May 8, 2012
Print

"Times, They Are A-Changin"

– Bob Dylan

Introduction

In today's environment, municipalities continue to have more obligations and responsibilities transferred to them by the provinces. This means municipalities must develop ways to increase revenue or reduce expenses in order to pay for the new services or increased services that must be provided to the public.

Theories of Economic Development

There are many variables in play when speaking about economic development; the labour force, location, political influence and costs of doing business. No one theory applies to all situations.

Instead, it is my belief that each municipality has to be treated as a business. This means applying business rules and principles that create growth for the municipality but at the same time performing the statutory obligations of a municipality.

It is clear that the timing of developing a strong economic plan and execution of the plan is urgent. In the recent Drummond report, financial support to municipalities is projected to grow at 5.2% per year which, according to Drummond, "such a rate of growth is simply unaffordable"1.The report further states that the targeted growth for program spending should not exceed 0.8% annually. This creates a shortfall to the municipalities of 4.4% annually although the report makes recommendations that the province delay from significantly reducing funding in the short term.

Business Approach

Municipalities, like businesses, must create strategic plans that will increase revenue to the municipalities. Only by increasing revenue will the municipality be able to grow and provide the required services. The business approach will meet this need.

On the expense side many municipalities have already reduced expenses as far as possible without causing a critical interruption in services. This has been happening to the business world since 2008. Both businesses and municipalities have recognized that they have reached a turning point and now must focus on revenue growth if they wish to continue to provide affordable services to taxpayers.

To accomplish revenue growth municipalities have hired employees to lead business development in their communities. However, like business, business development is only one facet of a business. To be successful the business development function must be integrated to produce an overall strategy of strengthening the revenue stream of the municipality.

In my opinion, municipalities are very much like businesses; no one-size fits all when it comes to growing a municipality. There are, however, common elements that must be recognized before choosing a plan to move forward.

S.W.O.T. Analysis

The traditional S.W.O.T. analysis (strengths, weaknesses, opportunities, threats) can be a useful tool to better understand the possible opportunities for a municipality.

In the S.W.O.T. analysis, a municipality will identify its strengths first. This may include everything from location and tax rates to cost of land. Weaknesses may include a location that is too far from highly populated areas to attract industries. Opportunities can be one of the more difficult aspects of the S.W.O.T. analysis. It often requires brainstorming by those who know and understand not only the municipality but have an understanding of the local economies and sometimes the international scene. Only after all the opportunities are identified can a plan be developed that will identify those opportunities that will have the greatest chance of success.

Finally, threats to economic development for the municipality must be identified. These can include the traditional threat of nearby municipalities attracting businesses away from the municipality, to the migration of the population out of the municipality due to lack of work. During this process, it is important again to understand not only your municipality but what is going on in other municipalities, the economy, and how things like demographics may pose a threat to the municipality.

After the S.W.O.T. analysis is completed, the next step should be to develop a strategic plan for the municipality.

Balanced Scorecard

One approach supported by many corporations and not-for-profits, is the Balanced Scorecard developed by two Harvard professors, Robert Kaplin and David Norton. The framework is simple and quite effective. For the purpose of a municipality the following framework for the Balanced Scorecard could serve as a template:

  Action Plan
 Categories Goals Action Measurement Responsible
 Residents        
 Municipality        
 Internal Process        
Learning & Growth        

 

In the above scorecard the first plan of action is to determine the goals of the residents of the municipality. The municipality must explore what the residents want and need. There will be a number of obvious goals such as lower taxes, better services, and more services. When doing this exercise, it is necessary to develop specific goals, such as a zero percent increase in taxes for the 2012 year or one police officer per one thousand people per capita. It is important to be specific and to understand the needs and wants of the residents of the municipality.

Action requires the municipality to create actions to meet the goals of the residents. Again, the action must be specific. General actions will not work as they are often vague and difficult to understand.

One of the actions that may be considered by a municipality to ensure revenue is to impose a sales tax on residents who are selling homes or businesses. Often the sale of a home or business requires information to be provided by the municipality thereby using the resources of the municipality. The municipality would set the tax and be able to project the amount of income that could be produced.

Measurement is the creation of measurements that indicate the municipality is meeting its goals. The measurements must be specific in order to indicate whether or not goals are being met. The measurement in the previous example would be the revenue generated by the sales tax for the sale of homes and businesses in the municipality.

Finally there must be a champion for each action who will take responsibility for the success of meeting the goals. This person is often a senior person in the organization who can assemble a highly effective team to accomplish the goals.

The same exercise is done for each of the four categories until a full plan has been created.

As indicated in the chart above, I will make a few comments about the internal process and the learning and growth categories. The internal process requires the municipality to examine how its own internal processes will assist in reaching the goals that have been set. This requires a thorough review of all the processes including how information is received and processed, compensation plans, duties and tasks of employees, how work is distributed, and the overall efficiency of the municipality. This is one of the most important and often difficult aspects of the planning process.

Learning and growth has at its core ensuring employees continue to learn and be more efficient at what they do. It often requires the use of technology and how it is used in the organization to assist employees with their jobs. Ongoing training is important when improving productivity of employees. Often technology can be used to better coordinate services and reduce the duplication of data entry in an organization.

Once the plan has been created, important dates should be specified as to when significant accomplishments will be reached. It is often important to break down the actions into smaller steps to make it possible to meet goals in a shorter time frame. This is important to help the teams focus and to build morale.

It will be council's ultimate responsibility to monitor the progress in each of the four categories and to review the results. If results are not being achieved then the plan must be revisited to make the necessary adjustments. In some cases council may want someone from outside the organization to assist with the development of the plan and to supervise the overall progress. Someone with experience can often reduce the planning time and move the plan forward in a more efficient manner.

Conclusion

This paper has focused on a business strategy to assist in the economic development of municipalities. It is my belief that by using a business model approach municipalities can identify opportunities and then take advantage of those opportunities using a Balanced Scorecard methodology. As Bob Dylan said, "Times, They Are A-Changin", and I think municipalities will have to change in order to meet the demands of the new economy.

1Commission on the Reform of Ontario's Public Services, chaired by Don Drummond, 2012, p. 482.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Business Law