Sabrina Cape teaches a class in fiscal sustainability at a previous GMA Mayors’ Day.
According to Sabrina Cape, Certified Public Accountant at Capable Financial Solutions, municipal fiscal sustainability is more than just a math exercise of balancing revenues to expenditures. She says it’s also a matter of evaluating (or reevaluating) what kinds and levels of services cities will provide before they determine how to fund those services. Unfortunately, many cities struggle with where to begin tackling major structural financial issues and problems that ultimately impact service funding.
Cape has worked in government finance for more than 20 years, including time spent at the city of Gainesville as its finance director and assistant city manager. From her experience, if cities are unclear about how to move beyond the problems that an overall fiscal checkup or self assessment identifies, the following tips and advice will help a city begin to truly get their financial house in order.
Review revenues annually. Review major revenues to make sure that the rate a city charges for services is appropriate to recover the full cost of providing those services as costs change yearly. Remember, the full cost of providing services involves administrative and capital components, not just operating components.
Understand how policy decisions impact the tax digest. The tax digest is organized by category such as residential, industrial, commercial and agriculture. Understanding the impact of policy decisions that help the digest develop into the desired overall mix by category is important. For example, if a city invests in infrastructure for economic development, growth is likely to occur in commercial and industrial.
Make sure the city receives all self-reported revenues. When depending on taxpayers to report directly to the city (as opposed to the city billing them), put processes in place to make sure that the city receives all of that revenue in a timely manner. Resolving this situation sometimes requires cities to audit their revenues on a periodic basis.
Proactively collect debt. Turn over past due accounts to a collection agency as quickly as possible, especially if cities have no other means at their disposal to collect it.
Implement policies to prevent future delinquent payments. Changes in policy can help cities collect revenue more regularly. For example, a city might change the amount of a deposit for utility accounts to further protect it in case a utility customer doesn’t pay. Encouragement of automatic drafts for payments to utility customers will help speed revenue collection.
Regularly evaluate employee compensation and benefits. Not only is this evaluation essential for helping cities retain talent but it also lets cities know what level of compensation and benefits is sustainable for what they’re able to continue to pay.
Look beyond 12 months. Cities tend to only look at finances through a 12-month timeframe. That means they can’t see if capital is being stripped from the budget every year and if they’re just maintaining operations on a year-to-year basis. Cities need to budget for the long-term to include true capital improvement and replacement plans that reveal if a funding gap exists that may be masked by merely removing capital each year from the budget.
Competitively bid for goods and services. Cities need to make sure they are truly competitively bidding for goods and services, especially for major goods and services. If cities have automatic renewal clauses, they should work to eliminate those unless the clauses are really the best choice for the city.
Cape points out that size doesn’t matter when it comes to fiscal sustainability. Smaller cities, just like larger cities, are required to comply with the same fiscal laws and standards. That means service delivery choices impact smaller cities just as heavily. If a smaller city makes the choice to deliver more services, then that city needs a firm understanding of that service and how to pay for it—just like larger cities