The COVID-19 pandemic is having a major impact on the finances of local governments due to increased spending on crisis-related measures and reduced incoming revenue. Your government is most likely facing the dilemma of financing emergency spending while ensuring you have the cash flow necessary to meet your obligations to the community, such as providing emergency services. Therefore, cash management during a crisis is vital for slowing the flow of cash and keeping the budget balanced. What strategies can your local government use to control spending during this uncertain time?
The benefits of retrenchment techniques
Retrenchment techniques are strategies you can use to reduce spending within your government organization. Keep in mind it is important to use techniques that provide an outcome within a short period of time, are easy to explain and understand, and can be reversed, if necessary.
According the Government Finance Officers Association, the following are tried-and-true retrenchment techniques for improving cash flow during a crisis:
Reduce personnel costs
As the biggest expense for most governments, reducing the cost of personnel is an immense opportunity to improve your cash flow. Implementing this technique could include introducing a short-term hiring freeze, eliminating vacant positions, and reducing the levels of non-essential services provided to citizens. Layoffs should be considered as a last resort, as there are many creative ways to keep the budget balanced without letting people go, such as sharing personnel across departments, or introducing voluntary or mandatory time off.
Reduce capital spending
Capital improvement projects and the purchase of capital assets are a substantial expense for governments. It might not be wise to eliminate capital spending entirely during a crisis because doing so could have a long-term impact. But by proceeding with capital projects that are low-risk but high in value for the community, you can still serve the needs of citizens. Choosing which projects or asset purchases to defer will require making some tough choices, but the cost savings could be significant.
Reduce materials or contractor costs
By reviewing existing expenses for cost-cutting opportunities and renegotiating vendor contracts, your government can save money, but also enjoy the added benefit of operating efficiently with fewer resources. However, any costs associated with maintaining public facilities or infrastructure will need to be carefully assessed to ensure you avoid any long-term cost increases or risking the safety of the public.
Create more advantageous inflows and outflows of cash
Unable to resort to traditional methods of increasing revenue, your government will need to be thorough in searching through the budget for any surpluses or line items that have not been spent for transferring to the general fund. In addition, encouraging a culture of frugality helps departments understand the importance of retrenchment techniques and making every dollar count will foster support for these strategies and even motivate departments to find new ways of balancing the budget.
Get new resources
Federal assistance will not cover the loss of revenue your government was expecting, so it is important to look for new sources of cash. This could include reducing internal service funding, reallocating general fund reserves or using existing assets to create new revenue streams. While it may be tempting to introduce new fees for services, doing so would be detrimental to your government’s reputation during a time when maintaining public trust is imperative.
Maximize your budget with the Questica Budget Suite
Retrenchment techniques are short-term strategies your local government can use to slow the flow of cash being spent during a crisis. Using techniques that provide an outcome within a short period of time, are easy to explain and understand, and are reversible, will provide the greatest benefits to your government. You will not only improve cash flow, but have more time and resources to create new strategies for acquiring cash and addressing the financial challenges brought on by the COVID-19 pandemic. Furthermore, thoroughly reviewing spending and the outflow of cash could become a new best practice that helps your government maximize the budget during both good times and bad.
The Questica suite of products is an end-to-end system for public sector budget preparation and management, performance measurement, transparency, data visualization and citizen engagement. Designed specifically for the public sector, Questica’s solutions improve budget collaboration and empower users to access meaningful analytics to help them understand their financial position today and shape long-term strategies for tomorrow. Integrating with dozens of ERP systems, users can monitor and report on budget planning and spending during a crisis, as well as create forecasts and what-if scenarios to gain a better understanding of how to gain control of their budgets as the crisis evolves.
To learn more about controlling cash flow, watch the on-demand webinar, How to Control Spending During Times of Uncertainty or sign-up for the next webinar in our Budgeting During A Crisis series. Please visit our COVID-19 Resource Center for more information about Questica’s webinars.
To learn more about the Questica Budget Suite of software solutions for budgeting and transparency, read one of our blogs or white papers, take a product tour or sign-up for one of our free monthly informational webinars.
