Oakland County: emphasizes long-term planning over immediate fixes.

• Author: Van Pelt, Laurie

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AAA-rated Oakland County, Michigan, has long been recognized for its strong financial management practices and emphasis on long-term budgeting. Facing unprecedented financial challenges in today's economy and with essential community services in jeopardy, many governmental units have been turning to Oakland County for guidance and financial planning advice. In its most recent budget, adopted in September 2009, Oakland County expanded its detailed line-item budget from biennial to triennial, and the adopted triennial budget plan is balanced through fiscal year 2012. County officials have already begun the process of balancing fiscal 2013.

With the implosion of the domestic automotive industry, Michigan has experienced massive job losses, the highest unemployment rate in the country, record-setting numbers of home foreclosures, extreme declines in real estate values, and long lines of people applying for assistance programs. Like many across the country, most local units of government in Michigan are heavily dependent on property taxes for their primary source of general fund revenue. Falling property values mean falling revenues, which in turn mean reductions in service to taxpayers. And any service reductions are likely to linger after an economic recovery because Michigan's constitution limits property tax growth to 5 percent or the rate of inflation, whichever is less. This limitation can be avoided only by increasing tax rates. However, in Michigan, unless a governmental unit is levying taxes below its maximum authorized rate, the only way to increase the rate is with a vote of the people--unlikely in today's economy. Thus, governmental units must find different ways to restructure, and restructuring requires time to plan and implement.

MEANINGFUL RESTRUCTURING

Given the magnitude of the financial crisis, budget-cutting efforts by governments across the country are often focused on immediate fixes--lay-offs, furlough days, reducing hours of operation, depleting fund balances, cutting benefits for active and retired employees, etc. These sorts of measures are often necessary to stop the bleeding, but they are also disruptive to employees and the services provided to taxpayers.

Mandating service reductions often has a negative impact on citizens' lives at a time when they might need government support the most. Long-term budgeting can eliminate some of these difficulties. It might not entirely prevent the need for difficult budget cuts, but it can minimize the severity of cuts and help protect essential core government services.

It makes sense to start out by focusing efforts where the largest amount of savings can be realized in the shortest amount of time. Employee compensation is typically the largest expenditure in a service-oriented organization such as government. Some examples of immediate actions Oakland County used to achieve near-term personnel savings include a hiring freeze (the exception being round-the-clock institutional facilities and reimbursed law enforcement services), retirement incentives, increased use of part-time employees, and relaxing the leave-time policy so employees could voluntarily take unpaid leave, within limits.

Oakland County budgets conservatively and does not include potential employee turnover offsets when budgeting for positions. Instead, the county has a strong position control system that budgets the full salary and fringe benefit amount for every authorized position. (Oakland County uses a fully loaded fringe benefit rate that includes FICA, workers' compensation, disability insurance, life insurance, all health care, pension, and other postemployment benefit, or OPEB, prefunding.) Thus, budgetary savings are realized when positions are vacant or under-filled. In difficult economic times, turnover savings serve as a hedge to offset unforeseen revenue declines. In normal economic times, these savings typically result in a surplus that increases fund balance and can be used later for one-time funding needs such as capital improvements.

A hiring freeze provides another advantage that goes beyond the current year's budgetary savings. Vacant positions created as a result of the hiring freeze provide flexibility and opportunities for departmental reorganizations, minimizing the need to lay off employees with an organizational restructuring. This contributes to a culture within the organization that focuses on constant improvements and efficiencies, contributing to future ongoing structural reductions.

In those exceptional situations when the county does allow a vacant position to be filled with a full-time employee, every effort is made to redirect an existing qualified employee whose current position might be in jeopardy as a result of a planned future budget reduction. This is one example where a short-term budget solution in conjunction with a long-term budget plan optimizes an organization's ability to downsize the...