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Strategic plan aids fiscal recovery

Strategic plan aids fiscal recovery

Since declaring the nation's largest municipal bankruptcy in 1994, Orange County, Calif., has endured some unwelcome notoriety. That is now changing.
  • Written by Janice Mittermeier
  • 1st September 1998

Since declaring the nation’s largest municipal bankruptcy in 1994, Orange County, Calif., has endured some unwelcome notoriety. That is now changing. Today, only 18 months after emerging from bankruptcy, Orange County has earned an investment grade credit rating from two national rating agencies: Moody’s Investors Service and Fitch IBCA.

The county’s comeback has been strengthened by development of a new Strategic Financial Plan (SFP). The plan is a five-year blueprint designed to give the Board of Supervisors the best information available about what resources it will have to meet its long-term priorities. Extensive restructuring, the implementation of strong management controls and a surging economy also have helped.

The SFP uses a state-of-the-art “econometric” computer model to provide the county with a clear financial direction. The plan gives the board a picture, based on projected revenues and obligations, of the discretionary money that will be available over the next five years and the resources needed to fund projects that the board has identified as policy priorities.

Prior to the bankruptcy, funding decisions were strongly influenced by individual department heads lobbying various supervisors. Too often, supervisors were not provided with sufficient information to make strategic, long-term decisions. Now, the board has the tools to take a realistic, long-term look at revenues and expenditures and make far-ranging decisions accordingly.

“The bankruptcy wiped the slate clean and forced us to put a strong emphasis on financial planning,” says Gary Burton, the county’s chief financial officer. When they began to develop the SFP in early 1997, officials scoured California for counties with similar financial plans, but they found none. So the county teamed up with Chapman University economists James Doti and Esmael Adibi, who put together models and forecasts for county economic growth during the next five years. The economists will help the county update its plan each year.

In March 1997, the board identified and adopted 31 strategic priorities, including early debt defeasance, deferred maintenance and public safety. Those priorities were identified through a series of planning sessions with department heads, managers, staff and the public.

Agency and department personnel, along with the staff of the County Executive’s Office, prepared a five-year forecast of county expenses. The staff then estimated the operating and capital costs associated with each of the 31 priorities. With that information in hand, the board worked through various potential funding scenarios to define the county’s financial course for the next five years.

“The plan is the culmination of an intensive financial planning process that incorporated the talents of local government and the education and business communities to identify financial priorities, forecast revenues and expenses, and develop a balanced, five-year outlook,” Burton says.

The SFP has injected a note of realism into the county’s annual budget process. It ought to help the county avoid mistakes — like building a new courthouse or jail and then not having enough money to run it, a scenario that has trapped other counties.

The plan has forced the various county departments and agencies to set priorities that conform to the plan’s constraints. The county cannot immediately fund all priorities and still maintain a balanced budget, so difficult choices are made based on board policy objectives.

The SFP is intended to implement a corporate-style management system that emphasizes sound fiscal controls and accountability. By following the plan, Orange County expects continued financial success.

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