The Role of a CFO and ESG in the Public Sector

Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately, get results with your host Megan Weis. Let's jump right in.

Megan: Today, my guest is Hughey Newsome. Hughey is the chief financial officer for Wayne County, Michigan, which includes Detroit. There he oversees a $1.7 billion annual budget. Before that, Newsome served as the chief financial officer for the City of Flint, Michigan, helping to institute a recovery framework in the aftermath of the city's lead contamination water crisis. These assignments gave Hughey an appreciation for the importance of establishing ways to measure risks from climate change and social injustices, as well as the importance of assessing how organizational activities impact climate change and social injustice.

Because of this, he is working to help define how environmental, social, and governance, ESG data and reporting will materialize and how the finance department will support this effort. His work on the impact of climate change and on ESG has appeared in Route Fifty, Governing, and Forbes. Hughey also volunteers for causes which he believes include nature conservation, environmental leadership, and establishing best practices and public sector finance. Hughey is the CFO of one of the largest counties in the US and is passionate about ESG. Hughey, thanks for joining me on today's episode.

Hughey: Thank you for having me. I'm very excited about this talk about this podcast. Thank you so much.

Megan: Of course, today, we're going to be discussing your career, the benefits and challenges associated with working for a governmental entity, and the importance of emerging ESG initiatives in this space. I'm excited to learn from you, and truthfully, you're our first governmental CFO. I think I have a lot to learn from you. Let's get started.

Hughey: Oh, my gosh, the pressure's on.

[laughter]

Megan: First, and this is an easy one, let's start with you and your story as to how you got to where you are today.

Hughey: Great. I'm going to keep this short because I'm very passionate about the story but I'll give you the bullet points. I started off as an engineer, just trying to figure out exactly what I wanted to do with my life. I went to business school and got an MBA. I spent a lot of time consulting. As I learned, the good thing about consulting, management consulting is it gives you an opportunity to see a lot of different industries.

I spent time in automotive, I spent time in the mortgage, I spent time in manufacturing, but the one thing that I had an itch for and kept growing and kept growing, particularly when I was living in DC, there's this whole idea of public service and giving back to society. You can give back to society working in the private sector but there's a different challenge and a different calling, if you will, at a different level in the public sector versus the private sector.

While all this was going on, it culminated at the same time when the Flint water crisis hit. My beautiful wife got an opportunity to come back to Michigan. We have gotten married in Michigan, went to DC, and had an opportunity to come back to Michigan to work for a foundation. It was a dream job for us at the time and I'm sitting there trying to figure out how am I going to be the husband and be the daddy and move back with the family. What am I going to do with Michigan?

I got a phone call, "Do you want to be Flint's CFO?" I jumped at the opportunity. I jumped at the opportunity because, not only was able to go and provide all this finance, process, risk, and controls, management training, all this technical training that I had gotten through all my years of serving most of the private sector clients but also got a chance to go to what could be considered the epicenter of one of the biggest social challenges at the time, Flint in 2017, the water crisis was happening 2015-2016. At that time, there was the still majority of lead lines. They had not been replaced with copper as part of the initiative to replace those lead lines during the water crisis.

I jumped at it. I learned a lot. I'm a lot less naive now than it was back then but I look back on the last five years and I'm very proud of excited about the workout done for three of the more, I'd say more as impoverished and challenged in terms of socio-economic factors and communities that have been disadvantaged in Flint, Metro Detroit, Pontiac, and finally, Wayne County, which is the county where Detroit is.

Megan: That's where you are today. You're the CFO for Wayne County, Michigan.

Hughey: That is correct. Just for those listeners that don't know, Wayne County is where Detroit is obviously the biggest city in Wayne County but we have county operations, which include some oversight over the city of Detroit but the rest of Wayne County too, which includes Dearborn, which has the highest per capita population of Arab Americans in the United States.

Megan: Tell us about what it's like to work as the CFO for Wayne County, Michigan, and what your main responsibilities are.

Hughey: I'm responsible for the typical public sector CFO issues. I'm responsible for making sure that we have a clean ledger and that we have accounted for it. I'm monitoring the county's finances. I'm responsible for budget, and for those that don't know, public sector budgeting is a big deal. Government budget, you can't spend less unless somebody approves it. Somebody has to approve it, somebody has to budget for it, and then somebody has to approve the contract for it. Budget is a very big deal because it determines where-- The speedometer if you will, or the big dashboard of where the initiatives are put your money where your mouth is.

