Cost Accounting in Local Government

Keeping Budget Problems in Perspective

I’m writing this on March 18, 2011, or seven days after the magnitude 9.0 earthquake rocked Japan followed by a four meter tsunami that devastated the City of Sendai followed by a still unfolding nuclear disaster as the plume of radiation has finally made it to the West Coast.

While we are cutting our budgets and some are laying off staff, it certainly puts our problems in perspective to see what others are facing. On NPR the next morning, I heard Lalit Acharya, who is the Riverside, California, international relations manager, worry that he has been unable to contact the host that he stayed with when he last visited Sendai to celebrate the 50th anniversary of their sister city relationship. Although Riverside’s Mayor was able to reach the Sendai City Hall, he reported that it was part hospital, part homeless shelter and part general store.

This earthquake, coming less than a month after the Christchurch earthquake in New Zealand, makes abundantly clear the danger that we face in California. What brought the danger home to Los Angeles was the article yesterday in the Los Angeles Times that warned there were many thousands of local buildings constructed similar to the Canterbury Television Building in Christchurch, which collapsed and may have killed 100 people. The Times quoted a Caltech expert as saying, “When they fail, the failures are just unsurvivable. You just end up with a pile of floor slabs, one on top of another.”

All of these natural disasters, plus our own fiscal disasters, point up the need for proactive risk assessment. We are all very good after the fact in taking action but very poor beforehand in identifying the risk and taking actions that might lessen the disaster. Unfortunately, modern humans don’t need to be Cassandra and incur the wrath of Apollo to foretell the future but have no one believe it, it’s just human nature to disbelieve what we don’t want to believe.

However, if we could accept that there is a probability of an event and multiply the probability by the potential cost of the event, we could rank the costs of unlikely events without considering whether we believe they will happen. The costing process that we encourage for local governments is the embryonic form of this costing – the framework exists, it just needs to be implemented.

Meanwhile, we should enjoy each day to its fullest and see to our own personal disaster planning.

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