We can be better prepared – let’s get ready now.

Posted Thursday, March 26

Shannon Sohl, CPA, PhD, Senior Research Specialist, Northern Illinois University Center for Governmental Studies

Businesses, governments and individuals have already taken a substantial hit from the COVID-19 health crisis. Telework, telestudy, even teletherapy, has become the norm. While we are all adjusting to a “new normal” – which has impacted our health, economy and social structure – the implications for how we should run our businesses, and set government policy to prepare for the future, are enormous. 

My work requires me to dig deep into the financials of Illinois state and local governments. I spend hours, days, even weeks, extracting reported facts from Consolidated Annual Financial Reports (CAFRs), budgets and other government reports, to piece together an accurate picture of the financial health of an entity, or to help governments determine the best route to take when setting policy on any number of issues, from labor negotiations, cost-benefit analyses, pay and compensation studies, organizational assessments, government structure reviews and planning. I have been studying public finance, government structure, and government policy setting for the last 15 years. 

This is not the first time our federal, state, city, and local governments have had to ask some pretty important questions, like: 

  • What do basic services cost for municipalities compared to townships and counties?
  • Are special purpose districts such as fire protection districts, park districts, and library districts, more affordable and effective than providing those services as a department of a general purpose government?
  • Is one type of government, location, size, tax base, or some combination of these more efficient and effective at delivering a public service over another? 
  • Which entities are physically and economically prepared for a recession, and which ones will be able to help other communities in need?
  • Which entities will struggle to provide basic services now or over the next few months, and how many months will they be able to operate without fiscal issues?
  • For those entities needing to consolidate or share services, what are the benefits and costs of the new service arrangements? What are the impacts on the taxpayers?

Sadly, we were asking similar questions during the financial crisis of 2008 and we are still not able to efficiently or adequately provide this information given the current state of financial reporting in the U.S.  

Our states and local governments report fiscal data in PDF reports. We need data. Interestingly, whenever I share this information with my peers in the private sector they are surprised that our governments report in this manner. They assume the states, the federal government, the bond market, lenders and academia are conducting analyses and allocating resources with reams of data (especially audited data). It is not a well-known fact that analyses are limited, based on stale data and inconsistently reported data, and prone to error due to manual collection processes.   

Crisis situations like the current one drive home the need for clear, unambiguous, accurate, and timely data to help local governments assess the health and economic risks to citizens.  Days and even hours can make a difference in deciding a course of action. For instance, the federal government will be distributing billions of dollars to states and local governments for relief efforts but on what basis?  

Readily available fiscal data is necessary to ensure funds are distributed equitably, based on need. To equitably and appropriately distribute scarce resources, decision makers will need quick answers to questions such as:

  • Who spent more or will need to spend more due to the virus? 
  • Which local governments may be hardest hit because they already have a level of fiscal distress, tax base, demographic, etc.?
  • What are the “net costs” of serving the public during a pandemic?
  • What’s the government “burn rate”? How long can they run on reserves with diminished incoming revenues?
  • What statewide or regional cuts in services and programs should be made, and how much should be cut? 
  • When will recession impacts reach which governments? Governments generally experience a lag in experiencing recession impacts. However, some types, locations, tax bases will be hit harder and faster. 

I joined the XBRL US Standard Government Reporting Working Group 1 ½ years ago, because I knew that my work would be substantially easier, and the governments with which I work, would be significantly more informed, if government data was machine-readable. With standardized CAFR data, we’d be able to easily compare details across states and municipalities to answer questions that can help guide policy development that is responsive to crisis situations. Standardized data means a rapid response using relevant, actionable information. The search for answers can start within minutes of relevant, current data being made available by government entities. 

We know that implementing data standards is not an easy task and will require upfront planning, consensus building, and a change in process for governments. We know that there’s a certain level of uniqueness about every local government so that complex comparisons across  municipalities will be a challenge. 

But we also know that we need information. Accurate, timely, basic factual data is necessary to make good decisions and be prepared. Don’t we owe it to ourselves and our citizens to make sure that we’re prepared the next time a crisis hits? This is not the first time, and it won’t be the last. Let’s get ready now. 

NOTE from XBRL US: Please take advantage of financial relief resources for businesses that will be hard hit by COVID-19.

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