The legislative and the executive all have to agree that this is what we're going to fund for the next year. Budget is a very big deal and there's a lot of horse trading that happens and a lot of power brokering that happens in order to get a budget done because you can't spend more than what's in your budget.

The budget is a big deal. We're also responsible for payroll, which additional finance functions, your payroll grants oversight from a financial reporting perspective. Making sure county benefits are administered properly so our employees have the proper benefits and benefits administration. Also, a big part of what we do is risk management, which includes insurance, and not just insurance brokerage, but also understanding the risks that are inherent in county operations.

One of the big things that we're dealing with right now is the fact we have bridges that are in poor repair. This is an infrastructure challenge throughout the United States. Big deal for us because we have to figure out how we're going to make sure we've addressed the right risks, we have the right mitigating actions, and mitigating action plans if something very bad goes wrong with any of our construction, including our bridges, a big part of the conversation I had earlier today. Those are the big things.

I think one thing that's unique to the government, particularly at the county level, is the fact that we also own assessments and equalization. That's the process of assessing the taxable value.

For some of your listeners that don't know, taxable value, your property or your home, your businesses, you have an assessment of what that value is and that's where property taxes come into play but as you can imagine, he has a very important function for a government that relies on property taxes because that's where your revenue growth is. It's a highly controlled, highly specialized process to assess those values and that sits also within the finance function under me.

Megan: Two questions for you. First of all, how do you deal with expenditures that pop up throughout the year that weren't initially budgeted for?

Hughey: Oh, that never happens.

[laughter]

Hughey: I'm glad you said that because I failed to mention procurement, which also is a lightning rod in government because the person that's responsible for procurement has to make sure that what the county spends and what the government entity spends is done in such a way that meets very, very highly regulated ordinances at the local level, at the state level, at the federal level. I'm glad you mentioned that, and to that point, that happens all the time, what we do, to the best of our abilities, again, there's a two-step process when you spend money, you got to have the budget for it in the right account.

Then on top of that, you have to have the approval from a procurement standpoint if it's a big contract, the right series of approvals have to take place that could include the legislative body. For us, that's our commission. With that being said, unexpected spending happens quite a bit because things go bump in the night all the time. What we have to do is we have to, let's check our budget. Do we have enough in our cushion? Is the big issue? Have we underspent somewhere to eat so that we can overspend here?

Hopefully, the answer is yes. Else, we haven't had a real issue of having to break the piggy bank at the county. Sometimes you're in a situation where you're running a tight budget and you have to break that piggy bank. What I mean by that is you have to either draw into your contingency or worst-case scenario, you have to draw into what's called your fund balance, which is your historic surpluses, not necessarily this year's budgetary surplus that you running.

Those are the steps from a budgetary standpoint that we would go through. Do we have some money that we're underspending somewhere, maybe a project is when we start a project late or something like that? Then, obviously, from a contractual standpoint, service is really needed, we have to go through and then have extra scrutiny from our legislative body because the first question is, if this was an unexpected expenditure, then I want to make we want to make sure that you have figured out how you're going to pay for it without going over budget.

Megan: The next question is, how do you deal with politics? Because I mean, in corporations, there's politics, but you are literally dealing with politics. How do you make sure, at the end of the day, that the budget is fair?

Hughey: How do you make sure the budget is fair? I will say this. After five years of performing this function, I still learn a lot of lessons. It's not fun to learn lessons in the middle of a budget hearing or when the cameras are rolling at a public commission meeting. I'm still learning lessons. I will put it this way, it's trial and error. You definitely want to make sure that you have some good relationships across multiple functional areas.

Just a little bit more nuanced for listeners. I work at a county in the state of Michigan, which means that the state constitution and the local charter specifically say that the county treasurer will be elected, the county register of deeds will be elected, and the county clerk will be elected. Whereas in a lot of your local government structures, a lot of those positions are appointed by either the legislative body or the executive with the mayor or whatever.

That makes it a lot more difficult because you have a lot of offices that are led by people that are elected by the general public. This means there has to be a lot more let's just say, making sure that the general public is abreast of certain situations, all politics. That's the way that works. It makes it more of a challenge.

Now, with that being said, one of the things I've found that is very effective, it's not foolproof but it's very effective, is being able to have discussions with people behind the scenes, making sure that you respect the fact that there has to be a certain amount of public relations that go on. Public officials have to make sure that when the cameras are rolling while the news or the media is present, they have to be having a certain level of protection.

