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Local governments are certainly not exempt from the financial pressures brought about by COVID-19. While a portion of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes money earmarked for state and local governments, the local governments are not specifically excluded from participating in many of the programs currently being offered under the CARES Act. It is incumbent that local governments take the internal steps necessary to mitigate the effects of the decrease or delayed revenues expected to result from this pandemic.

The Government Finance Officers Association (GFOA) recently issued guidance, Cash is King [pdf], outlining steps that can be taken by a local government to better manage their cash flow during these uncertain times. The guidance includes recommendations to reduce costs in several areas, including personnel, capital spending, and material or contractor costs.

Potential options to reduce personnel costs include the following:

  • Share personnel between department by reassigning personnel to departments with a higher demand for services
  • Allowing employees to voluntarily move to part time status
  • Voluntary unpaid time off, which could also be a precursor to a mandatory time off policy
  • Mandatory time off policy in lieu of layoffs

Local governments should also evaluate whether certain capital projects, particularly those that include the use of general funds, can be delayed or scaled back. Consideration should be given as to the whether this capital outlay would result in efficiency improvements and near-term operating cost savings that justify the current use of resources.

Another area of potential savings outlined in the guidance is to consider reducing material or contractor costs. Consider reducing the use of paper through the sharing of electronic documents and the use of electronic signatures. Management should eliminate low or no-value tasks, not falling back on the “we have always done it this way” approach.

In addition to identifying cost savings initiatives, local governments should also seek out new resources. Interfund charges should be scrutinized and updated as appropriate to alleviate funds under financial distress, although such changes should be clearly supported. Management should evaluate the commitments and assignment of fund balance in the General Fund for potential designation to areas of greater need. Management should also consider new or revised fees for services being provided where appropriate.

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Local governments that are proactive in addressing the potential impact on cash flows of the COVID-19 pandemic will be better positioned once things return to a sense of normalcy. We here at Selden Fox will be happy to assist local government leaders in evaluating these or any other steps being considered to address the current economic environment, please call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon, and we are wishing for everyone to stay healthy and safe.

Edward Tracy

As an audit shareholder and head of the firm’s governmental audit practice, Ed Tracy directs the supervision of audit engagements, the majority of which are in the government and non-profit sector. In addition to his role as an accountant, Ed especially enjoys serving as a sounding board for his clients, and helps them develop creative solutions for broader management and business issues.