7 Strategies to Effectively Manage Municipal Finances

Local governments the world over are searching for ways to keep their finances healthy. While certainly not an exhaustive list, here are 7 strategies that should get any government headed in the right direction:

1. Forecast critical budgets. Using a single year budget limits your ability to anticipate when things might get better or worse for your most important funds. Knowing 2 or 3 years in advance that you are headed into a stressed financial period gives you time to strategically manage the issue, rather than react under pressure.

2. Establish effective financial policies. Do you have policies in place to ensure financial stability? At a minimum, you should have policies governing:

  • Minimum reserves/fund balance

  • Utilization of excess cash

  • Debt limits

  • Capital projects funding

3. Recover as many costs as possible. Local government costs include mandated services, as well as administrative or policy-driven costs. Wherever possible, set fees for public services at levels that recoup the true cost of providing non-mandated services. Internally, develop a comprehensive cost allocation plan to recover general fund central service costs required to support non-general fund functions.

4. Set spending priorities. It’s important to know the most critical services your government provides to its constituents. Focus spending on areas that provide the greatest benefit to the community, whether roads, senior services, public safety, recreation or economic development. If cuts are required, be sure to preserve highly valued services and eliminate or cut back on less desirable services.

5. Measure performance. If you aren’t doing it already, start measuring some of your government’s outputs. Measurements should reflect the goals of each department (e.g., response time for fire calls, % taxes collected for Treasury, time required to complete zoning reviews, maintenance cost per mile of streets, etc.). Benchmark your unit costs and other metrics against those of similar communities. If your costs are disproportionate, find out why and make changes to bring cost in line. Track how you are doing year to year, so you can report progress to your constituents and help improve management.

6. Run an efficient operation. Ensure staffing levels are appropriate. This can often be accomplished through a management or operational analysis. Use software to cut down on staff time and reduce errors. If remodeling, consider the layout of office space to reduce wasted motion. Conduct an audit of energy use, including street and park lighting, building lighting, heating, air conditioning, vehicle fuel economy, utility operations, etc. Install more efficient devices where possible (grant funding may be available to help offset the costs).

7. Shore up revenues. Besides fees, what other options do you have to increase revenues? Could you diversify your tax base by shifting a portion of your property taxes to income taxes or sales taxes? Are there grant funds available for specific services or improvements your government is undertaking? Are you maximizing your investment income through effective cash flow management? Are your utility rates set appropriately to recover the full cost of providing water, sewer or electric services? Could you “sell” services to other municipalities (e.g., contract out meter reading, emergency dispatch, HR, recreation services, etc.).

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