Posted tagged ‘management’

Should Local Government Be Profitable?

April 8, 2010

At the SCAPA conference in Greer two weeks ago (3/26/10), the last speaker of a warm, sunny Friday was the most thought provoking. Beaufort City Manager Scott Dadson applies his finance background to his role as the City’s chief executive officer. Dadson equates taxpayers to investors and users of public services as customers.

Alas, Dadson has not posted the presentation he gave to South Carolina’s city and regional planners, as promised, yet the Beaufort City Manager’s web page offers plenty of resources. Here are my takeaways.

In Dadson’s “Getting Our Heads out of the Sand” (That’s right, Dadson wrote, presented, and delivered a document to the Beaufort Chamber of Commerce titled “Getting Our Heads out of the Sand!”), Dadson defines profit, in local government terms, as desired results, which furthermore equate to the net present value of a decision and the cost of the future.

Dadson quotes author Ken Miller (We Don’t Make Widgets: Overcoming the Myths That Keep Government from Radically Improving, Governing Books, 2006), “To say we’re not here to make a profit is akin to saying we’re not here to achieve results… When we are not focused on results, we get bogged down in how we do things (policies, procedures, and process) and forget why we are doing them in the first place.”

Dadson applies this thinking to capital budgeting, a responsibility common to both, business and local government. He points out that local government councils rarely consider the increase or decrease in cash flow due to a capital project; rather, a decision to implement is based strictly on initial cost. Operating costs and changes in revenue (due to altered property values or new permit fees, for instance) are neglected; and what are the costs (in unrealized revenue) of forgoing the improvement altogether?

In his presentation to SCAPA, Dadson highlighted the cost burden of the cul-de-sac to taxpayers. Cul-de-sacs are typically constructed by the private sector, so local government incurs no capital cost. The design, however, requires public service vehicles to double back on each service call (trash pick-up, school bussing, etc.), thus raising costs to taxpayers for labor, fuel, and vehicle maintenance.

In “Getting Our Heads out of the Sand,” Dadson raises the example of firehouses. Clearly, increased fire protection has tangible and intangible benefits to taxpayers; however, local government must consider the costs of staffing and equipping each firehouse in addition to initial capital costs incurred for construction, even if these costs are nil, as in the recent environment of “”pay to play” residential growth (i.e., developer-funded infrastructure to serve proposed land development).

If local government were to function more like a business, customers (residents, merchants) would demand effective service delivery, investors (taxpayers) would demand return on investment (taxes paid), and the board (city council) would make the most profitable decisions (yielding optimal results) based on informed professional leadership of the CEO (city manager), recognizing that the most profitable (efficient, beneficial) course of action is only sometimes the cheapest up front and occasionally to refuse or reduce service. The sum of decisions that account for the cost of the future will profit the taxpayer, the resident, and the merchant in the form of better public services and/or lower taxes (the desired outcomes) over time.

Advertisements