Building a financially resilient government through long-term financial planning.

• Author: Kavanagh, Shayne C.

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The concept of sustainability has captured the attention of local government leaders across the United States and Canada over the past few years. This includes finance officers, as the term "financial sustainability" has come to signify practices such as directing one-time revenues away from recurring expenses and taking into account long-term maintenance and operating costs when planning and evaluating capital projects.

However, the current recession has taught us that sustainability is a necessary but insufficient condition to ensure the ongoing financial health of local government. A sustainable system is balanced, but an external shock (such as a severe economic downturn) can unbalance the system and perhaps even cause its collapse. Local governments will continue to be faced with serious challenges from the outside, including but not limited to economic adjustments, natural disasters, and important policy changes by other levels of government. As such, finance officers must strive to help their organizations go beyond sustainability to a system that is adaptable and regenerative--in a word, resilient.

A sustainable system is balanced but potentially brittle. A resilient system not only survives shocks, it thrives.

Jamais Cascio, a fellow at the Institute for Ethics and Emerging Technologies, identifies eight essential characteristics of a resilient system: (1)

* Diversity: Avoid a single point of failure or reliance on a single solution.

* Redundancy: Have more than one path of escape.

* Decentralization: Centralized systems look strong, but when they fail, the failure is catastrophic.

* Transparency: Do not hide your systems. Transparency makes it easier to figure out where a problem may lie. Share your plans and preparations, and listen when people point out flaws.

* Collaboration: Work together to become stronger.

* Fail gracefully: Failure happens. Make sure a failure state will not make things worse.

* Flexibility: Be ready to change when plans are not working. Do not count on stability

* Foresight: You cannot predict the future, but you can hear its footsteps approaching. Think and prepare.

This article explores these characteristics as they relate to creating a financially resilient government and the central role that long-term financial planning plays in financial resiliency The Government Finance Officers Association (GFOA) interviewed officials at several local governments that have been practicing long-term financial planning for a number of years (some as long as 15 or 20) and have, as a consequence, achieved financial resiliency

The rest of this article will describe how long-term financial planning supports three of the most important characteristics of resiliency: diversity, decentralization, and collaboration. To read about how long-term financial planning can support all the characteristics of a resilient system, please see the GFOA's full-length report on financial resiliency at www.gfoa.org/ltfp.

Diversity. Avoiding a single point of failure or reliance on a single solution.

* Keep a multifaceted perspective on financial health.

* Maintain a diversity of funds to reduce reliance on the general fund.

* Enlarge the base of supporting constituents.

The most fundamental aspect of "diversity" in financial planning...