not in the BFS, information should<br />
not be restated for changes in<br />
accounting principles, but<br />
– Should be restated for error<br />
corrections.<br />
When prior period information in RSI<br />
is inconsistent with current period<br />
information because of an accounting<br />
change, an explanation for that<br />
inconsistency should be provided.<br />
An explanation in MD&A should<br />
reference the related note disclosure.<br />
Current GAAP do not directly address<br />
restatement of RSI and SI, and the<br />
proposal to require restatement of<br />
all prior periods in the case of an<br />
error correction may be a burden to<br />
preparers.<br />
Michele Mark Levine is the director<br />
of GFOA’s Technical Services Center.<br />
1<br />
It is noteworthy that these characteristics<br />
may be at odds with each other. For example,<br />
a change to using estimates rather than<br />
awaiting final actual results when measuring<br />
unavailable revenue in a governmental fund<br />
may be justified as being preferable based on<br />
timeliness, while a change from using estimates<br />
to awaiting final actual results may be justified<br />
as being preferable based on reliability.<br />
2<br />
Such as in transition guidance in new GASB<br />
pronouncements.<br />
3<br />
GASB Cod. Sec. 2250.139-.140.<br />
4<br />
GASB Cod. Sec. 2250.146-147.<br />
5<br />
GASB Cod. Sec. 2250.134.<br />
6<br />
GASB Cod. Sec. 2250.149.<br />
7<br />
GASB Cod. Sec. 2250.123-124.<br />
88
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AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 89
IN PRACTICE | PERSPECTIVE<br />
Improving Procurement Practices<br />
in the Wake of the Pandemic<br />
Historically, procurement<br />
has often been something<br />
of a backwater of state<br />
and local government<br />
management. But when the pandemic<br />
hit, procurement officers suddenly<br />
became either the heroes or the goats<br />
of government service. Shortages<br />
of masks, ventilators, cleaning<br />
equipment, and even toilet paper<br />
seized the public’s attention and<br />
provoked calls for reform.<br />
Now, with the aid of vaccinations, the<br />
pandemic has been waning. But many<br />
in government continue to be focused<br />
on ways to improve their procurement<br />
practices. Even though the pandemic<br />
has been a singular event, other<br />
emergencies can easily smash supply<br />
chains, leading to shortages of<br />
necessary goods and services.<br />
“Reading about the 1918 pandemic,” said<br />
Nathan Myers, associate professor of<br />
public science and public administration<br />
at Indiana State University, “there<br />
was a sense of collective amnesia. It<br />
was such a terrible thing that people<br />
chose to forget it. Hopefully with more<br />
documentary evidence now, people<br />
will remain committed to seeing<br />
procurement reform through.”<br />
Of course, even in the absence of a<br />
pandemic, hurricane, tornado, or<br />
wildfire, the necessity of strategic<br />
procurement policies is a day-to-day<br />
concern.<br />
Purchasing practices that focus<br />
only on low-bid have been common<br />
practice historically. However, as more<br />
governmental entities work towards<br />
not only budget goals, but also consider<br />
business continuity, long-term financial<br />
Katherine Barrett & Richard Greene<br />
planning, and impact on service level –<br />
many governments have begun consider<br />
risk and quality factors beyond price.<br />
Michael Owh, chief deputy director at<br />
the internal services department of the<br />
County of Los Angeles, said: “The world<br />
had prioritized efficiency over resiliency.<br />
Many were hyperfocused on getting<br />
the best price.” Owh’s county has been<br />
reviewing ways to move away from that<br />
environment, as have many others.<br />
The State of Florida ran into these kinds<br />
of issues during the pandemic, and now,<br />
“we are transitioning away from low<br />
©<strong>2021</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
90
id,” said Carrie Mathes, procurement<br />
manager for Orange County<br />
Government in Florida. “Beyond just<br />
price, we want to know if vendors can<br />
get services to us without disruption.<br />
And you can’t necessarily do that with<br />
low bid.”<br />
Whether or not low-bid contracts are<br />
used, one of the most alarming lessons of<br />
the pandemic is that in times of pressing<br />
shortages, vendors can turn out to be<br />
less competent than they first appeared<br />
to be if they aren’t vetted sufficiently.<br />
“During the pandemic, states faced<br />
challenges with irresponsible suppliers<br />
who were not able to provide the<br />
materials they promised or whose<br />
products did not meet the specifications<br />
required by the solicitation,” said<br />
Lindle Hatton, chief executive officer<br />
of the National Association of State<br />
