The H.R. Doctor Is In

Follow the Bouncing Budget

As the seasonal rites associated with football, election campaigning and other contact sports get underway throughout the country, it is also public agency budget season. This season has come to last 12 months interrupted only by a brief "New Year’s Party," generally celebrated on Oct. 1 or sometimes July 1. What is celebrated at these parties is that a gavel has dropped ceremonially and the budget has been adopted.

No sooner is the budget adopted, however, does the budget get adapted, amended or aborted because circumstances have changed. That’s what this article is about Ð the fact that the budget should merely serve as a guide and not as a religious icon to be venerated, worshiped and never modified.

We simply are not that good at financial projections in a very complex world. Cities and counties are the victims of "hostage dramas" in which it is very difficult to do any accurate budget projections while the legislature is in session. The same is true while an election is pending, while Congress is in session, or for that matter, while Congress is out of session. One major event in a local community can change the dynamics of a government budget significantly. It may be a sniper-shooting rampage, which adds hundreds of thousands of dollars to an overtime budget for police, or a building contamination resulting in the need to move offices.

The reality is that we live in the uncertain world of a busy local government and even the budget "queen" or "king" of the organization is making the best guess possible based on experience and knowledge. While those guesses may be far better than budgeting by random chance or the chaos theory, it is, nonetheless, often an extrapolation from past behavior rather than a solid "intelligence" analysis of what is to come.

The best predictor of future behavior is past behavior. That maxim is less effective when it comes to budgeting for local government in the middle of a sea of complexity. The past revenues received certainly are solid benchmarks for looking into next year’s budget. But, past revenues are not the only point to consider.

What good is a budget if it can’t be relied on for accurate projections? The answer is that a budget is a very valuable tool for planning, benchmarking and way finding. In a public administration world where long-range planning may extend only as far as the next meeting of the County Commission, tools have to be put in place like a Five-Year Capital Improvement Plan or a budget Ð perhaps even a multi-year budget Ð to set forth the government agency’s long-term strategy. In that sense, a budget is a stabilizing document even if the numbers on any given page are not completely accurate.

Measuring actual performance against a target, such as the budget projections, offers another tool for accountability and responsibility. In a previous article, "Keeping on Track" (available at www.hrdr.net), the HR Doctor stressed the importance for any organization or individual (or family for that matter) to set goals and create methods to measure progress. In that sense the budget becomes a rather narrow tape measure during a particular fiscal year. In that sense it is both valuable and dangerous.

The budget proves valuable as a way to track expenditures, help us live within our means and achieve the Holy Grail of a balanced budget. The danger is that the budget becomes dangerous as an excessive obsession with the budget document and the numbers on the spreadsheets can lead to a divorce from reality. "I am sorry that the number of homeless people in the community has doubled, but there are no further funds available in this year’s budget to do anything about it." "It is regrettable that the fire station is full of mold and would not even pass one of its own inspections, but it will have to stay as is or get worse until we can incorporate improvements into next year’s budget Ð perhaps."

The point is that the budget can be used as an excuse for paralysis as well as a tool for measurement.

There are some steps that can be taken to make the budget more valuable to guide local governments. In the HR Doctor’s 30 plus years of experience, including time spent, pardon me, "time served," as a chief administrative officer for a county, the following is offered, with respect, to the budget buddies of American local government:

• Every government organization should develop a financial strategic plan complete with public hearings, just as in the case of a land use plan.
• The strategic plan should begin by admission that it is based upon a vision "from 40,000 feet" rather than an eye chart.
• The plan is meant to point the way to a better community and, in that sense is more than a short-term political or accounting document.
• Maintain an emergency reserve. In other words, try to control for uncertainty and risks by building into the budget over time an increasing capacity to recover more quickly from a hurricane or an earthquake or some other unexpected catastrophes. Avoid the lure of using the strategic reserves for a tactical look-good purpose, such as hiring more employees with on-going expenses attached!
• Develop a multi-year budget in which the agony of annual budget preparation is mitigated somewhat by efforts to project ahead over two years rather than one. It is true that the budget will have to be monitored and periodically adjusted for a two-year budget to become more finely tuned as the months go by. However, guess what? We do that now with a one-year budget.
• Learn from the statistics of the often neglected risk manager to prevent hidden costs from turning into a camouflaged pit into which local government leaders fall can unsuspectingly. "It’s 10 a.m., do you know where your workers’ compensation claims are?"

If you are fortunate enough to operate a fire department, for example, you may find that the number and cost of workers’ compensation claims in this one department exceed every other risk liability in the organization. Watch these trends carefully and develop programs for doing the best you can in the face of state mandates.

Programs such as modified-duty return to work programs or strict enforcement of safety rules can reduce the number of backaches and, in turn, limit the full employment of chiropractors "manipulating" employees.

The same is true of health insurance trends. An agency has to do much more than simply meet with an insurance company once per year to hear the, almost always "bad news" that premiums will go up 25 percent next year. By introducing disease management, utilization review and better network discounts in the health insurance plan, excessive bleeding can be avoided if not forestalled.

Agencies which regard the budget as the "end all and be all" administrative tool make a big mistake. They abdicate responsibility to accountants in a world where other skills have to be sitting right at the decision table with every bit as much opportunity to make contributions and be heard as the accountants and auditors currently have.

The budget battles go on as they have throughout the history of the Republic. The number of zeros increases in the equation and so do the effects on the lives of average adults, children and other small mammals in the community. Make the budget a strategic tool for the organization as opposed to the daily balancing of the checkbook.

The HR Doctor hopes that your bottom line, physically and financially stays healthy!

Phil Rosenberg
The HR Doctor
http://www.hrdr.net/