Recently, there’s been an interesting trend of public sector CFOs approaching their fiscal policy with the same business acumen of private companies, focusing not only on avoiding a budget deficit in the short term but on strategic financial planning.
This perspective is especially pertinent today, as local governments grapple with unprecedented budgetary challenges and operating expenses that stretch them to their limits. And because Euna Budget helps public servants from over 1000 agencies manage over $450B in taxpayer funds, strategic financial management is our touchstone.
The COVID-19 pandemic highlighted the vulnerabilities of relying solely on a balanced budget philosophy, underscoring the importance of agile financial strategies that can adapt to rapidly changing economic conditions.
In the face of such challenges, the principle of balanced budgets—ensuring that expenditures do not exceed revenues—remains fundamental, but that’s only part of it. However fiscally responsible this approach may be, it can’t fully equip governments to navigate the complexities of modern public finance or seize opportunities for future development.
The Case for Strategic Financial Planning
The Government Finance Officers Association (GFOA) has said that a truly strategic budgeting process sees beyond the immediate fiscal year, emphasizing the importance of reserves, debt management, and the measured use of surpluses to ensure both financial health and strategic agility (GFOA, Best Practices in Public Budgeting).
Reserves
In the case of an economic downturn, reserves offer a buffer that can support continued service delivery without immediate cuts or tax increases. Therefore, a strategic reserve policy should anticipate not just emergencies but opportunities to invest in community growth and resilience.
A well-structured reserve policy should consider factors such as revenue volatility, expenditure trends, capital needs, debt service obligations and federal support levels to determine the appropriate level of reserves. It also needs to be regularly reviewed and updated based on changing economic conditions.
This isn’t a new idea: Municipalities throughout the country have traditionally maintained rainy-day funds, and many states maintain requirements for reserve levels. But today’s financial environment requires more complex risk assessment.
Debt Management
Strategic financial planning also involves responsible debt management. Incurring debt can enable governments to fund important projects or investments that may not be possible with current revenues alone.
However, it’s crucial to evaluate the long-term impacts of taking on debt and create a plan for repayment. This includes considering factors such as interest rates, market conditions, and the potential effects on credit ratings. Debt should be used strategically and prudently to support long-term financial goals.
Surpluses
A budget surplus is another important aspect of strategic financial planning. They can provide opportunities for one-time investments in critical infrastructure or projects that can have lasting benefits for communities.
However, these decisions should be carefully weighed against future budget needs and potential sources of revenue to ensure they align with long-term fiscal objectives. Budget surpluses should not be seen as a windfall, but rather as a tool for strategic financial management.
Cast in this light, strategic financial planning is not a back-office activity—it’s central to every aspect of public administration. Because of this, it demands a more nuanced approach, considering reserves, debt, and surpluses not just as fiscal metrics, but as tools for achieving long-term goals and ensuring financial sustainability.
The Role of Leadership in Driving Change
Implementing strategic financial planning and embracing innovation requires strong leadership from public sector CFOs. It’s up to them to champion these changes within their organizations and drive the adoption of new practices.
This means actively seeking out opportunities for collaboration with other departments, staying informed about emerging trends and best practices, and being willing to take calculated risks for the sake of long-term fiscal sustainability.
In addition, effective communication is key in ensuring buy-in from stakeholders and building support for change. By clearly articulating the benefits of strategic financial planning and innovative approaches, leaders can inspire others to embrace these changes and work towards a more sound and resilient financial future for their communities.
How New Technology Facilitates Strategic Financial Planning
In addition to adopting a strategic approach to public finance, it’s also crucial that governments embrace innovation and modernization in their financial management practices.
Government technology has greatly advanced in recent years, offering new solutions and tools for managing budgets, forecasting revenues, and tracking expenses. Euna Budget, a budgeting tool from Euna Solutions, allows finance managers to modernize their business processes through data-driven and strategic decision-making while increasing data accuracy, saving time and improving stakeholder trust.
By leveraging innovations such as Euna Budget, government organizations can improve efficiency, reduce costs, and make more informed financial decisions.
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