Key Takeaways:
- State and local governments are operating in an environment of economic uncertainty, changing demographics, and rising public demands.
- Finance and administrative leaders face mounting pressure to modernize operations while managing costs and talent shortages.
- Addressing fiscal sustainability, technology modernization, workforce gaps, and cybersecurity risks is critical to long-term success.
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Across the country, state and local governments face a growing list of public policy challenges — from housing affordability to infrastructure, healthcare, and climate resilience. But while these external issues capture public attention, it’s the operational challenges behind the scenes that often determine how effectively you can respond.
If you serve as a finance director, controller, or chief administrator, you know the reality: the demands on your government are expanding, but the resources to meet them are not. Federal uncertainty and fluctuating funding cycles only add to the complexity. To keep pace, your organization must strengthen its internal systems — fiscal management, technology, staffing, and cybersecurity — that power daily operations.
Below are five key areas where governments are feeling the most operational pressure today, and where targeted action can make the greatest difference.
1. Maintaining Financial Stability
While the term “fiscal cliff” may be fading from headlines, the pressures remain. Many local governments are experiencing slower revenue growth as pandemic-era federal funding winds down. This funding gap is creating difficult budget decisions — from deferring infrastructure projects to limiting new hires.
At the same time, costs for employee benefits, technology, and public safety continue to rise. For many, this creates a structural imbalance: expenses growing faster than revenues. Managing through this requires a proactive approach.
Effective fiscal risk management begins with scenario planning. Rather than relying on a single forecast, develop best-case, base-case, and worst-case scenarios for your budget. This approach helps you identify which projects could be delayed without compromising essential services.
Conducting a revenue risk assessment can help identify your most volatile revenue streams and guide diversification strategies. Begin by categorizing your revenue and determining what percentage comes from each source. High dependency on a single source like federal funding or property taxes creates vulnerability.
Beyond managing budgets and revenues, ensure compliance with regulatory requirements. Noncompliance can result in funding clawbacks and penalties that compound fiscal pressures.
Updating your long-term financial forecasts to reflect new economic realities also improves transparency with stakeholders. These steps strengthen decision-making and demonstrate fiscal responsibility to residents, employees, and oversight bodies.
Ask yourself: Do your financial models reflect today’s true cost environment, or are they based on pre-pandemic assumptions?
2. Navigating Federal Uncertainty and Policy Shifts
Federal uncertainty has become a significant operational risk facing many state and local governments. Changes in federal policy, guidance, and appropriations can now happen with little warning, affecting everything from grant funding to regulatory compliance requirements. When federal guidance changes or new compliance requirements emerge, governments must quickly adapt their processes, documentation practices, and reporting systems.
To build resilience in this environment, focus on proactive strategies. Maintain detailed documentation of all federal grant activities and expenditures to support audit readiness regardless of changing requirements. Establish a systematic process for monitoring federal policy developments and regulatory updates that could affect your operations. Develop contingency plans that outline how your government would respond if specific federal funding sources were reduced or eliminated.
Diversifying revenue sources becomes even more critical when federal funding reliability is in question. While federal grants and programs will continue to play an important role, reducing over-dependence on any single federal funding stream provides greater operational stability.
Ask yourself: How dependent is your budget on federal appropriations, and what would happen to critical services if that funding were delayed or reduced?
3. Modernizing Technology and Digital Systems
The digital transformation conversation is no longer about if governments should modernize — it’s about how fast they can adapt. Yet, many local agencies still rely on outdated enterprise resource planning (ERP) systems, manual processes, or paper-based workflows. These inefficiencies slow service delivery and increase the risk of data errors.
The 2025 State of the Cities Report found that most local leaders now rank “infrastructure modernization” — including IT and data systems — among their top investment priorities. But modernization is not just about buying new software. It’s about redesigning processes to support automation, improve transparency, and reduce administrative burdens.
Implementing an integrated ERP or financial management system can provide real-time insights, streamline reporting, and enhance audit readiness. Over time, these systems also make your organization more resilient — reducing dependency on legacy technology and improving operational continuity.
Artificial intelligence (AI) may still be emerging in the public sector, but pilot programs for automated document processing, budget forecasting, and citizen engagement are showing promising results. Even modest technology investments can yield significant returns in efficiency and accountability.
Ask yourself: Are you investing in technology that serves both today’s needs and the organization’s future? Or are you still maintaining technology and processes that hold your team back?
4. Managing Talent and Workforce Transitions
Public sector talent challenges are reaching a critical point. Recruitment, retention, and succession planning are top concerns for local leaders across the country. Many governments are still grappling with vacancies left by pandemic-era departures, while a generation of long-serving employees are approaching retirement (sometimes referred to as the “silver tsunami”).
Competitive compensation remains a challenge, but culture and flexibility matter just as much. Creating a work environment where employees want to stay often comes down to clear career pathways, training, and recognition. Investing in leadership development can also help prepare internal talent for future management roles.
From an operational perspective, workforce challenges can also affect service delivery and institutional knowledge. Fewer employees mean heavier workloads — which can lead to burnout and errors in critical functions like payroll, procurement, and reporting.
Ask yourself: Do you have a workforce plan that anticipates upcoming retirements and skill gaps, or are you reacting as vacancies arise?
5. Strengthening Cybersecurity and Data Protection
As governments adopt more cloud-based systems and digital tools, cybersecurity risks continue to expand. Ransomware and phishing attacks remain common, but resource constraints often leave public agencies vulnerable. Many rely on outdated infrastructure, limited security staff, or manual monitoring systems — all while being asked to project more security with less.
Your exposure also extends far beyond your internal network. Connected assets, from police department devices to transit systems to utility networks with smart meters, can serve as entry points for malicious actors. And because many agencies now depend on third-party vendors for technology and data management, supply chain vulnerabilities are an increasing concern — becoming the most common attack vector.
Building a modern cybersecurity framework starts with the basics: regular risk and vulnerability assessments and addressing the high-risk outcomes; enhanced and recurring employee training; and role-based access control. But equally important is aligning your cybersecurity strategy with your broader operational goals. Modernization without adequate security is not progress — it’s a new form of risk.
Ask yourself: How comfortable are you that your program can adequately handle and recover from an incident? When is the last time you put it to the test?
Prioritizing What Comes Next
No city or county can tackle every challenge at once. The key is prioritization — focusing on the areas that pose the greatest risk to your ability to serve your community. Whether it’s stabilizing your budget, upgrading your ERP, or developing your next generation of leaders, start with what’s most essential to your mission.
Operational resilience is not built overnight. But with clear priorities, informed planning, and access to the right tools and advisory support, you can build the foundation needed to thrive in today’s complex environment.
How MGO Can Help
Our experienced State and Local Government consulting professionals can help you strengthen financial management, modernize technology, and safeguard critical data. We also support workforce and organizational assessments, internal audits, and risk reviews designed to enhance performance and accountability.
Reach out to our team today to explore how we can help your organization navigate its most pressing operational challenges.