The Revenue Impact of COVID-19 on Local Government

May 27, 2020 | Corporate Member News

How to prepare for what’s next

As a local government leader, you’re pressed to keep up with the immediate needs of your community during the COVID-19 crisis. You may be shifting priorities daily in order to address the effects of the crisis on your constituents.

And as the new normal begins to take shape, you’ll also have to plan for the near- and long-term effects the coronavirus will have on budgets and the ability to deliver vital services with decreased revenues. Assessing the impact and effectively modeling revenues, along with anticipated expenditures, can help your agency prepare for the future.

Actions you can take right now can help improve your community’s financial outlook
Here’s how you can gain a better understanding of the current financial situation and prepare your response:

  • Examine financial management and risk policies. How has your community chosen to respond to financial situations? Reviewing the existing policies, or creating new ones, can help guide your response approach.
  • Assess reserves. What reserves do you have? Could those reserves help close the gap between expected revenue and expenses? Find out what the requirements are for accessing those reserves to see if they can help you.
  • Examine budgets. How does your cash on hand compare with your budgeting needs? Find out exactly what your cash on hand is and what you might need in the next three, six, and 12 months.
  • Track expenses. What are your expenses related to COVID-19? Tracking expenses might help in applying for federal programs and other potential grant offerings at the state and local levels.

Start with short-term actions
In order to see beyond the present, you need to focus on analyzing your previous financial history and modeling a realistic forecast of what’s ahead. Consider doing the following:

  • Project revenue. Develop a model to determine the potential impact of delayed receipts and decreased collections. You might use a variety of tools and software – from simple to sophisticated – to build the model. Include these steps:
    • Gather inputs. Include the current budget, any revenue forecasts available for the next one to three years, and actual revenue by source from the past three to five years. It is also important to include financials from any previous economic events, such as the Great Recession or 9/11.
    • Determine assumptions and benchmarks. How do you see your revenue streams being affected by factors like the length of stay-at-home orders and unemployment rates? Establishing and documenting answers to these questions can give you a clear picture of assumptions. Then, collect benchmark data from national and regional organizations, along with estimates provided by the state, so you can see how your assumptions compare.
    • Incorporate flexibility. Build a revenue forecasting model that uses trends from actuals and couples those with the data from benchmarking sources and other assumptions. This will help you to estimate potential future revenue collections. The model should be flexible so it can reflect changes in the scenario. Variables might include differing time periods for stay-at-home orders.
  • Align expenditures. Determine opportunities to reduce or delay cost. For example, determine if contracts may be renegotiated, payments delayed, or expenses deferred. Expenditure analysis may be performed similarly to the revenue analysis above, including a model forecasting your financial future.
  • Manage budgets. Continue to monitor budgets and determine short-term strategies to maintain your cash on hand.

Plan for the future
Looking beyond the short term, a few simple considerations made now can further optimize the financials of your community in the wake of COVID-19.

  • Determine cost reduction strategies. Explore opportunities to reduce costs, like online service delivery and shared service models. Determine if any nonmandated services could be stopped or altered.
  • Explore revenue enhancement opportunities. User fees or increased collection rates on taxes are some of the revenue sources that could help cover deficits in other areas.

You can navigate the unknown road ahead
In the midst of chaos, effective leaders know that while they’re managing today’s challenges, they also have to begin preparing for the ones coming tomorrow. Following these steps can help you create a more stable and bright future for your community.

Need a hand? We’re here to help. You are in uncharted territory. We understand how difficult responding to the financial impacts of a public health crisis can be for leaders. We have the expertise to help you make sense of your situation and respond confidently with sound decisions and strategies.

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