Effective budget management: take a fresh look at your workforce.

• Author: Harvey, Chris

Once a year, organizations produce a realistic operations budget and constituent approval from voters, elected officials, and department managers. However, acceptance of the annual budget is only one benchmark for success. Managing the budget effectively is a year-round challenge.

In recent years, shrinking federal and state contributions have made municipal budgeting more difficult than ever. In a 2006 study sponsored by Kronos and conducted by Government Insights (an IDC Company) entitled "Municipalities Challenged to Manage Budgets and Overtime," U.S. and Canadian municipal financial executives reported an average annual funding decrease of nearly 4 percent. Yet, the public still expects municipalities to deliver a full complement of high-quality services with little or no reduction in scope.

If your municipality has experienced budget overruns, you are not alone: In the Government Insights survey, 69 percent of municipalities reported spending over budget at least once in the last five years--in spite of legal mandates that prohibited some of them from doing so. When budgets were exceeded, it wasn't by just a few dollars. The average reported overrun was nearly 8 percent, and for large municipalities that meant an average overrun of more than $150 million.

Cost-cutting measures are the financial executive's traditional tool for keeping municipal spending within budget. But scaling back programs and services only solves a budget problem after the fact and is painful for communities to absorb. More importantly, one-time spending cuts lack the power to make a dramatic, long-term difference in budget management practices. A deeper, more comprehensive look at promoting municipal cost-efficiency can provide guidelines and insights that will improve long-term budget management efforts.

With labor-related expenses representing about 40 percent of the typical municipal budget, the workforce and labor costs are a key area to focus a deep, long-range cost containment strategy The Government Insights study drew a strong correlation between effective workforce management and control of labor expenses--especially overtime--and a municipality-wide strategy for budget management.

In the past, workforce management and particularly, employee productivity may have been the province of the HR department. Today, however, overtime expenses cause more than their share of municipal budget overages, and a single labor compliance dispute can turn into an expensive litigation. For the financial executive, these are just two compelling reasons to make workforce management an important area of focus.

COMMON APPROACHES TO BUDGET SHORTFALLS

The Government Insights study revealed the five most common strategies financial executives use to compensate for reductions in external funding:

* Reducing staff (67 percent)

* Eliminating services and programs (65 percent)

* Increasing productivity (51 percent)

* Leaving open positions unfilled (51 percent)

* Increasing taxes (44 percent)

While "higher taxes" may be the last resort, they do represent a standard budget fix--but, it is one which needs voter approval to succeed. Last year, 174 Massachusetts cities and towns proposed tax increases to their voters, but only 55 percent of those increases passed. Clearly, before they will support a tax increase, citizens want their municipal government to become more efficient and explore all ways to curtail spending; while most citizens expect comprehensive services, few welcome higher taxes.

Workforce reduction is the most common approach. The Government Insights study reported that 67...