Barcelona's strategic and integrated financial management system.

• Author: Banos-Rovira, Jordi

Despite large budget deficits in 2009-2011, Barcelona's financial management is back on track. The city rebalanced its budget, achieving surpluses for fiscal 2012 and 2013, and reducing its already-moderate level of debt (less than 50 percent of revenues) by using revenue forecasts, prioritizing expenditures, better monitoring of the results achieved compared to the city's goals, and developing a strategic approach to budget decisions (see Exhibit 1).

MANAGEMENT MODEL

Barcelona's management model, called the Politics and Management Deal, has been in development since 2011. It stresses results and accountability, aiming to link the allocation and management of budgetary resources with the city council's strategic priorities and desired results. The strategic framework for 2012-2015 includes 40 goals, grouped into seven larger goal categories. These goals are developed by the city's departments, which defined the 146 action plans and the related projects and activities that will accomplish them.

Since 2011, when a new administration took office, the Politics and Management Deal model has been used to help city management understand which results are critical and focus resources on achieving them. Barcelona's financial management system plays a critical role in the Politics and Management Deal. Key projects have been developed in the recent years to reinforce the strategic vision in the city's financial management and guarantee solvency and sustainability. (The International Monetary Fund, World Bank, and Organization for Economic Cooperation and Development all consider this to be the primary goal for public expenditures.) Most of these projects--medium-term financial planning and monitoring, per the European System of Accounts, the system used by all EU state members; the executive budget system; and an activity-based cost accounting system--are currently operational or will be fully operational by the end of 2014 (see Exhibit 2).

RESULTS-ORIENTED FINANCIAL MANAGEMENT

The Barcelona City Council approved a measure in 2011 to make sure its criteria and the accounting basis of its financial management system is in harmony with the European System of Accounts. To integrate Barcelona's financial management with the ESA criteria, the city has made the following changes:

* Revenues are now forecasted on a cash basis instead of a modified-cash basis, per traditional budgeting criteria.

* The budget integrates all the necessary accounting adjustments for moving from the budget basis of accounting to the ESA basis.

* Budget aggregates and balance are reported and presented only in ESA terms.

* Medium-term financial planning--that is, for a period of one to five years (see Exhibit 3).

All annual budgets now comply with European and Spanish fiscal responsibility targets, as well as the Barcelona City Council's own financial goals:

* Sustainability. Debt cannot exceed 60 percent of current revenues.

* Stability. The city will not run fiscal deficits.

* Investment capacity. The budget must set aside at least 15 percent of current revenues to finance the capital expenditures.

* Liquidity. Barcelona must pay its suppliers and providers within 30 days of receiving an invoice.

In 2011, Barcelona committed to paying its suppliers within 30 days of...