Focuses on Vision and Fiscal Sustainability

Transcription

1 The City of Redmond Focuses on Vision and Fiscal Sustainability By Mike Bailey

2 Faced with the prospect of growing deficits every budget cycle, the mayor, city council, and staff of Redmond, Washington, worked together to develop a long-range financial strategy that resulted in structurally balanced budgets that focused on realizing the city s vision. This strategy incorporates all the policy, environmental, and operational elements that affect the city s fiscal sustainability, starting with the vision the community defined for itself and aligning the resources available for pursuing that vision, both operationally and through capital investments. The long-range financial strategy is a tool the mayor and city council use to help them evaluate all the elements that would affect the city s ability to pursue its vision, while maintaining acceptable rates of taxation and user fees (as defined by the city s price of government model). This conversation is translated into a document that represents the strategies they agree upon for informing the budget process. Included in the long-range financial strategy is a balanced six-year financial plan for operations and a 20-year capital plan that sets goals and allocates scarce resources (there is no attempt to balance the capital plan). GETTING STARTED Like many local governments, the City of Redmond faced the same budget cutting challenges during each of its biennial budget cycles. A staff study, conducted internally in 2005, predicted deep and worsening budget deficits and this was before the recent economic downturn. The council addressed the near-term nature of these deficits by adjusting some tax rates and successfully asking voters for an increase in the property tax levy, but the long-term problems remained unsolved. At the same time, the council wanted a better long-term approach to managing the city s fiscal affairs. In 2008, the city implemented budgeting for outcomes (BFO) for the budget, and it used this approach again for the budget. In 2010, the council decided to revisit the 2005 study and see if the city could create a long-term strategy that would address the structural deficits while maintaining excellent community services. This was the genesis of Redmond s long-range financial strategy. Like many local governments, the City of Redmond faced the same budget cutting challenges during each of its biennial budget cycles. The full council outlined the basic policy principles they wanted to address in the long-range financial strategy in 2010, and it refined that outline in The council s finance committee then spent many of their monthly meetings in 2011 working with staff to turn this strategy into a policy document that demonstrates how the policy principles are related to the city s vision, how they are reflected in the price of government, and how they result in service levels within the BFO priority areas. Relying on a variety of GFOA resources (such as best practices for fiscal sustainability and long-range financial planning), Redmond s finance office guided the discussions that led to the long-range financial strategy. The GFOA resources provided a touchstone of credibility that the city council and members of the public came to respect. Finance staff was thus able to assure the community that it was indeed using the leading practices in the work it was developing, even while it was blazing many new trails. One example is the policy discussions about difficult and challenging issues such as the price of government (the level of taxation and other revenues). The Redmond city council struggled, as many cities do, with finding the right balance between acquiring resources to provide services and the impact of taxes and fees on constituents. The price of government (POG) model gave the council a way to think about the impact of the revenues in a meaningful context. The policy discussion then became about the impact of one revenue strategy or another on the POG, rather than what neighboring jurisdictions were doing. Revenue scenarios could be compared in a POG context, showing the impact on the payers of those revenues (see Exhibit 1). The council can now talk about city revenues with their constituents in this context as well, which seems to be an improvement. The POG framework provides a way for anomalies to be explained and understood. The city also used budgeting for outcomes (BFO) to set service levels and establish performance indicators. The BFO model results in a budget that is based on community priorities rather than the organizational structure or the programs themselves. The city s budget document is now organized October 2012 Government Finance Review 19