Procurement Officials.<br />
Fortunately, he said, “procurement<br />
professionals are trained to incorporate<br />
supplier responsibility requirements<br />
and conduct supplier vetting that helped<br />
to identify these ‘bad actors.’”<br />
To be fair, even the most responsible<br />
vendors couldn’t please all their<br />
customers over the course of the last<br />
months. Their own suppliers were often<br />
in short supply, leaving them caught<br />
in between. As one distraught vendor<br />
told us, “I had a customer call me and he<br />
needed disinfectant wipes. I said, ‘it’ll<br />
take a month and a half,’ and he started<br />
screaming at me. People were screaming<br />
at me all the time. I don’t know what<br />
they thought, that we were stocking<br />
everything? Nobody is big enough to<br />
handle that kind of stocking.”<br />
One seemingly obvious way for localities<br />
and states to be sure they have all<br />
the goods they need, regardless of<br />
circumstances, is by warehousing. But<br />
most of the experts interviewed for this<br />
column agreed that warehousing is<br />
simply not the best route to guaranteed<br />
supplies or best use of limited budget<br />
resources. Rick Grimm, chief executive<br />
officer of NIGP: The Institute for Public<br />
Procurement, said, “The key decision<br />
about warehousing is deciding what you<br />
need to warehouse versus purchase on<br />
demand to sustain operations. Are you<br />
able to define what items you need to<br />
store in the right quantities and reorder<br />
points given that there are carrying<br />
costs of inventory and the risk of<br />
obsolescence?”<br />
Beyond these salient questions, publicsector<br />
warehouses can easily be longterm<br />
housing for goods that wear out<br />
before they’re needed.<br />
Consider the plight of San Diego County,<br />
California, in the early days of the<br />
pandemic. The county had warehoused<br />
N95 masks for just such an event.<br />
“When the pandemic first hit,”<br />
recalls Jack Pellegrino, director of<br />
the department of purchasing and<br />
contracting for San Diego County, “we<br />
had something like 300,000 N95 masks<br />
in our medical operations warehouse,<br />
and we found that they were beyond<br />
their shelf life. The elastic bands<br />
had deteriorated, and they couldn’t<br />
hold compression. So, in light of the<br />
Warehousing is<br />
simply not the best<br />
route to guaranteed<br />
supplies or best use<br />
of limited budget<br />
resources.<br />
worldwide shortage and unavailability<br />
of new N95 masks, we decided to retrofit<br />
for our immediate emergency needs by<br />
buying a million large, number seven,<br />
latex-free rubber bands to replace the<br />
straps in the back.”<br />
One alternative to governmental<br />
entities warehousing for themselves is<br />
turning to their vendors to do so. This<br />
isn’t always a viable option, as vendors<br />
don’t necessarily have the capacity to<br />
keep sufficient supplies in stock, but<br />
it can be helpful, and “many states<br />
have augmented their state-owned<br />
warehouse capabilities by contracting<br />
with suppliers to expand storage and<br />
delivery resources during times of<br />
crisis,” according to Hatton.<br />
Another element to a procurement plan<br />
that can help to provide goods in times<br />
of short supply is reliance on multiple<br />
suppliers, instead of just one. This is<br />
particularly true when the vendors are<br />
providing supplies on a just-in-time<br />
basis, and they aren’t necessarily being<br />
kept in warehouses for provision when<br />
they’re needed.<br />
“Procurement officers have learned<br />
over the last 15 months that single<br />
sources of supply are often not good,”<br />
said Pellegrino. He pointed out that<br />
though there are times when only one<br />
supplier can be beneficial for obtaining<br />
quantities of scale and advantageous<br />
pricing, limitations in sources of<br />
supplies can unknowingly increase risk<br />
to an organization during emergency<br />
situations.<br />
Many localities have helped buttress<br />
themselves from shortages—and help<br />
get good prices—through cooperative<br />
purchasing, where they join forces with<br />
other entities to buy larger quantities<br />
of goods. This makes them even more<br />
important customers to their vendors,<br />
which is always a good thing.<br />
Of course, with cooperative contracts,<br />
there’s the hazard that individual<br />
entities won’t vet the details thoroughly<br />
enough. NIGP’s Grimm said: “When<br />
accessing cooperative contracts, the<br />
purchasing agent still has the fiduciary<br />
responsibility to manage the contractual<br />
relationship with the supplier. That<br />
burden does not shift to someone else.”<br />
In fact, NASPO made an effort during<br />
the pandemic to support these efforts<br />
by regularly hosting scheduled calls<br />
