Financial Leadership in a Crisis: Financial Leadership in a Crisis: Mapping a Course Through the Mapping a Course Through the Crisis for your Town, City, or Crisis for your Town, City, or County County Page 1
Host and Panel Host and Panel Mike McCann Mike McCann Bethany Staats, CPA Bethany Staats, CPA James A. Bell, CPFA, Vice President & Finance Director CPFIM Former City Finance Director New Albany New Albany Director of Finance OpenGov OpenGov Huber Heights Page 2
Housekeeping Housekeeping ● Webinar is being recorded ● Questions are encouraged ● Q&A session at the end of webinar ● All participants are muted by default ● E-mail to follow with slides, surveys, and chat comments Page 3
Warm Up Poll Question: Warm Up Poll Question: What type of entity are you representing? 1. County 2. Township 3. Municipality 4. Special District 5. School District 6. Library Page 4
Setting the Stage: We have a problem, globally Setting the Stage: We have a problem, globally ● Reporting on statements by the OECD (Organization for Economic Cooperation and Development) yesterday, June 10, was dramatic: By the end of 2021, the loss of income exceeds that any previous recession in the By the end of 2021, the loss of income exceeds that any previous recession in the last 100 years, outside of wartime, with dire and long last 100 years, outside of wartime, with dire and long -lasting consequences for lasting consequences for people, firms and governments. people, firms and governments. - OECD chief economist Laurence Boone OECD chief economist Laurence Boone ● OECD expects the global economy to contract 6 % before rebounding in 20 21 ● A second wave of coronavirus infections would lead to even more disruption and economic scarring ● World Bank forecast earlier this week that global output would shrink 5 .2% in 20 20 ● IMF(International Money Fund) estimated a 3% contraction in April Page 5
Setting the Stage: We have a problem, locally Setting the Stage: We have a problem, locally ● Aurora, CO: Aurora, CO: $20 -25 million budget shortfall for this fiscal year, have to furlough employees, cut services and pursue other cost -cutting measures. ● Louisville, KY: Louisville, KY: The budget shortfall is too large to be absorbed and will result in cuts across every agency, including public safety. Revenue shortfall of $46 million this fiscal year, and estimated $69 million in next. 380 already furloughed. Akron, OH: 319 City employees remain furloughed, City expects 20 Akron, OH: -35 percent ● revenue drop due to COVID -19. ● Cincinnati, OH: Cincinnati, OH: City furloughs 20% percent of workforce, faces $106 million deficit in FY 2020 and FY 2021. ● Lancaster, OH: Lancaster, OH: $2 million to $4 million income tax revenue shortfall, 10 to 20 percent of the general fund budget; 70 percent goes for police and fire ops. Page 6
Financial Leadership in a Crisis: Professionals at work "Right now, in every municipality, county, special district, and school the executives, legislators and residents are looking to their finance leadership for guidance: ● What are the short and long-term revenue impacts on our budget? ● How long is this going to last, and what will the recovery look like? ● What should we do with the budget this year, and how should we approach our next budget? ● And how do we communicate effectively with non-financial stakeholders/council?" Page 7
No one can forecast whether we will see an L, U , V or W shaped recovery from this COVID-Recession. The shape and length of the recovery curve will impact local revenues and service needs for the next five years or longer. Page 8
Shape of the curve from best to worst scenario: 1. “V” A sharp dip and rapid rebound with minimal long minimal long -term term effects 2. “U” Sharp dip, more time at the bottom more time at the bottom , followed by a strong but slower recovery much like the Great Recession of 20 0 8 -0 9 . In one survey companies considered this most likely scenario 3. “W” multiple dips and recoveries from repeated economic shocks caused by continuing COVID outbreaks continuing COVID outbreaks 4. “L” Long-lasting recession with slow or flat recovery caused by failure to contain spread of COVID failure to contain spread of COVID and resume normal economic activity Page 9
Panel Discussion Question One Panel Discussion Question One How does your government rank the likelihood of each shape - what type of recovery curve are you planning for? Page 10
