Cutbacks in a Crisis: Seven Ways to Do It Right

The economic fallout from Covid-19 means that states and localities must cover the soaring costs of responding to the pandemic, while dealing with plummeting tax revenues. Some jurisdictions across the country have already cut spending and most will need to soon. However, the most insightful and creative public leaders will recognize that the crisis not only requires tough budget decisions but also provides the opportunity to build a healthier and stronger society, along with a more effective government.

One way to achieve that is through what we call strategic cutback management, which aims to minimize hardship for residents, protect the vulnerable and maintain people’s faith in their government in the near-term. Longer-term, this strategy can maximize the chances for economic and civic well-being when the coronavirus pandemic subsides.

Strategic cutback management requires public executives take the following steps:

1. Rapidly update your organizational strategy. Almost all existing strategies were created pre-pandemic and need to be revised with this new reality in mind. This strategy should be something that both staff and stakeholders recognize as essential to their collective and personal futures, as well as realistic to slimmed-down budgets. Without an updated strategy and its accompanying sense of renewed purpose, leaders are much more likely to be strictly reactive in making cuts, rather than engaged in shaping a better, stronger and more coherent future.

2. Accurately inventory existing programs. Getting a clear account of what programs exist and what they were created to accomplish can help inform quick, cost-saving decisions about program consolidation or termination. That was the experience of a state budget office that one of our organizations, Grant Thornton, worked with last year. By developing a program inventory to identify areas of duplication, the office was able to rapidly develop more than 30 proposals for consolidation, with potential savings of over $40 million.

3. Use performance measures. Most organizations already measure what they’re accomplishing, but in a cutback environment the insights that data provide are essential for making intelligent decisions. For example, data on the performance of different departments, agencies and teams can help determine which are seeing performance deteriorate during a time of retrenchment and which need additional help to succeed.

4. Use evidence to guide budget and management decisions.  Credible program evaluations and other forms of reliable evidence can identify programs that have the highest return on investment and those that don’t. This information can inform which programs should end, be cut or receive new investments. Looking at the evidence can also help improve programs with new models or approaches backed by stronger evidence of effectiveness.

5. Implement operational improvements. Refining the way priority services are delivered can boost efficiency and strengthen outcomes and customer service, often quickly and cheaply. To do that, governments can use “lean” practices, which were designed to eliminate waste and improve efficiency. They can also use rapid experimentation and insights from behavioral economics. For example, a state labor department could quickly test different website messages encouraging people to obtain assistance faster by filing for unemployment insurance benefits online. The messages could draw on different behavioral insights, such as the fact that people tend to value losses, like a delay in benefits, more than equivalent gains, like obtaining benefits faster.

6. Encourage and support innovation. A crisis is an opportunity to find ways to do things better. Successful leaders will articulate the need to come out of the crisis stronger, not just claw back to the former status quo. To do that, they need to develop ways to tap ideas for improvement from both the community and public employees’ ideas. Those ideas should include ways to cut waste and boost efficiency, but they could also focus on how to catalyze progress around a specific goal, like increasing economic mobility, expanding affordable housing or boosting health outcomes.

7. Develop a communications strategy. Leaders need to communicate the steps that government is taking to make wise spending and management decisions in a cutback environment. This will build public support for tough decisions and maintain trust in government. Similarly, leaders should create an internal communications strategy to maintain and strengthen employee morale by helping them see the importance of their work and how it fits into the larger vision.

If you're thinking that the elements of strategic cutback management seem to be the same as those of effective management during times of economic growth, you’re right. In both situations, leaders need to develop a clear strategy, track performance, use evidence and so on. The big difference in a time of belt-tightening is that these key leadership tasks are more complicated—and much more important.