for state chief procurement officers.<br />
“These calls have allowed states to<br />
discuss available supply chains and<br />
identify opportunities for cooperative<br />
purchasing,” explained NASPO’s Hatton.<br />
There are, of course, no magic solutions<br />
to solve all the issues of procurement.<br />
But the pandemic has been a stressor<br />
that revealed the weaknesses in supply<br />
chains and helped to solidify efforts to<br />
make sure that they’re strengthened in<br />
the future. There may not be another<br />
event of this magnitude in our lifetimes,<br />
but if procurement practices have<br />
become more strategic because of it, that<br />
will benefit cities, counties, and states<br />
for years to come.<br />
Katherine Barrett and Richard Greene<br />
are principals of Barrett and Greene,<br />
Inc (greenebarrett.com). and are coauthors<br />
of the recently released Making<br />
Government Work: The Promises and<br />
Pitfalls of Performance-Informed<br />
Management.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 91
IN PRACTICE | INTERVIEW<br />
DAVID ERDMAN is capital finance director for the State of<br />
Wisconsin. David has been a member of the State of Wisconsin<br />
Capital Finance Office since 1994, and he’s been the director<br />
since 2015. David is also a member of GFOA’s Committee<br />
on Governmental Debt Management. In this article, David<br />
discusses his work and hobbies with GFOA’s Ryan Lawler.<br />
Can you give our readers some<br />
insight into the work you do at<br />
the State of Wisconsin?<br />
I’m currently the capital finance<br />
director, which means I oversee the<br />
capital finance office here at the State<br />
of Wisconsin. I’ve been the director for<br />
the last five years after learning many<br />
excellent principles and practices<br />
from Frank Hoadley, who was the<br />
capital finance director before me. A<br />
lot of the principles and practices that<br />
we still undertake today are things<br />
that Frank taught me over many years.<br />
The Capital Finance Office is part<br />
of the State Budget Office. We work<br />
with people who develop the state’s<br />
biennial budget and address day-today<br />
budget operations. The Office is<br />
responsible for all borrowings and debt<br />
issuances completed by the State of<br />
Wisconsin. We manage five different<br />
credits in this office, including<br />
general obligation bonds, a couple of<br />
appropriation credits, and revenue<br />
credits. All matters that include<br />
developing new bonding programs go<br />
through the Capital Finance Office.<br />
Our responsibilities also include the<br />
authorization, issuance, disclosure,<br />
post-issuance compliance, and<br />
anything else that relates to bonding or<br />
capital needs of the State of Wisconsin.<br />
I work closely with the State Budget<br />
Director and State Comptroller<br />
because all our functions are in the<br />
same division in the Department of<br />
Administration, and many of our<br />
functions interact and interrelate.<br />
I’ve been in the Capital Finance Office<br />
since 1994.<br />
I came over to this office from the<br />
Department of Natural Resources.<br />
Before that, I was working with<br />
communities to secure subsidized<br />
loans from the state revolving fund<br />
program.<br />
Have you always had an<br />
interest in public service? Or<br />
has it developed over time as<br />
you’ve gotten more involved<br />
with the state as you’ve<br />
changed responsibilities?<br />
I think people will find out in a hurry<br />
that there is no college course or<br />
degree in public finance. Obviously,<br />
you have a finance or political science<br />
background, and it’s a mix of those<br />
two areas, or a legal field, that results<br />
in public finance. I wasn’t thinking<br />
92
I’m taking what I<br />
learned from others<br />
over my years in debt<br />
management and<br />
giving back to those<br />
who are newer to the<br />
field, with hopes that<br />
they will be a longtime<br />
debt manager<br />
for their states or<br />
municipalities.<br />
when I went to college that I’d be a<br />
capital finance director for the State<br />
of Wisconsin. As for the public side<br />
of it, I’ve always been interested in<br />
local and state politics. I think it goes<br />
back to high school. Government has<br />
always been something that I’ve been<br />
interested in.<br />
One of the things we’ve seen<br />
over the last decade or so is<br />
sort of the transformation<br />
of Wisconsin into a political<br />
bellwether. When it comes<br />
to political elections, as an<br />
administrative official working<br />
for the state, how do you<br />
navigate the political climate<br />
to make sure you’re being<br />
consistent across the board?<br />
Obviously, Wisconsin has been<br />
politically active the past few years,<br />
and we have a pretty big political<br />
divide right now. I do vote in the<br />