3 Exhibit 1: Charting the Price of Government th Street Bridge Grant Percent H Development Related n All Revenues n Taxes and Fees n Taxes Only 2 1 Nice and Stable (?) Estimates Notes: Compares ratio of total city revenues to total personal income. Personal income derived from data available from Office of Financial Management. Years 2011 and beyond are estimates. into the six priorities that are supported by strategies and activities. Approaching the budget this way helped the city focus budget decisions on how progress could be made on the priorities themselves, rather than thinking about how to support individual city departments and programs. An important element of this process is the value proposition, which is a way to ask the question, What do we get for what we invest? To determine the value proposition, the city thinks about budget requests in the context of performance outcomes. Each budget item must include performance measures that illustrate the value of the activity in relation to the overall priority. Thus, budget investments are continually focused on the city s vision and the priorities of the citizens (as initially established through a citizen process and since validated through the city s surveys). SUSTAINABLE BUDGETS Long-range financial planning is a recent addition to Redmond s longrange financial strategy. While the The city also used budgeting for outcomes to set service levels and establish performance indicators, resulting in a budget that is based on community priorities. city prepared long-range financial plans before, they were independent of the policy work done by the council. The long-range financial strategy created the perfect context for assessing the long-range financial implications of the price of government and the items that typically lead to expenditures in a long-range forecast. The Price of Government, by David Osborne and Peter Hutchinson, the book that suggested both the price of government revenue model and budgeting for outcomes, suggests that a long-range financial plan should follow the five by five model projecting five numbers (revenues, expenditures, the net difference between revenues and expenditures, beginning fund balance, and ending fund balance) over five years. Since Redmond has a biennial budget, it forecasts for six years. This has become a very effective way of characterizing the net effect of the price of government, the effects of a changing economy, changing drivers of expenditure, and the impact of policy decisions on future budgets (see Exhibit 2). 20 Government Finance Review October 2012

4 Exhibit 2: Redmond s Long-Range Financial Plan Millions n Revenues n Expenses n Beginning Balance n Ending Balance n Difference Note: Draws of fund balance in are budgeted uses for capital technology projects. CAPITAL INVESTMENTS While the price of government and budgeting for outcomes methods cover both operational and capital activities, the city still had a gap in pursuing its vision for the longer term with regard to capital investments. Redmond s long-range financial strategy focuses on aligning the right level of community investment in government with services that are focused on community priorities. But many community amenities and systems (such as transportation or parks) take years to accomplish and develop, and the six-year planning horizon did not seem sufficient for recognizing this. As a result, the council authorized an additional capital investment strategy element that extended the planning horizon to 20 years. The capital planning the city had been doing before this change was good, but there were shortcomings (in addition to the limited time horizon previously mentioned) as well as a limited scope. The capital planning for each functional area of the city (such as transportation, parks, and Redmond s long-range financial strategy focuses on aligning the right level of community investment in government with services that are focused on community priorities. utilities) was done independently, with disparate goals. The new capital investment strategy focused these independent efforts on the common goals found in the comprehensive plan, including the city s vision. Now all capital plans complement each other in pursuit of a unified vision of the city. This process does not present a balanced budget approach to capital investments; instead, it speaks to the way planned projects relate to pursuing the community s goals. The financial element does characterize the amount of investment necessary, but this is no longer a more significant focus than alignment. CONCLUSIONS The time invested by Redmond s city council, executive leadership, and departments in developing the long-range financial strategy has paid significant dividends, including the direct benefits of providing a common view of the goals, revenues, costs, capital investments, and other elements connected with pursuing the October 2012 Government Finance Review 21

5 community vision. But more importantly, this approach provides the community with a sense of confidence that the city government is tackling tough issues, is focused on its vision, is and working to be accountable by using leading practices in a coordinated fashion. Council members are able to use these tools to communicate with their constituents about how public resources are being managed and how value is being returned on their investments. The unity among policy and administrative leaders results in public confidence that itself becomes a community asset, with its own type of dividends. y MIKE BAILEY, finance director for the City of Redmond, Washington, has worked in local government finance since He served as finance director for several cities, as well as a Washington parks district. Bailey is a former president of the Washington Finance Officers Association and former member of the Government Finance Officer Association (GFOA) Executive Board. He has served on GFOA committees and is a representative for the GFOA to the Streamlined Sales Tax Project (SST). He is the local government representative on the SST Governing Board. Bailey earned his degree in Business Administration and a MBA from the University of Puget Sound. He is a CPA and an executive education studies graduate of Harvard s JFK School of Government. 22 Government Finance Review October 2012