Just because you cannot control Mother Nature or bureaucratic red tape doesn’t mean you cannot control your fiscal planning. A CPA just might be the secret to helping you manage through the current conditions in the state of California.
Challenge #1 The Drought
It goes without saying, California needs water! Thankfully this year we are seeing storm systems pass through but we are a long way from being out of a drought. Through my audit work this year, I saw the tough realities of the drought, cost of water, reduced revenues, crops that cannot be planted because there is not enough water. These are all actual factors that must be worked through in order to successfully financially manage local services. Our firm works closely with its small district clients all year long. We work together to forecast best and worst case, looking at all the financial angles for the district to create a workable and successful plan.
Challenge #2 Benefits and Pensions
In 1999 Governor Davis was informed by CalPERS that increases in income would not pose any problems for the long term when it came to retirement, pensions and benefits. Well, looking in the rear view mirror, we know that revenue has not kept up and now tough discussions have become the norm across the state.
Many special districts have had to take on long term debt and issue bonds to cover current benefits. Adding pressure to the situation is the strength of the labor unions and their need to continue benefits at the same level for their members. All of this ends up in a very serious discussion about government being able to fund nothing other than benefits and no longer be able to fund basic public infrastructure like parks and potholes.
The media often exacerbates the situation by accusing government of being secret organizations, behaving in a non-transparent manner and behaving in an unregulated manner.
And sometimes it’s true. Some cities are paying outrageous salaries but what is more often the case is that for every city out of bounds on salary, there is a dozen small communities trying to make things work with volunteer elected officials working for the public good with no health or pension benefits. Adding complexity to the matter is sometimes state oversight is involved adding costs to the bottom line.
Challenge #3 LAFCo (Local Agency Formation Commission)
The broad goals of the Commission’s directive in 1963 to ensure the orderly formation of local governmental agencies and consolidate services was a great goal at the time but the recent work to further consolidate has the potential to ruin a true democratic process making it difficult for people to get involved through service by getting involved in boards and commissions. There are looming discussions around fire departments and other first responder services like ambulances. The consolidations and planning obviously impact the finances of special districts.
There is HOPE!
A beginning point to solve all of these challenges is financial reporting. Financial reporting should not be an annual event, it should occur all year long. There should be quarterly reviews. Boards should have regular access to accurate financial statements that include a discussion about the current rates and service costs, cash on hand in the bank, pending costs of benefits and infrastructure upgrades. Many of our counties have overwhelming challenges in front of them but the first step to solving them is by confronting the true financial picture. It boils down to the simple principles of planning and not being afraid to tackle the issues.
CPA’s are a great resource to give insight to the true financial picture and offer ideas and fresh perspectives.