Managing Windfall Revenue

Investing For Growth Instead of Spending to Cover Costs

One of my passions is to help small communities think through how to create strategic plans that can ensure sustainable economic growth and prosperity.  It is on of the reasons I authored the eBook entitled “Avoiding The Boom:Bust Cycle” for communities impacted by the shale energy industry.  This eBook shares a reasonably simple process to create a solid strategic plan and subsequent Action Plans to ensure desired results.

This post is prompted by an article I read in the Cincinnati Enquirer. I thought provided some good perspective on the need for prudent decision making in the face of a community windfall.  The article title is “Casino: The Big Payoff”.

The author’s main point is that sudden income should be invested wisely by elected officials and not “frittered away”.  The lure of using unplanned revenue to cover budget shortfalls can sometimes be politically overwhelming.  But, smart use of the funding can literally transform a community’s economy and deliver sustainable prosperity.

Case Study

The city of Lawrenceburg, Indiana was cited as a case study of what to do right.  The 16-year windfall from the Hollywood (formerly Argosy) Casino totaled more than $2B in taxes and fees.  Lawrenceburg leaders invested this money with a legacy mindset.  It went into education to create a sustainable trained labor force, infrastructure improvements, and job attraction (Honda located a plant in nearby Greensburg).  They prepared a industrial park in Batesville, invested in a new event center to help increase tourism, created a fund to support companies wanting to relocate to the area, built parking garages, upgraded the storm water systems and roads, and in aggregate made the area more “investment worthy”.

“We need to take these casino dollars and reinvest them back in the community”, said Mike Rozow (head of the Dearborn, OH County Chamber).”  He added, “It’s a long-term sustained approach.”

The level of statesmanship demonstrated in Lawrenceburg, IN is needed in small communities across our Nation.  We need to be forward looking and good stewards of taxpayer dollars.  Just as a company seeks to deliver a return on shareholder investment, we need to strive for creating a “Return On Taxpayer Investment”.  [Yes, I would love that phrase to get adopted and go viral.]

Too many times, windfall dollars are wasted and communities end up with underutilized assets and runaway debt.  With sound, pragmatic leadership it doesn’t need to be that way.

But, to be successful every community needs a good strategic plan that forces choices and orchestrates investments.  But, how do you know if your strategic plan is good or not?  Here is one way to evaluate it.

10 Characteristics Of A Great Strategic Plan

Here is a list of characteristics identified by SwitchPoint LLC and adapted to the economic development world.

  1. Covers an appropriate timeframe.  Given the lead tomes for asset creation, infrastructure investment and public policy reform, I would suggest a 24-36 month time frame.  Any less and your plan will be highly tactical.  Any more and it will be hard to enroll people.
  2. Builds on history but looks forward.  You want to strengthen your community’s competitive strengths and neutralize its weaknesses.  Of course, to do this you need to be objective in defining what they are.
  3. Addresses external factors.  The worst plan is one that is obsolete the minute it is written because of something outside of your community’s control.  You need to identify the “big rocks in the river” and proactively avoid them.  If you suspect certain revenue streams are at risk of be reduced, then don’t count on them in the future.
  4. Robust enough to work under different plausible scenarios.  The only thing certain about your vision of how things will play out in the future is that it is wrong.  You need to know where the weak parts of your plan are and understand how wrong you can afford to be before it completely undermines your plan.  You can do this by getting together a group of knowledgeable people to create plausible scenarios that you can play “What if?” and test the flexibility of your plan.
  5. Has a single set of metrics that everybody is aligned to.  Success needs to be clearly articulated in measurable terms.  You can’t afford to have part of your community claim the plan was successful and part of it believe the plan failed.  This will create confusion and people will work at cross-purposes in implementation of the plan.  When corrective action is required, everybody needs to be on the same page.
  6. Provides clarity on what your community is not going to do.  This is likely the hardest part of any community strategic plan.  Politically, nobody wants to say no.  Yet, no community ever has sufficient budget to support everything everybody wants done.   Remember, a no means simply that no taxpayer dollars will be invested.  It doesn’t mean the private sector can’t fund the project if it is truly valued.  Also, in my opinion, every program that is public/private funded should have a specific sub-plan that gets it privatized after a pre-determined length of time.  Terminal public/private funded programs are a long-term drag on a community’s ability to manage its economic growth.  If, after a reasonable time, a program is incapable of standing on its own two feet then the need (and expected benefit) is likely not there.
  7. Focuses on strategies and not tactics.  Strategic plans describe what you are going to do and why.  Action plans detail how you are going to get it done.  Action plans by nature undergo regular modifications of the tactics to address current realities.  Strategies should have longevity throughout the planning horizon.
  8. Be realistic and adequately resourced.  Strategic planning is all about getting something accomplished.  Yet, too often it results in a document that sits on a shelf.  If your community cannot afford to resource a plan (people and dollars), then it is a terrible plan.
  9. Have measurable milestones.  If you don’t have an idea of how to know if you are making progress, then your plan is too vague.  You should be able to create a quantitatively focused dashboard with very clear measures, success thresholds and a process for updating the data.
  10. Actually guides on-going choices.  A good strategic plan is present in meetings where decisions are being made.  The first question that should be asked about any recommended course of action is – “Is this on or off strategy?”.  If it is off strategy it should be rejected without further conversation.  Or, the team needs to revisit the strategic plan and agree to change it (and that should be a purposefully difficult process).  Otherwise the plan becomes a sham.

Discussion

Does your community have a long-term strategic plan in place or is it operating on a year-to-year opportunistic approach?  Communities with the greatest probability for success tend to have plans in place and importantly they actively use their plan to guide resource allocation decisions.  Forbes Magazine wrote an article entitled “10 Reasons Why Strategic Plans Fail“.  The #1 reason was “Having a plan simply for plans sake”.  Many Organizations go through the motions and once their plan is authored, never revisit it.  this is a complete waste of time.  In my opinion, these Organizations would be better served to not have a plan then pretend they do.  At least by admitting they don’t have a plan, the Organization’s leadership would understand that they must be hyper vigilant and responsive to a competitor’s actions.  Taking comfort in a faux plan gives a false sense of security and opens an Organization to competitive threats.  If your Organization is one that doesn’t use its strategic plan as a true sense of guidance, then you are like a home builder working without a floor plan.

What do you see as barriers to the actual use of a strategic plan?  Why do so many Organizations spend so much time creating one only to ignore it?  What has your experience been with strategic plan design and deployment?  Do you have any success tips you could share as a comment?

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Category Shale Gas, Strategy

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2 Comments so far

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  2. Vince Adamus

    December 19, 2012

    One-time revenues should fund one-time costs. Ongoing revenues can be tied to ongoing costs. If a sudden spike in revenue occurs, be suspicious about assuming that it will be ongoing–err on the side of caution, i.e. use it to enhance rainy day funds, pay down debt or invest for the future, however that is defined by the community.

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