MRSC has joined with Tracey Dunlap, Director of Finance & Administration at the City of Kirkland, Mike Bailey, Finance Director, City of Redmond, and Glenn Olson, Deputy County Administrator, Clark County, to bring you the "Finance Advisor" column. The "Finance Advisor" will feature a new article each month with timely local government finance information and advice you can use.*

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“Why Finance is Your Friend (or Should Be!)”
Thoughts on the Finance/Budget Office Role in Managing through Tough Times

April 2010

By Tracey Dunlap, Director of Finance & Administration, City of Kirkland

Note to the reader: When I was reminded that this month’s Finance Advisor was due, I struggled a bit with choosing a topic and was told it was OK to wax philosophical on lessons learned during the recent economic downturn, so thanks for indulging me…

While the tough times are by no means over, I thought I’d share a few observations resulting from an unprecedented 18-24 months (or longer) of financial strain. Government organizations have a variety of structures in which they manage budget and finances – they can be centralized (for example, detailed work focused in Finance) or de-centralized (for example, detailed work focused in the departments), the budget office can be part of finance or can reside in the Chief Executive’s office, and so on. However, there are common ideas for finance and budget professionals to help create a culture to help manage through adversity:

• Foster a collaborative approach – The role of finance is often a challenge because it requires achieving a balance between the role of facilitator (helping people find ways to achieve their objectives) and the role as enforcer (ensuring compliance with the rules and policy decisions of our elected bodies). During this difficult period, I found that focusing on the facilitator role could often be more fruitful because departments that feel comfortable coming forward with their ideas early in their formation, often identified creative ideas to help deal with adversity. In other words, create an environment where it is better to “ask permission” (and make sure things get done within the rules) rather than “beg forgiveness” (after the rules may have already been broken). This approach can be fostered by a variety of simple steps, such as having periodic meetings with major departments – even when there are no tough decisions to be made – to establish trust and open lines of communications, or as simple as an “open door” policy for questions and ideas.
• Short and long term perspectives – It is easy to get wrapped up in the challenges of the here and now. With bad financial and economic news bombarding us daily, we still need to keep our sights on the longer-term implications of our actions to address today’s challenges. For example, many agencies set aside reserves in the good times for use if things turned bad and it is totally appropriate to tap reserves that were designated for that purpose during hard times. However, it is imperative that there be a clear understanding that replenishing those reserves has to be of the highest priority when things turn around. In addition, it is also important to ensure that actions are taken to bring revenues and expenditures into balance so that you don’t “hit the wall” when reserves run out. Reserves should help you make a planned and phased transition to the “new normal” or until things turn around.
• Uncertainty and contingency planning – One of my favorite sayings is “If I knew with certainty what was going to happen with the economy, I probably wouldn’t be doing this for a living”! That said, it is our job to recommend the actions that we believe are right at the time, based on the information available. Uncertainty goes with the territory. Analysis is very important, but its importance lies in understanding the risks associated with any course of action. Some make the mistake of hoping that more and more analysis will make the answer “better”, but that can also lead to analysis paralysis – not taking action in a timely manner. Focus on the risks associated with decisions - asking “what happens if my assumptions are wrong (which they very well may be)”, both on the upside and downside - so that decision-makers can understand the implications of their options.
• Education/Communication – Speaking of decision-makers, the last thought revolves around communicating. The audiences vary, but include elected officials and other decision-makers, the public, and internal agency staff. Just about every article you read emphasizes the importance of communication, but Kirkland’s recent experience during the downturn helps reinforce that this is true. We started signaling to our City Council concerns with revenue trends in early 2008 and by the time we started seeing the free-fall in revenues, they were already on board with the need to take action and were focused on making decisions. Some of those decisions impacted City employees directly (staff reductions, furloughs, etc.) and the City Manager began holding open monthly employee briefings around the time we started talking with Council. These sessions were well attended and, by the time we had to negotiate the hard decisions, most of the time was spent on evaluating solutions, not convincing folks of the need for those decisions. Lastly, the public hears plenty from the media about the hard economic times, but much of it is on the national scale, not what it means locally. We need to help the public understand what trade-offs need to be made at the local level.

In summary, finance and budget offices have a key role to play in helping their organizations manage through hard times, not just by determining what financial gap needs to be closed and what tools are available, but also by creating an environment where everyone understands the problem and can be part of the solution. We want everyone to believe that “finance really is your friend”, even (or maybe especially) during tough times.

Mike Bailey is currently the Finance Director for the city of Redmond. Previously he worked as Administrator of Finance and Information Services for the city of Renton and as the Director of Finance for the city of Lynnwood. Mr. Bailey also served as president of the Washington Finance Officers Association and is the Vice Chair of the GFOA Budget Committee. An experienced CPA and GFOA budget reviewer, Mr. Bailey co-founded the annual Budget and Fiscal Management Workshops held each summer. Mr. Bailey conducts numerous workshops and has authored various articles on local government finance, including Effective Budgeting in Washington State Cities published by the Association of Washington Cities.

Tracey Dunlap, P.E. is the Director of Finance & Administration at the City of Kirkland. Prior to joining Kirkland in 2006, she was a principal and shareholder in FCS Group, a regional financial and management consulting firm (14 years). An industrial engineer registered in the state of Washington, she has worked with jurisdictions throughout the Northwest to develop and implement cost recovery and fee strategies, set utility rates, and improve organizational efficiency and effectiveness. Tracey's experience also includes working for a large defense contractor (5 years) and a major financial institution (3 years). She has presented on a wide array of topics for organizations including WFOA, APWA, APA, WABO, and AWC.

Glenn Olson is the Deputy County Administrator for Clark County. He has been in Clark County since 1997, serving in various leadership positions during his tenure there. Previously Mr. Olson served 15 years in the Governors Office of Financial Management overseeing budget forecasts. Mr. Olson chaired the Washington State Public Works Board for Governor Locke. Currently he is the gubernatorial appointee representing local governments on the Select Committee for Pension Policy and on the Law Enforcement Officers and Fire Fighters Plan 2 (LEOFF2) Board, and he is the president of the Washington County Administrators Association.

*The Articles appearing in the "Finance Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.