The COVID-19 public health crisis created shockwaves that will reverberate in our communities for years to come. In its aftermath are a broad range of uncertainties that cities, counties, and towns must plan for if they are to remain financially healthy enough to continue providing vital public services. Fortunately, there are lessons to draw from previous shocks and recoveries as we enter a post-viral economy.
Over many generations, communities in Pennsylvania were often built around the operations of large-scale steel mills; residential urban planning, civic organizations, commercial corridors, and municipal services were built upon that economic driver. Parks, recreation programs, and libraries were frequently funded by steel companies. In 2019, The Novak Consulting Group (a part of Raftelis) was engaged by a large financially distressed city in Pennsylvania to perform a management and financial audit. Like many of its neighboring communities, this city had experienced a significant shock – the loss of its steel mill; a main economic driver.
Faced with budget deficits steadily eating into reserves, the City needed an honest organizational assessment and recommendations on how to clearly define its strategic goals, stabilize its finances, streamline service delivery, and get back on track.
We designed a four-step process that included:
The analysis involved a review of the City’s year-end financial reports, independent audits, debt payment schedules, pension obligations, collective bargaining agreements, operating and capital budgets, other fiscal data, and relevant information and factors that might affect the current and future financial condition of the City. This assessment included the following key activities:
The methodology of the operations assessment included individual interviews with City Council Members, other elected officials, and key staff throughout the organization. In addition, we reviewed and analyzed a myriad of documents and materials provided by City staff, such as budgets, work plans, performance data, and staffing and operational information from each department.
Our work uncovered opportunities for more formal policy development, improving interactions among departments (particularly regarding internal services such as information technology), restructuring functions to reduce duplication and service overlaps, and opportunities to evaluate contracting out for service. The recommendations included in the assessment were intended to help the City more effectively align its resources and staff with its organizational strategic plan and preserve the City’s financial resources.
It was clear from our work evaluating the City’s financials that difficult decisions would have to be made to reduce costs. During this phase, our goal was to minimize service level disruptions while limiting negative impacts on municipal employees.
To do this, we built a financial model that facilitated a process for decision-makers where they could select and deselect options and assess each alternative’s impact on the City’s financial condition. Visually demonstrating the impact of decision(s) in real-time helped the City find the right mix of cost cutting measures that enabled continuation of service levels that met the community’s needs.
It is important to be deliberate in creating a communications and implementation plan for each cost reduction initiative identified as a result of the previous steps. Implementation was dependent on key steps, target completion dates, and staff assignments. Transparent, constructive, and people-focused communication was essential to keep employees and the community informed and assured of the City’s efforts.
Though the City had a healthy general fund balance of nearly $24 million, it had been relying upon that balance to meet ongoing operating needs. The City faced a structural general fund deficit that would need to be addressed through a combination of revenue increases or expenditure reductions.
Our report detailed the findings and analysis of our work, which resulted in 69 specific, action-oriented recommendations across 10 departments that, once fully implemented, will assist the City in developing and improving its financial management policies and processes.
Specific financial challenges included policy and budgeting practices that had constrained the City’s available resources and limited the organization’s ability to respond to current and future needs. Addressing these challenges would require the City to take specific, concrete actions to reduce liabilities, better forecast revenues, and more effectively prioritize spending through a priority-based budgeting process.
Other operational challenges we identified revealed opportunities for more formal policy development, improving interactions among departments, restructuring functions to reduce duplication and service overlaps, and opportunities to evaluate contracting out for service. The recommendations included in our report helped the City more effectively align its resources and staff with its organizational strategic plan and preserve the City’s financial resources.
By exercising diligent oversight and aligning the City’s operations with its strategic priorities, the City is now more effectively providing service based on its available resources and has enhanced the effectiveness as well as the efficiency of its services.
To learn more, view our insight entitled Roadmap to Recovery, or explore how Raftelis can help you.