Economic Forces In 1995 May
Require Government Review

"Agencies in the public sector will see an increasein economic pressures in 1995 that will require them to re-examine their operations and use financial analysis techniques borrowed from the private sector," according to Michael N. Mayo, Midwest Director of Public Sector Services for Deloitte & Touche LLP.

Mayo cites the following trends that will force public agencies to examine how, or if, they can continue to provide services:

• A slow recovery with no dramatic increase in tax revenue.
• Public resistance to tax increases.
• Federal mandates without corresponding revenue streams.
• Health care costs for government workers spiraling out of control. Governments have traditionally had rich plans for their workers, often with no contributions and low co-payments to attract talent from the private sector. These costs are mounting.
• Double digit increases in the State's share of Medicaid costs.
• Equitable funding for education.
• Increasing interest rates.

These pressures will likely be accelerated by the recent Republican electoral victories especially in the U.S. Congress. The Republican platform calls for allocation of fewer Federal dollars to state and local governments.

According to Mayo, "In this era of taxpayer resistance to tax increases, yet increased public expectations, our recommendation is for public sector managers to begin re-thinking what services they are providing and how they deliver those services.

"The public sector management culture must now shift and think in terms of analyzing how they are organized, costs, processes, operational efficiencies and what can be learned from the practices of private sector firms in similar or allied fields," said Mayo.

"Defining adequate performance measures, which has not been done satisfactorily to date, is critical to understand how efficiently governments are delivering services," says Mayo. For example, he notes that in

March 1995 / Illinois Municipal Review / Page 13

education, the primary measure is how much money gets spent, instead of what are the resulting outcomes.

Top management of government agencies must ask themselves some basic questions:

• What is the service we are delivering?
• Who are our customers?
• What do our customers think of our performance?
• Do we have what it takes inside our organization to get the job done correctly and efficiently?

In the end, government agencies that become more efficient will survive. The viability of these public entities will be restored and those jobs that remain will be more secure.

"In general, public sector managements are several years behind the trend to reengineer their processes," said Mayo. "Now, for the first time, governments are creating task forces focusing on this concept. While there has not yet been a major upswing in reengineering projects, we do see it on the horizon. The mood of the taxpayers for fundamental change is real and will necessitate reengineering of the way government services are delivered."

In all likelihood, reengineering will require the purchase of new technologies in order to realize efficiency. This additional capital requirement, in an already tight budgetary environment, will force public sector managers to demand even greater efficiency.

The Midwest Croup of Deloitte &Touche LLP provides accounting and auditing, tax, and management consulting services through more than 1,000 people throughout Illinois, Iowa, and Wisconsin.

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