Leading Edge Research

for Financial

Management & Beyond

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By Bob Eichem

GFOA President-Elect &

CFO, City of Boulder, Colorado

Today’s Objective

Inform you of some of GFOA’s

current research;

Give you resources on how to learn

more; and

Give you some ideas to think about!

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Topics

Financial policies

Reserves

Other key policies

Priority budgeting

A response to traditional incremental budgeting

Performance measurement

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Financial Policies

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Reserves

Other key policies

Reserve Policy

GFOA recommendation

GF: 16% of regular operating revenues, or

2 months of regular operating expenditures

S&P views on Reserves

Low: Below 0%

Adequate: 1 to 4%

Good: 4 to 8%

Strong: 8 to 15%

Very Strong: Above 15%

Other Drivers to Consider

When Setting Reserve level

Government size

Management plan

Borrowing capacity

Public perception

Political support

Is there a level of reserves that resonates?

Can elected officials be engaged in the analysis?

Reserves – Most Important

Policy Elements

Conditions for use of reserve

Authority to use reserves

Replenishment of reserves Excess reserves

New Area of GFOA Research

Risk-based approach to analyzing reserves…

Identify key risks salient to your community

Extreme events, revenue volatility, infrastructure

failure, expenditure spikes?

Assess risk

Probability of occurrence and magnitude of loss

Translate exposure into reserve targets

Consider supplemental risk mitigation strategies

See free case study report on Colorado Springs 8

Key Policies

Balanced Budget Defines a balanced operating budget

Goes beyond Provincial requirements

True structural balance: Recurring revenues = recurring expenditures

Asset Maintenance & Inventory Establish intent to keep assets maintained

Inventory and assess the condition of all major capital assets.

Consider cost of maintenance when making new investment decisions

Commit to funding a maintenance plan

Key Policy - LTFP Policy

Commit to doing a Plan

Scope of the Plan What’s in it? Time Horizon? Funds? Analysis?

Relation to Strategic Planning Make sure plans are realistic and aligned

Find Imbalances

Long-Term Balance The plan contains solutions

Key Policies

Revenue

Encourage more stable revenue base

Encourage new sources

Positive return from economic development

Vigilant collections

Earmarks

Use of One-time Revenues

Use of Unpredictable Revenues

Resources Financial Policies

Book on LTFP available through GFOA

Colorado Springs Case Study

About using GFOA’s risk-based approach to

sizing your reserves

Visit www.gfoa.org/research

Shorter articles about the Colorado Springs case

study are forthcoming in Government Finance

Review and Public Sector Digest

GFOA is currently working on applying the

same risk model to other cities. Results will

be published on-line and in the magazine. 12

Priority Budgeting

A response to traditional

incremental budgeting

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Incremental Budgeting

Incremental budgeting is…

Taking last year’s budget as the starting point and

making changes at the margin

Deciding how to spend incremental new revenue

Deciding to cut if there are “decrements”

Problems with incremental budgeting…

Past patterns of spending may not longer be

affordable or relevant

In cut-back environment, across-the-board cuts

are the common, but not strategic solution

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Across the Board Cuts Address $14.5 Billion Shortfall

California Governor’s Office: “Across-the-board approach spreads reductions as evenly as possible so no single program gets singled out.”

Reaction: “the governor’s approach would be like a family deciding to cuts its monthly mortgage payment, dining-out tab and Netflix subscription each by 10%, rather than eliminating the restaurant and DVD spending in order to keep up the house payments.”

From 2007

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Zero-Base Budgeting (ZBB)

ZBB asks managers to build a budget from

the ground up, starting from zero.

ZBB was a response to dissatisfaction with

incremental budgeting

GFOA surveys show that “text book” ZBB is

almost unheard of in practice.

Those who report using “ZBB” use “practical”

versions that do not conform to the text book

ideal

Alternatives to ZBB exist…

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Satisfaction with ZBB

Why Priority Based Budgeting

(PBB)?

