Leading the way to fiscal health.

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Those who choose a management career in government finance find themselves in the unenviable position of being the visible public steward over monies entrusted to their organization by taxpaying citizens to support programs and services. By virtue of this position, government finance officers assume (or, perhaps more accurately, are thrust into) a position of leadership, not only in their organizations but in the communities they serve. The comfortable role of budget gum, bean counter, or numbers person surrounded by spreadsheets, trend graphs, and databases is quickly being replaced by a new role as the "leading" expert in terms of the organization's financial health and wellness. Finance officers for local governments are expected to internalize and model the traditional leadership values of integrity transparency, accountability, and trust. Uniquely, this position of financial leadership also requires meticulous attention to detail and an ability to "see into the future," which then manifests itself in the delivery of accurate information to the top elected and appointed decision-makers in the organization as well as those who make their decisions in the voting booth.

As the fiscal reality facing government entities across the nation becomes more challenging to manage, and the necessary financial choices become more difficult to make, the leadership role of the government finance officer must assume a new and more critical dimension. The most important leadership role must be that of a true diagnostician--capitalizing on analytical skills and using them to quickly and accurately diagnose the symptoms causing the organization's fiscal "dis-ease," assessing the factors causing these financial maladies and then properly prescribing the right treatment or treatments to lead the organization back to a picture of fiscal health. This new dimension of leadership requires finance officers to more thoroughly test and analyze the underlying causes of the fiscal distress--or, for those few jurisdictions that aren't experiencing any distress, to understand the reasons for this enviable condition. Finance officers must assemble all the facts and data at their disposal and do the analytical work to identify quantify, and verify their suspicions about the factors that have led the organization to its current fiscal situation. Based on this hard but critical work, the financial leader must diagnose the problems and recommend the appropriate actions.

The first step is a quick assessment of some basic information that will allow the diagnostician to eliminate those areas that don't seem to be causing the organization any problems. Then, focus on those areas where the preliminary high-level assessment points toward some tell-tale symptoms that need to be treated to restore the organization to an acceptable level of fiscal health. A simple fiscal health diagnostic approach can uncover the root cause of the organization's ailments through further analytical tests.

Exhibit 1 depicts the basic steps for achieving fiscal health, the first step toward fiscal wellness and long-term financial sustainability By analyzing each of these five areas and applying some basic diagnostic tests, any organization can isolate the potential sources of their fiscal issues and focus more in-depth analysis on them.

SPEND WITHIN YOUR MEANS

In October 2008, the Center on Budget and Policy Priorities declared that 21 states will face shortfalls in the next year, citing the ability to access credit markets for short term borrowing and large budget deficits as the primary concerns. The state of California is "borrowing" against next year's personal income tax withholdings to resolve the current year's shortfall. Municipalities are suffering from similar maladies, as evidenced by the City of Vallejo, California, which filed for bankruptcy in August 2008. (1) The New York Times recently reported on the trend of cities debating about privatizing public infrastructure, with major entities like Chicago's Midway Airport turning to the private markets to "finance a tidal wave of infrastructure projects" that could no longer be funded with traditional sources or the municipal bond market. (2)