When Good Budgets Go Bad: Dollars and Sense Revisited

By Nicoll, John | Nation's Cities Weekly, October 13, 2008 | Go to article overview

When Good Budgets Go Bad: Dollars and Sense Revisited


Nicoll, John, Nation's Cities Weekly


The following is a preview of one of the topics to be covered during Leadership Training Institute seminars at NLC's Congress of Cities and Exposition in Orlando, Fla., November 11-15.

The laws of unintended consequences hold true in the management of budgets and finance. Things that seem like a good idea at the time often produce results we had not anticipated.

Cities and towns across the nation seem to be caught off guard when the economic cycles and our own well intentioned, ill-advised practices come around to bite us. The national and local press is full of stories of financial trouble at all levels of government.

Ironically, the genesis of our problems is often in the "good times." New programs, better wages and benefits, and new facilities seem to be good decisions when you have sufficient revenues and adequate balances.

Unfortunately, the full cost impact of such decisions may not show up until years later. Newly elected officials often find they have inherited the consequences of earlier "good" decisions.

In keeping with the American dream, we can hope and believe that things will get better. Sooner or later the problem becomes unavoidable and we look for ways to keep up a "business as usual" approach while we scramble to find solutions.

How we react to the now unavoidable problem can unintentionally set the stage for a financial tail spin. The following quick and painless "fixes" can have negative consequences.

Use Balances: "That's what they're for."

Balances play an integral role in our financial well-being. They can be used for cash flow, internal loans, response to natural disasters, lawsuits and insurance claims.

Using your balances for temporary relief until you have a financial plan in place may be appropriate. Raiding your balances to avoid cuts or increased fees and taxes is not a good policy.

Spend the Windfall: "We have the money."

Unexpected revenues come from several sources. Small spikes in building activity, retail sales taxes, utility fees and even interest rates can bring in unanticipated revenues. We'll rush to spend it on new programs before we assess the likelihood that it may not be an ongoing source. If we don't exercise restraint, the one-time money adds to the operating base and we later have to find a way to pay the ongoing costs out of an already stretched operating budget. …

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