elections, so I have my personal<br />
political views. I’ve worked for many<br />
administrations, some Republican<br />
and some Democrat. One key part<br />
of my position is that I’m not a<br />
political appointee. This office is<br />
here regardless of who is in charge,<br />
so we’re able to maintain good debt<br />
management practices regardless<br />
of the political affiliations that may<br />
predominate in the executive or<br />
legislative branch.<br />
My approach is that every elected<br />
official has been elected for a<br />
reason. My duty is to provide them<br />
straightforward debt management<br />
advice but not political advice—just<br />
financial and debt management<br />
reasons why we should or shouldn’t<br />
do something. I tell many people who<br />
have worked with me that when it<br />
comes to debt management in state<br />
government, where there are going to<br />
be different political theories, there’s<br />
the smart financial decision and<br />
there’s also a smart political decision.<br />
Our duties are to provide information<br />
to make the smart financial decision<br />
and to not be frustrated when the<br />
political decision is made. We’ve done<br />
our job by providing them information<br />
that quantifies or qualifies different<br />
financing scenarios. And if a different<br />
decision is made, because of politics,<br />
that is something that happens, and<br />
we accept that and move on to tackle<br />
the next assignment.<br />
You’re an active member<br />
of GFOA’s Committee<br />
on Governmental Debt<br />
Management and you<br />
do a lot of work with the<br />
National Association of State<br />
Treasurers (NAST). It’s also<br />
not uncommon to see you<br />
making presentations to<br />
organizations in the public<br />
finance community. And all of<br />
that is in addition to what you<br />
do with the State of Wisconsin.<br />
How important is it for you to<br />
stay engaged in the industry?<br />
The benefit of being involved with<br />
the State of Wisconsin is that I’m<br />
hearing things as they happen in D.C.<br />
I’m learning new ideas and talking<br />
to other debt issuers, whether it be<br />
state issuers or smaller issuers, and<br />
hearing ideas for programs. I’m able<br />
to bring that information back to the<br />
state for the benefit of the state.<br />
The other reason I’m so active is that<br />
I’ve been honored and blessed to<br />
be a debt manager for many years.<br />
I understand that public finance is<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 93
IN PRACTICE | INTERVIEW<br />
something that takes some time to get<br />
your arms around, and I love working<br />
with new staff here at the state, or at<br />
within other governments to share<br />
some secrets and ideas about debt<br />
management. Also, I feel like I’m<br />
taking what I learned from others over<br />
my years and giving back to those<br />
who are newer to the field, with hopes<br />
that they will too enjoy a long and<br />
rewarding career.<br />
Also, my personal campaign is<br />
for good disclosure and voluntary<br />
disclosure. I’ve been doing this long<br />
enough to see what the Securities<br />
and Exchange Commission (SEC) did<br />
with 15c2-12 Municipal Securities<br />
Disclosure regulations in 1994<br />
and how that changed the area of<br />
municipal disclosure. There have<br />
been some rumblings recently about<br />
the quality of and the access to<br />
municipal disclosure, and I really<br />
think it’s up to the municipal industry<br />
to be proactive. It will show that<br />
municipal disclosure has improved,<br />
and it will demonstrate to the SEC,<br />
investors, institutional analysts,<br />
and others that municipal disclosure<br />
continues to improve and that there’s<br />
no need to take additional regulatory<br />
actions. This personal crusade is<br />
helped by being active in GFOA, NAST,<br />
and other organizations, and by<br />
speaking, when asked, to help convey<br />
my ideas.<br />
Shifting gears a bit, one of the<br />
more fascinating things we’ve<br />
talked about is the volunteer<br />
work you do in the local<br />
community, including with<br />
the EMT service and serving<br />
as an election inspector. Can<br />
you tell us about that? And<br />
how do you manage your<br />
time both with your work<br />
responsibilities, staying<br />
involved in the industry, and<br />
then also carving out enough<br />
time to make sure you’re<br />
making an impact in your<br />
local community?<br />
I have three hobbies with my local<br />
government. I am a chief election<br />
official, which means I am one of<br />
the people who run a polling place<br />
in the City of Stoughton, Wisconsin,<br />
where we have four polling places.<br />
I’m also the chair of the utilities<br />
committee, which is a committee<br />
of citizen members plus elected<br />
officials. I’m also a volunteer<br />
