Fiscal resilience: Tools to manage state budgets in an age of uncertainty
- Jonathan Davis, Navjot Singh, and Todd Wintner
- Aug 2019
- McKinsey & Co
- International
An emerging theme across US states—and many regional governments in developed economies—is persistent fiscal uncertainty. Demographic change,
spiraling healthcare inflation, and underfunded liabilities have placed states under unyielding fiscal pressures. A more complex and dynamic economy
only serves to exacerbate these challenges. Global trade patterns, increased labor and capital mobility, and new technologies are making it harder for states
to plan for the long term. In this article, the authors explore a range of tools states can use to assess their readiness for—and then prepare for—fiscal uncertainty. These include opportunities to elicit more value from each dollar spent, optimize revenues, and control for volatility (Exhibit 1). Across these goals, the focus is on three tools in particular: activity-based budgeting to
increase transparency, digitalized services and processes, and advanced analytics to inform better decisions. Together, these tools offer the chance
to significantly boost employee productivity, offsetting the impact of job cuts made over recent years. No doubt, implementation is a complex task
given the number and diversity of stakeholders involved. However, the alternative risks more disruptive interventions when fiscal imbalances worsen.
