Our country is experiencing extraordinary times, and we are far from routine expectations. Local governments may soon find themselves in a cash crunch because local businesses that generate consumption taxes (sales, use, lodging, and fuel taxes), fees, and permits are going through excruciating financial pain. As the title suggests, managing cash is a necessity – primarily through controlling costs. Doing something different than you might have done before will be tough, but the hardest part will be actually making the decisions. We suggest you have the courage to make those hard decisions – it will help keep your government healthy. Keep in mind, there is no magic elixir that will restore the health of an ailing tax environment, but there are strategies that local governments can use to survive until the turnaround takes place.
Cash management and preservation through cost-cutting come in a variety of forms, but typically you can classify them into four categories:
1. Internal Cost Cutting
2. External Cost Cutting
3. Asset and Credit Management
4. Personnel Resources
In this article, we will cover a few example ideas in each category. As we proceed, bear in mind that managing your costs is just one part of operating. Keeping and improving your revenue is just as important to operations.
Internal Cost Cutting Ideas:
- Re-examine each budget line to make cost cuts or cost deferral decisions. Identify which cost cuts have the most substantial impact. If you have a cost that isn’t necessary, cut it out and save some funds and resources for those that are most impactful. Salaries may be fixed costs – so, you may start with non-essential costs that can be deferred.
- Your management team must be “hands-on” during this time. Department heads need to manage their staff and manage your costs. You should consider lowering the approval level needed to purchase any item. For example, perhaps restrict purchase order approvals in some instances. Maybe, department heads could approve purchases under $5,000 in the past. Now you only let “essential service” department heads make purchases under $5,000 and other department heads require higher management approval for all purchases. BUT – remember to continue to follow applicable bid laws in you purchasing process.
- Negotiate with vendors for special terms to accommodate your cash flow requirements. Don’t be afraid to ask! It is imperative you at least try this strategy.
- Develop regular department financial “flash reports.” (“Flash Reports” include a summary of the key operational and financial outcomes of the departments, provided on a daily or weekly basis.) You need to develop an early warning system to help you make crucial decisions before it is too late.
External Cash Management and Cost Cutting Ideas:
- Prepare a contingency financing plan. You need to be prepared before the “crunch” actually happens. The plan would arrange to acquire one or more loans, provide for the potential of selling of long-term investments into available cash, and detail how to access new types of grants (CARES Act) and funding. During this contingency plan development process, you might even identify assets that are not being used that could be sold or discover funding you did not know existed and take advantage of these opportunities.
- Form a financial board of advisors who can help you recognize opportunities you might not see. Remember the old saying “you can’t see the forest for the trees.” You may have some potential ideas that someone else can recognize sooner. Your advisors should be comprised of those you trust to advise you on strengths and opportunities, but also be willing to point out potential weaknesses and threats.
- Outsource some of your work. For example, payroll or accounting. This may increase efficiency and allow you to cut some personnel costs or repurpose individual staff to focus on other, more critical areas.
- Meet with your actuaries, external accountants, bond advisors, and investment advisors to look for ways to trim costs and raise cash. For instance, maybe a delay in funding pension and OPEB plans, or debt refunding to lower debt service costs or converting investments into more liquid form for access. An external accountant may see additional prior cost patterns that may help reduce current costs or save cash – a fresh set of eyes can help. Everything made sense when you implemented financial plans years ago, but maybe they don’t in today’s environment. Your needs have changed, and your costs should reflect this. Take caution and be very careful not to violate any laws or regulations surrounding mandated payments.
Assets and Credit Management Ideas:
- Set up an interest-bearing sweep account. Combine this with cost-cutting strategies and stretching paying accounts payable (if possible). This could result in some additional income and improved cash flow.
- Refinance your debt or renegotiate your leases if possible.
- Take advantage of payment discounts (if available).
- Make it as easy as possible to collect revenue – use online resources for internet-based payments or a bank dropbox.
Personnel Resources Ideas:
- Use independent contractors and part-timers to save some cost (both payroll and related benefits).
- Reshuffle staff duties to put the right people in the right place. In times like this, you need your best people doing the most impactful jobs. Consider departments with “non-essential” employees helping overloaded departments during the crisis. Maybe library staff help finance or public works helping public safety (where allowable).
- Form an internal cost-cutting committee to trim waste.
- Cross-train employees, evaluate staff productivity objectively and trim training budgets in the short term.
These are a few ideas that you can use to manage your costs. These should be a team effort, so recruit the best people you have – from all levels – to help in this process.
Listed below are other cash saving ideas that you may consider using for your government if these ideas fit:
- Re-examine each budget line to make cost cuts or cost deferral decisions.
- Conference and training cancellations and related travel costs could save cash.
- Lower utilities – power down facilities that are not in use to save money.
- Decreased part-time pay for non-salaried positions (park and recreation, referees, lifeguards, library staff, and public works) lowers costs.
- Lower janitorial supplies, postage, and clothing will decrease expenses.
- Spring sporting events appear to be canceled, such part-time salaries should cease, and related utility and field maintenance costs should decrease, which will save cash outflows.
- Consider a decrease in overtime pay due to quarantine affecting the civic activity and reduced staff workload.
- Cancellation of special spring events may decrease temporary personnel costs and other costs, which would save funds.
- Freeze marketing and any promotional fees.
- Consider reduced office supplies necessary for certain non-essential departments.
- Freeze any pay increases.
- Evaluate any non-essential scheduled maintenance for cost deferral.
- Freeze or cut non-essential contributions to other organizations that have reduced services – such as museums, zoos, non-profits – this would need coordination to avoid detrimental effects depending on the needs of those organizations.
- Re-evaluate any cash outlays for economic incentives.
For more advice on managing your cash or further stabilizing your business or local government entity, please contact your local CRI professional.