advanced EMT, providing volunteer<br />
services for our emergency medical<br />
services in Stoughton. In my city,<br />
medical services are still provided by<br />
volunteer service, and there’s about<br />
42 of us. I am also a squad leader,<br />
which means that one day of the week,<br />
I’m responsible for managing people<br />
on my squad.<br />
The volunteer EMT service is probably<br />
the biggest time commitment I have<br />
outside of work. Finance and “blood<br />
and guts” are completely different<br />
areas. I do call it a hobby. I also golf<br />
and go to baseball games and football<br />
games, but being an EMT is something<br />
that takes my mind off work. From a<br />
finance angle, you hear discussions<br />
about Medicaid reimbursement<br />
rates for ambulance services, and<br />
I get to see it firsthand. Emergency<br />
medical services vary community<br />
to community, and it’s something<br />
that’s evolving in rural America.<br />
Going back 20 years ago, I would<br />
imagine quite a few communities had<br />
a volunteer service, whereas now a<br />
paid paramedic service is a norm—but<br />
it’s costly to maintain. My guess is<br />
that more and more communities will<br />
phase in emergency medical services<br />
provided by full-time, paid staff<br />
sometime soon.<br />
As an election official, my<br />
involvement goes with the elections;<br />
sometimes that’s six or eight times a<br />
calendar year, and other times there<br />
are no elections in a calendar year.<br />
Being a chair of the utilities<br />
committee is also time-consuming,<br />
but it’s fun. First, seeing how<br />
electricity, water, and wastewater<br />
services are provided through a<br />
government is very interesting.<br />
Considering my finance experience,<br />
I understand that<br />
public finance is<br />
something that takes<br />
some time to get your<br />
arms around, and<br />
I love working with<br />
new staff here at<br />
the state, or at within<br />
other governments to<br />
share some secrets<br />
and ideas about debt<br />
management. Also,<br />
I feel like I’m taking<br />
what I learned from<br />
others over my years<br />
and giving back to<br />
those who are newer<br />
to the field, with<br />
hopes that they will<br />
too enjoy a long and<br />
rewarding career.<br />
94
I can apply some of the debt<br />
management items that I’ve learned<br />
here at the state and give some<br />
feedback to staff at the utilities on<br />
bonding or other financing ideas.<br />
It’s a way for me to give back to the<br />
community in an area where I have<br />
some experience. In the interim, I<br />
feel like I’m adding some value to my<br />
city by providing these services as a<br />
volunteer.<br />
Are there any interesting<br />
stories to share from your<br />
EMT service (none that would<br />
violate HIPAA, of course!)?<br />
I have been providing EMT services<br />
since 2008 and have seen many good<br />
things and bad things. Delivering<br />
a baby in the back of an ambulance<br />
while going 75 mph down the highway<br />
will always be a great memory, along<br />
with the many times an elderly<br />
person squeezes your hand and says,<br />
“thank you.” Knowing that our EMT<br />
crew provided a skill or intervention<br />
that helped save a life is also very<br />
rewarding and motivating. EMT is<br />
not always good, and you see people<br />
at their worst. Triple traffic fatalities<br />
to drug overdoses involving people in<br />
their 20s to family friends who have a<br />
cardiac arrest, and their heart will<br />
not respond to your efforts—those<br />
situations are always tough. And<br />
any call involving a child is always<br />
mind-boggling.<br />
An area of focus for GFOA<br />
recently is how the role of<br />
finance professionals in their<br />
communities is evolving into<br />
more active engagement in<br />
conversations in as well as<br />
being contributing members<br />
of their communities. Do you<br />
see the volunteer work that<br />
you do as an extension of the<br />
work you’re doing with the<br />
state, or is it more that you<br />
just enjoy doing it?<br />
Well, I think both. I’ve lived in<br />
Stoughton since 1992. It’s not where<br />
I grew up, but it’s my home now.<br />
Offering services and being involved<br />
in the community allows you to walk<br />
around on a Saturday and Sunday<br />
and to know many people and have<br />
great conversations with them—<br />
conversations that not only address<br />
friendly matters, but also address<br />
the growth, economic development,<br />
and happiness of the community. Am<br />
I bringing a lot of debt management<br />
to those conversations? Thankfully,<br />
no, as most people aren’t interested<br />
in discussing bond yields and closing<br />
transcripts.<br />
But being involved in public finance,<br />
you’ll see some of the back-of-the<br />
envelope calculations and theories on<br />
how utilities run and how to calculate<br />
