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Tips for Michigan Cities to Save Money by Anthony Minghine of the Michigan Municipal League

By Anthony Minghine

It is no secret that we are all faced with some of the most challenging economic times in generations. Revenue pressures combined with increasing service demands are making it more and more difficult to effectively deliver services. To make matters worse, many of the problems we are facing are beyond what we can control or influence. Now, more than ever, we need to take a calculated approach to managing those things within our control. While not comprehensive, the following are some areas to review to ensure that you are maximizing your operational efforts.

Utility Rates

At its core, developing rates is a straightforward process. You determine costs and allocate them to the users of the service. In practice, many factors need to be considered—user classes, fixed and variable components, reading and billing frequency, multiple meters, etc. If your rates are not properly set, then you are most likely subsidizing the cost of these operations with your general fund. In other words, when rates are inadequate, it does not change the cost of the service provided. This simply means the people using the service are not fully paying for the benefit they are receiving. User rates for things like water and sewer should fully cover the cost of their operations. Costs and usage patterns change over time, so rates should be reviewed annually and adjusted to ensure they properly fund the service as they are intended.

Proper Cost Allocations

In order to set fees, the costs of a program must be understood. Be certain that your community properly allocates costs to the corresponding revenue streams. For example, your water and sewer fund should pay for the administrative costs being provided by general fund employees. If 30 percent of the transactions of the finance department relate to activities of the water and sewer fund, then it is appropriate to charge those costs to that fund and reimburse the general fund accordingly. Be sure to identify related utility costs, maintenance, audit, legal, etc. so that other funds pay the general fund for the services that are being provided.

Technology Solutions

Much like an ATM machine reduces floor traffic in a bank, web-based transactions can reduce the need for direct customer interaction at the municipal hall. This frees up resources for other purposes, or may allow for staff reductions which will have a year over year positive impact on the cost of service delivery. This change also benefits your citizens because services are available 24/7. The two most likely areas to implement technology-based solutions are transactional and inquiry-based services. Many transactions are straightforward and do not require human intervention to be accomplished. Inquiry services can take significant staff time to respond to, and take time for the customer to travel to the office. Technology-based inquiry requires no staff time and users can explore at their leisure.

Marketing and Communication

Technology-based marketing and communication are vital to attract and retain people to our communities. What you do will speak volumes about your community. The better your community is positioned on the web, the better chance you have of attracting the attention of businesses and future residents. In addition, take advantage of free tools like social networking sites and blogs to communicate to your citizens. A properly managed web communication strategy can save you money in print and postage. For example, newsletters, program notices, and community information can all be online. Create community fan sites on Facebook and other social media sites and use them to distribute information. Allow citizens to sign up for email communications. All of these tools are free or inexpensive and are better aligned with how people receive information in 2010.

Outsourcing

Outsourcing is often presented as the cure-all for the delivery of services. While it is far from a panacea, it is important to do an honest evaluation of various service delivery methods to determine which is most advantageous. You must be sure to capture the true cost of service as well as evaluate the advantages and disadvantages of outsourcing. In performing the review, be certain that you understand and quantify all the duties that will be necessary to complete the task. While an employee will back fill and cover various undefined duties, a contractor will only provide the services they are being paid to provide.

User Fees/Program Evaluation

What do the various programs offered by your community cost? It is vital that you understand what it costs to provide services down to a programmatic level. This will enable you to make an informed decision about whether or not a particular service should be offered, if it should be subsidized, and how much any subsidy is costing your community. With this information, you can now properly set user fees. User fees are at the heart of any program, especially recreational programs. With the pressure we are experiencing to cut costs, devoting time to establishing appropriate fees is worth the effort. Too often, fees are based on what someone else, perhaps a neighboring community, charges rather than the true cost of service and without an awareness of the level of subsidy being provided.

Risk Management

Proper risk management is essential to an efficient operation, and mitigating risk can help lower insurance and operational costs. Generally, this involves reviewing operations, identifying potential threats and the likelihood of their occurrence, then taking appropriate actions to address the most likely threats. Faced with today’s spiraling operational costs, members must control losses if they are to meet budgetary requirements. Managers must coordinate activities that relate to safeguarding the organization’s investments and continuity of operations with their safety efforts. To be effective, a loss control program should share and assign responsibilities for accident prevention. An effective program should provide a means of making certain those who have responsibility perform adequately. The program should not simply impose safety measures on the organization. Instead, management must build risk management into every process and job, making it an integral part of operations.

Hopefully, this information has given you some new ideas about how to maximize your operational efforts and enhance their associated revenues. Now, more than ever, we must be certain to understand our operations so we can make informed choices and allocate resources properly.

 

Anthony Minghine is chief operating officer and associate executive director for the League. He has 24 years of municipal finance experience, including four years with the League. You may reach him at aminghine@mml.org or 734-669-6360.

 

 

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