Integrated Fund Management: A Strategic Approach to Managing Financial Resources

Article excerpt

Looking at the title of this article, your first question might be: What is integrated fund management? The definition I use for the term is a strategic approach to managing the various resources of a local government agency to align expenditures and needs with the most restrictive fund for which they qualify. The ultimate objective is to free up the general fund and provide maximum flexibility in financing current budget requirements, as well as unfunded needs and structural deficits.

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Based on a limited survey of local government agencies and my more than 40 years of local government experience, I estimate that the collective fund balances of all local government agencies in the United States is in the billions of dollars--money that is right now earning a return of less than 1 percent when operational and capital costs escalations are between 2 percent and 3 percent.

Order of Business

In order to fully understand how to implement integrated fund management, managers can recall how they got to the implementation point and how they are perpetuating the continued accumulation of significant amounts of cash when they are laying off employees and cutting services. They probably got to this phase because of the distrust by the electorate to use tax money wisely.

During my local government years, I have seen and been a part of presenting tax issues to the voters under the assumption that the only way to secure their approval was to have a specific list of services that residents like. As a result, the general fund, which gives us the most flexibility, has shrunk as a component of government financing and the complexity of government finance has grown exponentially.

A manager ought to get a copy of his or her local government's comprehensive annual financial report and go to the section with a title similar to "Statement of Revenues, Expenditures, and Changes in Fund Balances." Then look at the bottom line and the total fund balance of all funds. Some managers may be shocked at this number or be reminded of its magnitude.

If you ask the finance director about it, he or she will likely tell you most of those funds are restricted and can't be used to help out with current needs. I would like to tell you how you can use some of those funds to avoid cutbacks, layoffs, and cuts in service levels, and to reduce structural deficits in your current budget. I have a great respect for finance directors, but it is not their job to 'challenge the underlying structure of the group of funds that they monitor. It is your job as a manager to do this.

Review and Analyze

Typically, you can get a quick overview of fund restrictions by going to the annual budget. There should be a brief description of the allowed uses for each fund. This will give you a quick overview and a hint at which ones may offer some opportunities to provide relief to other funds, especially the general fund.

Next, you are going to need to complete a more in-depth analysis of the restrictions that apply to all funds as well as all documents and historical precedents applicable to how those funds have been used. You will also need to look at how those historical uses could be expanded and still comply with restrictions.

Many funds have been created by an act of the governing body and can be amended without a vote of the electorate. Others may require the approval of the electorate.

The reason you need to complete the analysis of all fund restrictions is that it gives you insights into what elements of your current budget and what unfunded needs might qualify for each fund. Restrictions for a park improvement fund, for example, may be broad enough to include such beautification projects as landscaping a median, buying a piece of art for city hall, or creating a small park around a new fire station that could pay for the necessary landscaping for this project. …