What ıssues are local fınance offıcıals dealing with currently, and how are they managing them? A good place to get an overall picture is from the Government Finance Officers Association. Eighty-five percent of cities and counties with populations over 25,000 have members in the organization.
Regarding expenditures vs. revenues, for example, Mike Mucha, GFOA’s director of the Research and Consulting Center, said, “Local governments face many challenges, such as rising pension and health care costs and the need for infrastructure improvements – along with many having constraints on the ability to raise revenue. GFOA provides financial resiliency tools, including resources on long-term financial planning to help organizations understand overall trends in long-term revenue and expenditures. With this information organizations can be better informed to do long-term planning and create fiscally sustainable strategies.”
The GFOA does a survey every two years. Last year’s survey showed these concerns at the top of the list for local financial officers:
• Expenditures outpacing revenues long term
• Retaining/attracting employees: Huge numbers will be nearing retirement, so recruiting the next generation of employees is essential.
• Dealing with regulatory financial reporting requirements from all levels of government
• Pension and health care costs: Some unfunded liabilities are increasing the percentage of local funding for pensions.
• Challenges of funding infrastructure
Sue Iverson is the director of finance and administrative services in Arden Hills, Minn., and a member of GFOA’s Committee on Treasury and Investment Management. She said one issue sure to make a splash in most state and local finance offices is a new Government Accounting Standards Board requirement: that state and local governments report future pension obligations as liabilities on their government-wide balance sheets, “So it’s going to look like a problem of higher liability, but in actuality nothing has changed.”
However, it will require an explanation.
“When financial statements are published, since the new standard is effective for financial statements ending on or after June 30, 2015, most will not see the change until late 2015 or 2016. Th is standard requires employers to report the difference between the actuarial total pension liability and the fair value of legally restricted plan assets as the net pension liability on the statement of net position. GASB Statements 67 and 68 give further information and explanation.”
Minnesota happens to have a statewide pension system that is well funded, so the concern is only a matter of how the reporting will appear as each political subdivision will be required to report their share. Communicating this, when the financial statements are published, will be the challenge.
Arden Hills officials made its own change to a better health insurance system. That meant the city has seen only a net increase of 7.96 percent (cumulative) since 2008, not the yearly double-digit increase many governmental entities experienced.
Initially it worked with a co-pay medical insurance plan coupled with the option to have a flexible spending account. In that account, employees needed to show receipts, and the money was “use it or lose it” by the end of the calendar year.
They did some research, including a cost/benefit analysis, and found that a high-deductible medical plan — where the employee/family paid 100 percent of the costs of services up to the deductible amount, then the insurance plan pays 100 percent — coupled with a health savings account would greatly benefit the city. Even in a worst-case scenario, every employee would end up in the same situation or better as with the previous plan. Employees are given a set dollar amount to use for health costs, and what they don’t use on premiums goes into their HSA accounts, which keeps building from year to year.
As a result, employees shopped around more; the claims history went down; and the city got more favorable rates from insurance companies. Employees would go to minute clinics and virtual online sites with cameras, where they could talk to doctors or nurses for simple incidents that came up. Blue Cross Blue Shield has such a website. Some insurances give discounts for going to minute clinics. In addition, employees shopped around for medications — getting better costs at stores like Costco and Sam’s Club. They could compare MRI and other service costs as well. Using their own money, even from an HSA, made them more aware of the costs.
As for rising costs of services, Iverson reported that Arden Hills held a public hearing to suggest a franchise fee on electricity and gas. In this case, when shown the various options, residents said they would rather raise taxes.
“The majority of people who show up at meetings are primarily those against it. Even though it’s a small percentage of the total population, it is the feedback the governing body gets. This creates a challenge as it can make it difficult to ascertain what the level of acceptance there really is when fees for services need to be raised.”
Public services, in general, are always important to citizens. When asked how to balance revenues and expenditures in these cases, Iverson said that sometimes it is a matter of the governing body deciding on what level of service to provide given what the citizens are expecting.
“For example, in the city of Arden Hills snowplows go out when there is 2 inches or more of snow,” said Iverson. Some cities may plow at different points, giving a service level that could be changed if revenue gets tight. Other local governments may have cut back in other areas, such as trimming their medians between highways, park maintenance, etc. What is essential is to find clear ways to factually justify to the residents the need to raise costs.
The gfoa website, www.gfoa.org, is a treasure trove of information, including over 150 best practices documents. The website says GFOA Best Practices “identify specific policies and procedures as contributing to improved government management.” GFOA Advisories “identify specific policies and procedures necessary to minimize a government’s exposure to potential loss in connection with its financial management activities.” Some of the documents are available to all; others require membership. Membership fees are per individual but based on the organization that the person works for.
In addition, gfoa holds an annual conference with the largest gathering of local finance officers in the country: around 4,000. This year’s conference just took place May 31–June 2 in Philadelphia.
The April issue of its publication, Government Finance Review, focuses on building a financially resilient government.
In terms of the current need for qualified employees, along with recruitment, governments can do succession planning activities to develop younger employees with leadership capabilities. When facing regulatory issues, on the other hand, Mucha said that the gfoa provides technical training in various subject areas related to public finance and other professional development opportunities, in order to help better prepare finance officers to meet the reporting requirements. A gfoa ongoing training program teaches classes approximately once per month across the United States. In addition, gfoa hosts webinars throughout the year. The schedule of webinars is on the website.
An example of one GFOA resource is the document “Recovery from Financial Distress and Fiscal First Aid: GFOA’s 12-State Financial Recovery Process.” Here administrative officers can learn about recovery by:
• Walking through the beginning-to-end process for recovery
• Seeing a catalog of fiscal first-aid techniques
• Accessing a list of other resources for recovery from financial distress
• Searching by Site Key Find the document at www.gfoa.org/products-and-services/resources/other-resources/home-gfoas-12-stage-financialrecovery-process.