Audience Pool: Question One Audience Pool: Question One How does your government rank the likelihood of each shape - what type of recovery curve are you planning for? 1. V - sharp and short, minimal long-term impact 2. U- sharp drop, longer bottom, slower but strong recovery 3. W - Sharp drop, uneven recovery, COVID related setbacks 4. L - Deep sustained bottom, COVID blocks recovery Page 11
Financial Leadership in a Crisis: Expertise Financial Leadership in a Crisis: Expertise “Scenario-based planning” is a hot topic today Every jurisdiction needs strategies and plans for likely recovery scenarios One academic paper on scenario planning in government concluded: “Our case example supports the use of scenario planning as an organizational process-focused intervention that enhances individual and team views about the nature of the future. This enhanced understanding is, as we have demonstrated, likely to invoke an action oriented response.” Budget scenarios are comprehensive models of a government’s financial plans, including all revenue and expense accounts in all or selected budgeted Funds and Departments. Any number of scenarios may be needed to help decision makers evaluate the range of options placed before them. Page 12
Scenarios have three distinct components: 1. Each begins with a revenue forecast based on the government’s view of a specific set of future events such as the COVID recovery curve and timeline . Revenue accounts are revised in light of this scenario, generating a new top-line total revenue forecast for appropriation. 2. Second, internal funding sources are considered. Funds which can be made available from economic uncertainty reserves, reclassified from of other reserves, or inter-fund charges, may be significant. 3. The new level of available external and internal funding is appropriated to operations and programs in as summarized or detailed manner as required by the situation. At completion the scenario should be in balance overall and by Fund. Page 13
Budget scenarios should be 1. Complete: Including all funding sources and appropriations 2. Transparent: Summarized, but with detail accessible 3. Organized: Clear logical, non-technical reporting 4. Comparable: Easy to evaluate side-by-side with other scenarios 5. Accessible: Stakeholders can find, research and provide feedback 6. Digestible: Presented in set formats for decision makers Especially when difficult choices must be made Page 14
Panel Discussion Question Two Panel Discussion Question Two What scenarios or other alternative budget models has your government built to evaluate the impact of COVID-19? Page 15
Audience Pool: Question Two Audience Pool: Question Two What scenarios or other alternative budget models has your government built to evaluate the impact of COVID-19? 1. New revenue models 2. New personnel and operating expense budgets 3. Program priority ranking models 4. Complete new budgets 5. Other models Page 16
Financial Leadership in a Crisis: Judgement Financial Leadership in a Crisis: Judgement When and how hard - won “rainy -day” Economic Uncertainty Reserves and other internal funding sources are used deserves careful consideration. Page 17
When should Economic Uncertainty Reserves and other internal funding sources be used: ● Should economic reserves be used now to ease immediate pain, or held back in preparation for worsening scenarios? ● Should other reserves be repurposed for this crisis? ● Should utilities be billed more for services, subsidies to other funds reduced, capital projects delayed? ● Who decides? ● Does the community get a “vote”? Page 18
Panel Discussion Question Three Panel Discussion Question Three What reserves has your government used, set aside for the future, or is considering for use in your next budget? Page 19
Audience Poll: Question Three Audience Poll: Question Three What internal reserves or resources is your government considering for use in your next budget? 1. Reserve for Economic Uncertainty 2. Repurposing other General Fund Reserves 3. Repurposing Capital Project Reserves 4. Changing Interfund cost allocation (internal billing) methodologies 5. Changing levels of support from General Fund to other Funds Page 20
Financial Leadership in a Crisis: Communications Financial Leadership in a Crisis: Communications Effective communications with legislators, stakeholders, and the public is critical for sharing economic forecasts, building plans, and creating consensus supporting difficult decisions Page 21
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