FINANCIAL MANAGEMENT/1997: A year of uneasy transition

Financial management in the newly minted year is shaping up largely as a waiting game for the nation’s cities and counties, as many of their challenges arise from great unknowns. Will the economy’s good health and Wall Street’s run with the bulls continue? How will the block-grant approach to welfare funding work? And how will the states handle the issue of unfunded mandates in general?

As long as the answer to the first question is ‘yes,’ the others are not quite as pressing. Those questions become much harder to ignore, however, if the economy takes sick for a significant period of time.

As Ralph Tabor, associate legislative director of tax and finance for the National Association of Counties, puts it, “We’re still talking about a good economy. If the economy decides to go another direction in a year or so, you’ll have more people on welfare because they’ve lost their jobs. It will also mean fewer state revenues, and that’s where the pinch will come.

“But that’s not [in 1997],” Tabor predicts. “That’s probably a later scenario.” Rather, this year will be more one of transition than of immediate financial impacts.

The transition to welfare block grants is a good example. According to Tabor, the federal funding that the states receive in 1997 and funnel to local welfare agencies will be at essentially the same level as in previous years.

The real crunch for local agencies is likely to come in 1998 and beyond, as new limits on the number of years citizens can receive benefits draw nearer. Tabor predicts the agencies will not have enough money to pay for the job training and child care that citizens need to get off welfare roles and comply with the limits. If the economy is sputtering at that point, the crunch will be even more severe.

Given the increased funding responsibility that cities and counties face thanks to welfare reform and other mandates, Tabor warns against relaxing budgetary controls even though the economy is humming.

“This is not a time to let that happen, no matter how good the economy and revenues are,” he says. “There are too many unknowns out there, and that’s really what you have to plan for all the time.”

In addition to spending restraint, preparing for these unknowns also demands wise investments by local government financial managers. In Dallas County, for example, Treasurer Bill Melton and his staff foresee a “reasonable likelihood” that interest rates will rise sometime in 1997, so the county is focusing on conservative, short-term investments. About 24 percent of its portfolio is in a depository bank account, locked in at a good rate until this May, according to Melton.

“If rates do go up, we want to be in position to do as well as we could have at that point and to take advantage of the new environment,” he says. “A lot is riding, for us, on what happens in the next few months.”

Information technology also figures to be a prominent piece of the financial management puzzle in 1997. Jeff Esser, executive director of the Government Finance Officers Association, says he expects some local and state governments to make significant advances in areas like electronic billing and payment of property taxes, although such advances will probably not be widespread for a couple of years.

Esser also looks for more local governments to work at putting their financial information online for taxpayers as well as potential bond investors. Ideally, more knowledge would mean more confidence.

As Rusty Fifield, public finance advisor with Minneapolis-based Ehlers and Associates, explains it, “If we don’t understand what our government is doing with our money, we’re not going to want to give it any more than we have to.”

The author is assistant editor for American City & County.