Fee-funded programs provide federal, state and local governments with a cost-effective method of financing a range of government services, from access to national parks to securing patents and trademarks. But when user fees drop precipitously due to an unexpected event, such as the COVID-19 pandemic, agency leaders must have effective strategies in place to maintain the organization’s financial equilibrium.
While fee-funded government programs may resemble private-sector operations, they are typically established for the purpose of cost recovery, not profit generation, and can provide a critical source of funding beyond taxpayer dollars appropriated by Congress. User fees are a good alternative to taxes because they are paid solely by those who request and receive those specific services or benefits. They also promote efficient cost allocations or cost assignments, whereby consumers pay an appropriate share of the costs of services received, which helps governments fully fund their general operations.
Fees can also be politically contentious, placing the onus on governments for greater cost transparency, rate stability and solvency. The COVID-19 pandemic is disrupting this dynamic and bringing unforeseen challenges to the established cost structures. The impact of sudden reductions in customer demand, resulting in corresponding revenue reductions from dwindling fees, is a current risk to many agencies at all levels of government. Misplaced actions, such as those based on false expectations of a quick economic recovery, risk further exacerbating a vulnerable situation and testing an organization’s ability to remain financially viable.
Now, more than ever, government agencies need total visibility into their finances and operations so that they can quickly return to full capacity when demand for these services returns. The current uncertain environment calls for agencies to maintain agility and operational readiness, and in doing so, potentially improve their financial health. This requires converting data into analytics that support action, providing valuable insights for objective decisions in key areas—billing and reimbursements; rate structures; cost allocations and scaling; cost and performance monitoring; strategic forecasting; capacity and workforce planning; legislative compliance; and governance.
With proper planning, government agencies can succeed during these challenging times by evaluating the strengths and weaknesses of their fee programs, leveraging the flexibility and efficiency offered by user fees, and fostering stronger customer-supplier relationships. A comprehensive approach to planning can be implemented in the following three phases:
The first step is to define the agency’s current financial and operational landscape, relative to a desired future state, and identity opportunities for improvement. The future state may include various improvements, and at its core, should display a fundamental alignment to regulatory requirements, an agency’s strategic goals and objectives, as well as financial management best practices.
Properly structured, this phase should yield a preliminary set of options for the agency’s future state when assessed against various factors, such as billing and reimbursements; rate structure and cost recovery basis determination for products and services; and performance monitoring against plans during budget execution, including data collection and reporting.
The second step is to prioritize each option using a comprehensive analytical framework that is based on quantitative, objective measures. Where such evaluations lend themselves to qualitative considerations, they can also be conducted in collaboration with key stakeholders and subject matter experts using a scorecard approach.
A comprehensive evaluation would include cost, notably the total ownership cost analysis of each option for full reimbursement; performance, or the degree to which each option aligns with desired future state criteria; and risk, the likelihood and consequence of providing one product or service over another, as well as under- or over-estimating the cost, schedule and performance for each option. Most importantly, the criteria would need to prioritize products and services that have legislative requirements before considering cost, performance and risk. Evaluation results would then be synthesized to help agency leadership understand the drivers, trade offs and risks associated with each option in order to enable informed decision-making.
The third step is to develop a coordinated, three-part plan that promotes communications, collaboration and transparency:
- Communication: Build credibility and gain support by promoting enhanced transparency and collaboration across stakeholders, fostering ownership and accountability.
- Change Management: Prioritize spending in the near term and support legislative requirements in the long term that would be necessary to achieve any proposed change by establishing a shared vision among people, process and technology.
- Implementation: A rapid implementation plan for prioritizing spending and a longer, government-wide implementation plan to achieve the proposed legislative change, including the sequencing and interdependencies between supporting products and activities.
Despite the unforeseen externalities posed by COVID-19, government agencies can emerge from the current situation with a clearly outlined roadmap to stabilize, improve, and even mature their fee-funded program activity by better anticipating and preparing for uncertainty. To achieve this vision, agency leaders need to convert raw data into actionable information. This will offer the insights that will prove invaluable when making the immediate and long-term strategic decisions needed to ensure a balanced recovery.
This article was originally published on May 21, 2020 on GovExec.
Principal, Public Sector
Principal, Public Sector