PBB is a powerful tool that helps us

Better meet the expectations of constituents

Address current or anticipated fiscal constraints

Focus on the revenues we have and on using them in the most

productive ways possible

Spend within our means

Attain the best results for the money we have

Key Philosophies of Priority

Driven Budgeting

Prioritize Services

Do the Important Things Well

Question Past Patterns of Spending

Spend Within the Organization’s Means

Know the True Cost of Doing Business

Provide Transparency of Community Priorities

Provide Transparency of Service Impact

Demand Accountability for Results

Overview of Steps in the

Process

Identify Available Resources

Identify Your Priorities

Define Your Priority Results More Precisely

Prepare Decision-Units for Evaluation

Score Decision-Units Against Results

Compare Scores between Decision Units

Allocate Resources

Create Accountability for Results & Create Service Efficiencies

Healthy and Socially

Thriving Community

Supports the physical and

mental well-being of its

community and actively

partners with others to

improve the welfare of

those in need

Cultivates a wide

range of recreational,

cultural, educational

and social

opportunities

Facilitates housing

options to

accommodate a

diverse community

Enhances multi-

generational community

enrichment and

community engagementFosters inclusion,

embraces diversity and

respects human rights

Supports and enhances

neighborhood livability

for all members of the

community

Scoring Programs to Identify “Value”

Based on their Influence on Results

City of Boulder, Colorado

Accessible and

Connected

Community

Economically Vital

Community

Environmentally

Sustainable

Community

Healthy and

Socially Thriving

Community

Safe Community Mandated to

Provide

Service

Change in

Demand for

Service

Reliance on

City to

Provide

Service

Self

Sufficiency/

Cost

Recovery

Department

Program

Name 0, 1, 2 or 4-4, -2, 0,

2, 40, 1, 2 or 4 0 - 5 Scale

Community

Planning &

Sustainability

Comprehensive

Planning 3 3 3 3 1 4 2 4 0

Community

Planning &

Sustainability

Ecological

Planning 1 2 4 2 2 2 2 2 1

Community

Planning &

Sustainability

Historic

Preservation 0 2 2 3 0 2 2 4 1

Community

Planning &

Sustainability

Business Incentive

Programs 1 4 2 1 0 1 0 4 0

Community

Planning &

Sustainability

Economic Vitality

Program &

Sponsorships1 4 1 2 0 0 2 2 0

Community

Planning &

Sustainability

Building Permit

Plan Review &

Issuance (Zoning

Compliance)

2 2 3 1 3 2 0 4 4

Community

Planning &

Sustainability

Development

Review 4 3 3 3 3 2 0 4 2

Community

Planning &

Sustainability

Building Permit

Site Inspection 2 2 3 2 3 2 0 4 4

City of Boulder

Community Planning

and Sustainability

City of Boulder Community Results Community Program Attributes

0-4 Scale

Prioritization Scoring Array

Community Oriented Programs

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0

1

4

7

10

13

16

19

22

25

28

31

34

37

40

43

46

49

52

55

58

61

64

67

70

73

76

79

82

85

88

91

94

97

100

103

Total Score for Community Oriented Programs

Tota

l N

um

be

r o

f P

rogr

ams Quartile 1

Quartile 2

Quartile 3

Quartile 4

Quartile 1: 79 Programs

Quartile 2: 103 Programs

Quartile 3: 103 Programs

Quartile 4: 58 Programs

City of Boulder, Colorado

Step 7: Allocate Resources

Based on Prioritization

City of Boulder, Colorado

$93,240,510

$48,715,601

$51,783,789

$13,159,334

$- $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000

1

2

3

4

Qu

art

ile

Ra

nk

ing

(Qu

art

ile

1:

Hig

he

st R

ate

d P

rog

ram

s;

Qu

art

ile

4:

Low

est

Ra

ted

Pro

gra

ms)

Priority Based Budgeting: Spending Array Perspectives

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Resources

Visit www.gfoa.org/research for...

Free ZBB research report that features a number

of Canadian cities

Free priority budgeting research report

Performance

Measurement

Lessons form Performance

Measurement Leaders: A Sample

of Larger Local Governments in

North America

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Performance Measurement

Report Key Findings

Chief executive support is indispensable

Regular performance review meetings are

essential

Performance measurement’s greatest value

is as a tool for learning

A centralized performance measurement

coordinating authority provides a locus for

performance measurement activity

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Not so important…

Highly sophisticated analysis

High tech

Robust training programs

For the details visit www.gfoa.org/research

Download the report, which features a

number of Canadian cities.

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The End

Questions?

To contact me:

Eichemb@bouldercolorado.gov

To contact GFOA’s research program:

Shayne Kavanagh, GFOA

skavanagh@gfoa.org

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