Fiscal Crises and Innovative Budgeting

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Moloba Owolabi
December 18, 2015

When it comes to managing fiscal crises and challenges, the federal government influences many local and state governments. State and local governments typically try to come up with innovative measures to implement the policies the federal government has set forth. Sometimes these cost-cutting, revenue-building measures are very successful and other times they leave communities in disarray.

Turning fiscal crises into opportunity is a great way for many state and local governments to restructure and strategically plan new and inventive ways to raise revenue and support their economies. Through strategic planning, many local and state leaders can implement reforms and policies that provide effective and long-term success to their local communities.

As the Alliance for Innovation mentioned, by being proactive, local and state government officials can pursue widespread organizational change and restructure outdated business practices when economic indicators are positive. The Alliance for Innovation indicates that local and state governments are important economic agents and, during fiscal crises, they should try to stimulate their economies in the following ways:

1. Increase revenues to maintain spending.
2. Accelerate local capital projects with low long-term operating costs. 

When state and local governments typically deal with fiscal crises, they use traditional budget options such as increasing taxes, cutting services or a combination of the two. Now, it is important for governments to develop sustainable and innovative methods for budgeting. Many state and local governments are required to follow the federal government’s requirements, which are often unaccompanied with federal funding.

With that said, state and local governments can start working jointly with other governments on ways to mitigate fiscal crises. As outlined by the University of Pittsburgh’s Fiscal Policy and Governance Committee, there are several policy tools that can be easily implemented by local governments to help ease the effects of fiscal crisis. These tools are:

1. Utilizing joint purchasing to allow two or more local governmental bodies to buy equipment or supplies. By implementing joint purchasing locally, governments can see an increase in cost savings.
2. Participating in joint contract agreements in order to provide cities or towns with cost savings through bargaining and economies of scale.
3. Participating in grant programs that encourage regional cooperation, which can often provide incentives for regional cooperation.
4. Participating in cooperative emergency response programs, which allow neighboring municipalities to combine resources for more efficient and cost-effective emergency response systems.
5. Appropriately employing human resources strategies, which can result in cost savings and may help governments effectively balance budgets.
6. Avoiding excessive commitments to fixed expenses such as debt services, which is a long-term strategy that can help state and local governments maintain fiscal discipline.
7. Educating the public about the decisions that elected officials encounter during fiscal crises, which can lead to more efficient and productive decisions.
8. Implementing energy-efficient programs in order to produce cost savings, by retrofitting and upgrading outdated sources. 

State and local governments face many budgetary concerns. Introducing innovative and resourceful methods to tackle these fiscal crises and budgetary concerns is the first step of many to improve the efficiency of these municipalities. As fiscal crises continue to affect state and local governments, it is imperative that government officials proactively seek new and innovative methods to build revenue and decrease spending in their localities.

Collective action and joint cooperation are some of the ways that local, state and federal governments can work together to stabilize and mitigate fiscal crisis. Although the issue of the collective action problem may present itself, it would be beneficial to work jointly in some capacity during a fiscal crisis, whether it is local governments and state governments or local, state and federal governments working together.

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Author:  Mobola Owolabi is currently a senior project manager for the Center of Hospital Innovation and Improvement in Philadelphia, Penn. She specializes in various policy and quality improvement projects. Ms. Owolabi holds a bachelor’s degree in organizational communication from Old Dominion University and a Master of Science in Public Policy from Drexel University. Email: [email protected].

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