rates for services. It’s intriguing from<br />
a public finance perspective, but I<br />
see this more as just being an active<br />
community member and having the<br />
ability to give back. When I retire from<br />
the State of Wisconsin, would I like to<br />
work for the City of Stoughton in some<br />
capacity? Most definitely!<br />
One last, very important<br />
question—what’s your<br />
prediction for the NFC North<br />
this season?<br />
Well, my first prediction is that Aaron<br />
Rodgers will be our quarterback on<br />
week one. And my other prediction is<br />
that, unlike other recent years, we will<br />
again win the Super Bowl this year.<br />
Ryan Lawler is a senior manager in<br />
GFOA’s Research and Consulting Center.<br />
AUGUST <strong>2021</strong> | GOVERNMENT FINANCE REVIEW 95
10 STEPS<br />
10 Steps<br />
to Budgeting<br />
for Salary<br />
and Wages<br />
1<br />
Forecasting. Salaries typically<br />
make up the greatest portion of the<br />
expenditure budget, so it makes<br />
sense to try and better understand<br />
how different trends or cost drivers<br />
may impact payroll costs.<br />
2<br />
Personnel tracking system.<br />
Budget payroll projections are<br />
based on the estimate of budgeted<br />
positions for the year, so make sure<br />
the number of budgeted positions<br />
is correct. If the system that tracks<br />
budgeted positions is outside of<br />
finance, ensure there is regular<br />
coordination and communication<br />
to ensure accurate information.<br />
3<br />
Vacancy adjustments. Address<br />
expected vacancies in the salary<br />
budget. Consider tracking expected<br />
start dates; reviewing trends<br />
(average filled positions per year<br />
versus average vacant positions)<br />
to determine the dollar impact of<br />
including a hiring lag; quantifying<br />
the money saved by not filling<br />
frozen or eliminated positions;<br />
tracking unfunded positions;<br />
and budgeting payouts where<br />
employees have indicated specific<br />
retirement dates.<br />
4<br />
Collective bargaining units.<br />
Note the positions that are covered<br />
under collective bargaining,<br />
identifying the group name and<br />
representation, along with the<br />
beginning and end date of the<br />
contract and key dates in contract<br />
provisions; consider setting aside<br />
reserves for contract settlements.<br />
Also account for any union<br />
agreement items such as overtime<br />
and holiday premiums that may<br />
be different.<br />
5<br />
Impact of inflation. The<br />
Consumer Price Index is used<br />
most often for determining costof-living<br />
adjustments, but the<br />
U.S. Bureau of Labor Statistics<br />
Employment Cost Index might be<br />
a better choice, as it measures the<br />
change in the cost of labor, free<br />
from the influence of employment<br />
shifts among occupations and<br />
industries.<br />
6<br />
Optimal staffing level. Some<br />
governments compare their<br />
staffing levels to those of other<br />
governments; some make hiring<br />
decisions to fulfill strategic<br />
initiatives. You might also use<br />
volunteers or part-time or seasonal<br />
employees in certain programs<br />
or services. Some governments<br />
make more use of overtime instead<br />
of hiring full-time workers.<br />
7<br />
Compensation approaches.<br />
When analyzing current<br />
compensation levels, or<br />
comparing to other governments,<br />
consider total compensation.<br />
Costs of benefits, retirement<br />
programs, employee training,<br />
and other related costs beyond<br />
salary can be significant.<br />
8<br />
Program costs. You may want to<br />
consider tracking time and costs<br />
that relate to the specific services<br />
that your government provides.<br />
Tracking costs to specific<br />
programs can provide better<br />
data for evaluating cost of service<br />
and making decisions on how to<br />
best achieve outcomes.<br />
9<br />
Outsourcing or shared services.<br />
Governments may be able to<br />
improve service levels or reduce<br />
costs by considering partnerships<br />
with vendors, non-profits, or<br />
other governments. However,<br />
keep in mind that outsourcing<br />
some services may not directly<br />
result in position reductions as<br />
employees may also be providing<br />
other services that were not<br />
outsourced.<br />
10<br />
Monitoring. Monitor the salary<br />
and wages budget throughout the<br />
year, not just when the budget is<br />
being put together. Should actual<br />
results significantly deviate from<br />
the budget, you’ll need to make<br />
adjustments.<br />
For more details, visit:<br />
gfoa.org/materials/effective-budgeting-of-salary-and-wages<br />
96
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academy<br />
Registration Opens in Fall<br />
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For more information, visit<br />
gfoa.org/leadershipacademy