Industry Insights

An article in the May 2, 2011, issue of Bloomberg Businessweek entitled “Financial Martial Law,” reported government entities’ efforts to address their financial troubles. It described a Michigan law that would “dramatically speed up the process by which financially troubled cities, towns and school districts can be taken over by state-appointed emergency managers.”

Michigan governments have a great need to improve performance. Michigan State University economist Eric Scorsone said that “half of the state’s communities are under financial stress.” The law gives emergency managers “broad and controversial powers, including the authority to void union contracts and remove elected officials.” Consultants and restructuring experts may be engaged to act in the same manner with government entities as has been done with distressed companies.

According to state Rep. Al Pscholka, who sponsored the law, “90 percent of the law is an early warning system” and “the fundamental point is that if the municipality had made hard choices there would be no need for an emergency manager.” Michigan Governor Rick Snyder said the law’s intent is “to identify struggling localities early on and give officials the motivation and help to make difficult decisions,” not to exert control over local governments.

Michigan’s situation is perhaps more easily understood due to its high unemployment, tax delinquency rates and population decline. Other states and governmental entities face similar problems, though perhaps not as severe. Michigan’s financial situation has changed dramatically over time. It should be noted a government entity’s fortune also can change dramatically, and disciplined preventive action would be prudent to avoid deteriorating performance. The situation in Michigan provides other governments with an early warning of what may be considered in other states.

The Long View

The National Performance Management Advisory Commission, formed and sponsored by 15 professional organizations of schools, cities, counties, states, courts and legislatures, worked to develop “the performance management framework to help governments (with) managing performance toward improved results.” The forward to the commission’s 2010 report states, “At no time in modern history have state, local, and provincial governments been under greater pressure to provide results that matter to the public, often within severe resource constraints. At the same time, government officials and managers are challenged to overcome the public’s lack of trust in government at all levels.” Performance management requires managers to have “accurate, timely, and relevant information for decision-making, along with the skills and knowledge to analyze results and design improvements, when needed.” It also can “give governments the ability to provide easily understood and timely information to the public …” The commission said governments want better information and practices, including better methods for the following:

• Understanding public needs
• Identifying and implementing programs and services to meet needs
• Assuring alignment of policies, strategies and services
• Collecting and analyzing performance information
• Applying information for continuous improvement in performance and efficiency
• Using data effectively in policy decision-making
• Supporting accountability within government organizations and to the public
• Delivering understandable performance information to the public

In the commission’s report, performance management in the public sector is defined as “an ongoing, systematic approach to improving results through evidence-based decision-making, continuous organizational learning and a focus on accountability for performance.” It also notes “organization culture must be addressed to make lasting improvements.”

Where Are You On the Road to Recovery?

Long-term improvement probably seems distant if you have only taken a few steps … or have not started. However, it is probably dangerous to be standing still. Michigan provides a stark warning that if you don’t solve the problems, someone else will. As statistician and economist W. Edwards Deming said, “It is not necessary to change. Survival is not mandatory.” Performance management relies on good data, understanding and common sense applied to the challenges you face. Consider the following steps as you proceed to address specific challenges:

• Identify results important to stakeholders
• Collect and evaluate data regarding effectiveness and efficiency of existing methods or services
• Include employees to describe methods or services and address complexity and rapid change
• Analyze and apply information and technology to develop solutions
• Communicate alternatives to improve accountability and support confidence of the public and organization

Help Is Available

In discussing school improvements, Indianapolis Star commentator Matthew Tully noted, “Improvements often come in incremental steps, the result of hard work in classrooms (and offices and shops) and smart policy changes that the entrenched establishment fights fiercely … Schools (and offices and shops) should be encouraged to undergo extensive audits of both their financial records and their organizational system … (to find) every efficiency … It's time to look at the big picture and decide what is best for the coming generations of students (and citizens) and taxpayers.”

Some consulting organizations provide emergency managers to assist in most difficult or dire situations, but their authority will not likely be as great as in Michigan, and accordingly neither will their effect.

For more information about this situation, contact your BKD advisor.