COVID-19 – Four questions will guide what’s next for state & local governments

We know that the COVID-19 pandemic will eventually come to an end but what will state and local officials be facing when that time comes?

Over 90,000 US governments are asking this question but won’t all have the same answer.  Revenues from sales and income taxes are dropping and in the future, property taxes may drop if the assessed valuations fall and there are limits on tax rates.

Unlike businesses, schools and numerous other types of organizations that either shut down or operate using different service models, governments continue to provide needed services to the public. However, like other businesses during recent downturns, public agencies will encounter reduced revenues that will take years to return to pre-COVID–19 levels.

Governments can turn to a playbook with several options when they face financial crises:

Some of the traditional plays may be harder to use this time. For example, losses in equities have eroded pension funded ratios so taking pension holidays will only make the problem worse and push the inevitable shortfall down the road. Short-term borrowing soon becomes long-term debt when agencies are forced to convert this year’s shortfalls to long-term liabilities. Fund balances can be depleted.

A budget should reflect your priorities, not just short-run solutions. You value some services more than others. Changing them to the same degree ignores that. We believe the Covid-19 pandemic is an opportunity for introspection – one where governments can ask important questions such as:

• What services do we provide best?
• What service levels should we provide?
• How can we restructure our operations to become more efficient?
• How we can adopt more technology to improve operations?

These are “looking in the mirror” questions which allow us to turn current challenges into future opportunities.  We understand that government officials seek to provide high quality services to the public at a reasonable cost. Asking the above questions and working with a  partner deeply ingrained in the “best practices” of how public agencies operate will help state and local governments answer the question “what post-COVID-19 life can be like for your government?”

What can you do?

• Learn how your staffing and spending compare to peers. Where are you spending more than what other local governments find to be sufficient?
• Determine the long-term cost of assets, including capital and operating costs. Make choices that minimize the long-term cost of ownership.
• Facilitate a discussion about priorities so that you do not have to treat every program the same, even if you value them differently.
• Test if your organization structure and systems promote teamwork and efficiency. If you have not tried to streamline, now is the time.
• Study the fiscal consequences of spending deferrals so that if you do that, you understand the consequences.

MGT specializes in helping governments to make fiscal and operational decisions. We know how programs work and we have seen how your peers met the same challenges and learned of ideas you may not have tried. This would help your team to make better budget decisions and be better prepared on how to recover from this COVID-19 pandemic.