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Chief Financial Officers Feel the Fiscal Stress of Cities

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W. Bartley Hildreth, Ph.D., professor of public management and policy in the Andrew Young School of Policy Studies at Georgia State University in Atlanta, has conducted several studies of chief financial officers (CFOs) in government.

“CFOs are in the cat-bird seat of key decision-making in any organization. It’s hard to find a public decision that doesn’t involve financial resources in some way,” he says. “Managing that scarce resource is important in its own right, but also being the one that folks turn to for fiscal guidance makes the position all that much more valuable and worthwhile. The same point really holds true for financial managers generally.”

Because the demands on the people who manage money are never ending, Dr. Hildreth, along with colleagues Dr. Samuel Yeager (Wichita State University) and Dr. Gerald Miller (Arizona State University), continues to explore how financial managers respond to this stress. In the interview that follows, Dr. Hildreth shares highlights of this research.

MuniNet: In a study published in 2005, you found that most respondents reported working in a “fiscally stressed environment.” If you were to survey the same group of chief financial officers today, would you presume that percentage has increased?

Hildreth: There is no doubt on that point. The past few years have been among the most fiscally stressed periods since the Great Depression, and it applies across the country for governments of all types, scope and sizes. Now, budgets never last long; revisions are required frequently during the year to adjust to revenue shortfalls. Add to it the insatiable demand for public services but the lack of a willingness to pay for them.

MuniNet: Your 2005 study specifically analyzed “ethical stress” among chief financial officers.  Can you define “ethical stress” and provide examples of how that stress might manifest itself?

Hildreth: In that study, we define ethical stress as caused by undue political pressure and the demand for special treatment. We looked at perception, not a list of examples. But, to respond to your question, I submit that many of these situations are outside the bright lights of public debate, such as placing an emphasis on politics in employee evaluations, manipulating revenue and expenditure forecasts to aid reelection, burying key assumptions in technical verbiage to escape media attention, agreeing to change orders to inflate a contract after it initially won out as the lowest bid, and paying legitimate bills of politically important vendors but doing so out of the normal sequence.  I believe that finance managers have to watch every decision to make sure it is on the up-and-up.

“A finance person’s goal should be to leave the organization in better financial shape than when they arrived, but not everything is controllable. Financial mess happens, even for those who practice best-practice finance.”

MuniNet: In looking at the factors that might either exacerbate or mitigate ethical stress for CFOs, which do you believe exert the most influence?

Hildreth: Fiscal stress is by far the most powerful aggravating problem. Interestingly, it is more of a problem for those who report to the CFO than it is for the CFO alone. For all finance managers, the supervisor’s encouragement of ethical behavior and a high level of personal integrity among coworkers mitigate ethical stress. CFOs are in a better position to handle ethical stress, while those who report to them are in what we called “the eye of the perfect storm” of ethical stress exacerbated by fiscal stress and budget process involvement. The lesson here is that CFOs have to set an ethical example for others.

MuniNet: How much control does a CFO really have over the financial health of his/her respective government? Is that control related to the size of the government? Could a CFO be really good at his/her job, and still be faced with a financial mess due to factors beyond his/her control?

Hildreth: All I can say is that when I was CFO of Akron, Ohio, I was legally responsible for every penny, not the Mayor. While I don’t think anyone expected me to personally keep the local economy from showing any indicators of decline or growth, that legal responsibility sure kept me focused on the job at hand. I believe that CFOs have a professional obligation to manage the financial affairs of their organization to ensure that it is sustainable over the long-term.

“…local government finance managers take their saving and spending values to work; they don’t leave those personal values at work’s doorstep.”

A finance person’s goal should be to leave the organization in better financial shape than when they arrived, but you’re right, not everything is controllable. Financial mess happens, even for those who practice best-practice finance. All too frequently, natural disasters prove the point.

As the title of the book by Albert Hirshman pointed out, we have the options of exit, voice or loyalty. (Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States) Faced with ethical or fiscal situations that we professionally disagree with, we can exit the organization, voice disapproval and be prepared to pay the consequences – or shut-up and display loyalty. I believe that the last option, loyalty, is not acceptable when faced with ethical challenges or unprofessional behavior by supervisors. All of this holds for small and well as very large governments.

MuniNet: Another study you’ve authored examines the relationship between how CFOs manage finances in their personal versus professional lives. Can you summarize the results of this study? Do CFOs tend to exhibit the same spending/savings habits at home that they do at work?

Hildreth: My colleagues and I find that local government finance managers take their saving and spending values to work; they don’t leave those personal values at work’s doorstep. We find that local government finance managers prefer saving a windfall to spending it, whether at home or work. Yet, the results suggest that it is easier to spend other people’s money than one’s own. This result is consistent with the concerns expressed by the late economist Milton Friedman, but perhaps instead of a no-tax pledge, we should focus on a getting a straight-forward saving pledge from our key policy makers!

About the Expert

Dr. W. Bartley Hildreth is professor of public management and policy in the Andrew Young School of Policy Studies at Georgia State University in Atlanta. Dr. Hildreth served as Dean during the 2009-10 academic year.

He served as Director of Finance for Akron, Ohio in 1984-1985, while on a leave of absence from his duties as associate professor of finance and public administration at Kent State University.

Dr. Hildreth specializes in municipal securities. Since 1989 he has been the editor-in-chief of the Municipal Finance Journal (a quarterly specializing in the financing of state and local governments and municipal securities).

Dr. Hildreth received his Ph.D. in Public Administration from the University of Georgia (1979), Masters in Public Administration from Auburn University at Montgomery (1974), and Bachelors of Arts degree in political science from the University of Alabama (1971).

 

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