Stability in a time of uncertainty.

• Author: Signori, Lisa Calise

Challenging fiscal times test the strength of an organization's backbone, but they also provide an opportunity to strengthen policies, enhance analytical infrastructure, and inspire fresh perspectives. State and local government are facing uncertain times, and the key to weathering any storm is the tone set by financial leadership. Leaders clearly communicate the challenges the organization is facing to all stakeholders, early and often. Financial leadership helps the organization cope with changes that are inevitably brought about when tough decisions must be implemented.

Traditional sources of revenue have been dwindling and are not keeping pace with the increasing cost of the services that are essential to the core functions of government. The City of Boston, Massachusetts, is facing a long-term structural challenge caused by state-defined constraints on how local revenue can be raised, unpredictable levels of local aid from the state, and specific costs that are growing at rates far higher than the growth in municipal revenues.

Boston's revenue structure is not sufficiently diversified--currently 56 percent of the city's revenue is derived from property taxes. Compared with other major cities such as San Francisco, Denver, Atlanta, and Seattle, Boston is twice as dependent on the property tax a as a percent of total revenues. This over-reliance on a single source of revenue puts undue financial pressure on property owners, who have seen their taxes rise roughly 70 percent since 2002.

State aid is the city's second largest revenue source, at 21 percent. But for fiscal year 2009, state aid will be $67 million less than it was seven years ago, and its outlook is uncertain. In addition, economically sensitive revenues have softened, and interest income is projected to decrease by $17 million in fiscal 2009, an amount equivalent to the entire budget of the city's Parks Department. (See Exhibit 1.)

In the context of revenue uncertainty, the city's financial outlook is further challenged by a limited ability to contain cost increases. More than 75 percent of the City of Boston's spending growth in fiscal 2009 is due to increasing personnel costs. Health insurance has increased at more than three times the rate of all other city spending, while pension costs rose more than 67 percent from fiscal 2001 to fiscal 2009.

ANALYTICAL INFRASTRUCTURE

These fiscal constraints require ever more diligence on the part of leaders and managers to ensure that resources are spent responsibly wisely, and most effectively More effort must be focused on monitoring expenditures and measuring the resulting impact on service delivery to make sure the city's resources are maximized. These efforts must be supported by the regular analysis of reliable data collected from across the enterprise.

An important tool used by the City of Boston is monthly revenue and expenditure projection updates. These are internal working documents that provide early indications of worrisome trends so adjustments can be made. Management analysts assigned to specific departments provide monthly data and commentary, highlighting areas where expenses are higher than expected or revenue is below budget. Projection updates are just one aspect of a continuous cycle of strategy development, budget planning, and operational data review. Other aspects include goal setting, program budgeting, performance reporting, and mid-year evaluations of results.

Department heads must constantly rethink personnel and programs to determine if they are truly necessary. For example, with hiring, department heads must now justify to a committee of key managers why a position should be filled or created. This Personnel Review Committee, formed in 2002, consists of the associate director of the office of administration and finance, the director of the office of budget management, and the director of the office of human resources. The committee is responsible for reviewing and approving all departmental personnel decisions, including salary adjustments and position-related issues. In 2008, the mayor also asked the committee to review and approve all employment contracts.

Operations are also evaluated using the City of Boston performance management system, Boston About Results (BAR). Sam Tyler, president of the Boston Municipal Research Bureau, said...