Your company’s cash flow was surprisingly strong last quarter. What do you do?
I can tell you from experience that most managers start spending more. A new computer system here, a few new hires there, maybe a larger bonus for the executives; more spending is the impulse reaction.
But some executives are more cautious. They keep a firm hand on the purse strings while they start asking questions: Why was cash flow above plan? Will it continue? And is that new computer system or those potential new hires part of the plan? Boring? Maybe. Good management? Absolutely.
And that brings me to this Editorial in the Washington Post: Surpluses and Luck. It is really the tale of two Governors; Gov. Robert L. Ehrlich of Maryland who is taking credit for his state’s good fortune and is moving to cut taxes, and Gov. Mark R. Warner of Virginia, who is setting some of the extra revenues aside.
Perhaps Gov. Ehrlich could learn a lesson from California Gov. Gray Davis’ poor decisions during the stock market boom. As can be imagined, California’s revenues soared at the end of the ’90s and Davis responded by cutting taxes and boosting spending. Then came the bust followed by the broom.
The Post’s conclusion draws from a similar experience:
Just a few years ago, at the peak of the high-tech bubble, Maryland enjoyed a $1 billion surplus; when the bubble burst, the surplus rapidly dissolved. As with the tech bubble, no one should expect the current housing boom, which is already showing age, to last forever. When it ends, so will the current jubilation in state capitals and boasts by governors touting their fiscal “talent.”
I don’t know much about Virginia’s Governor Mark Warner, but I like him already!
Best Regards, CR Calculated Risk