There are certain things where you just have to respect that. Maybe publicly you acknowledge something or you have taken a beating or meeting or two publicly in order to help someone else save face. You just have to make a judgment call. You have to make a judgment call but at the end of the day, I think the most important thing for me as a public official has been okay, fine.

These are the lines that no matter what will not be crossed. We're not breaking any laws here. There are some things that we're going to do that are optically going to be something we might have to explain. Ethically, the way I always thought about was optics, ethics, and legal. Optics, maybe there's some wiggle room there, the way people interpret certain things.

Ethics won't cross ethical boundaries. Then from there, after that, I'm not going to jail for anybody.

[chuckling]

Hughey: I'm not going to jail for anybody and they're not paying me enough to protect somebody from going to jail. I've never been in a situation where I've been asked to break the law, fortunately. Again, never crossed those bottom two lines, at least from my interpretation. I've made some mistakes. I've made some mistakes when the cameras are rolling. You live and learn, but you want to find people that you trust, if such a thing exists in government, notify people that you trust, and then you go off you go from there.

Megan: From what you just said, I'm sure there are lots of parallels to the corporate world too like building relationships, extremely important. Taking a beating so someone else can save face. I'm sure that happens every day too. Just having your own moral compass and doing what's right at the end of the day.

Hughey: Exactly. I think if you're morally positioned when you get into government to do the right thing. Your DNA is going to help you quite a bit to know this isn't right, I'm not going to do it. That helps a lot.

Megan: I'm sure most people start there. I think, maybe somewhere along the way, you get beat up enough that someone goes away.

Hughey: [chuckles] I've taken a lot of beatings for other people a lot. But you're right, you're exactly right. It's really a question of understanding the more experience you have, the better off you are. You got to start somewhere. [chuckles] The last thing I want your listeners to say as well is, "While I'm inexperienced, I'm going to stay out of government. I don't want to have to deal with what Newsome dealt with," or whatever.

Megan: [chuckles] I don't think it's unique to the government though, is what I'm trying to say. I think.

Hughey: That's exactly right. It's definitely not unique to the government by any stretch. Just a different level of scrutiny-

Megan: Definitely.

Hughey: -when it's pumping dollars.

Megan: That's really interesting. You've been there now for five years? What are your proudest achievements?

Hughey: Let me correct you or clarify myself better yet. I've been in public sector finance for five years. I went to the city of Miss and I'm saying that because we're getting close to the five-year anniversary of my first month at Flint, which would have been September 2017. We're almost at the five-year mark. I think every single stop, particularly Flint because I was only in finance interim basis for half a year, but in Flint, the thing I'm most proud of, it was my first three months there. You know the history of the water crisis. You know the ill-advised attempt to move them to a temporary water source, which was the Flint River.

The accident, a cocktail-- I shouldn't use that word but it's the word that's coming to mind, the cocktail that was supposed to use, who was supposed to use for anti-corrosion on the lead pipes wasn't set up for the Flint River, lead leached into from the pipes into the water. The rest is tragic history. What ended up having to happen was Flint ended up moving back to the regional water authority, which had been developed to take-- First it was Detroit's water system that Flint was on.

They tried to have their own water authority. They use a temporary water source. That was that led to the problem and they ended up having come back to the newly created water authority that was really headquartered in Detroit. Detroit's water system was recreated into a water authority. Oversimplifying but that's a story. First three or four months there, we had to do a bond refund as part of the deal that the State of Michigan worked out with the county, with the city, and with the water authority. We have to refund a number of bonds that were set up to fund the regional water authority that the city of Flint has gotten into.

Even though the city of Flint was not going to use the Genesee County Water Authority, that Flint-based water authority for their primary source. They were going to use it as a secondary source. Long story short, not to bore your listeners to tears, those bonds had to be refunded. On top of that, we had to go to the public and explain to them why it was important for them to lock into a 30-year deal with the Detroit-based water authority, Great Lakes Water Authority is the name of it. Even though that was the original press for them getting off of Detroit water is too expensive a lesson. Selling, if you will, of the promotion of this long-term deal on top of the refunding of bonds.

I didn't get trained for this. I go into a situation like that right off the bat. My appointment was finalized in November and we got that water deal signed I think at the beginning of December and the refunding of the bonds happened the following early spring and late winter. To have all that happen within three months, I'd say, of my actual official appointment, and then April was when the city had its full governing powers restored. For those that don't know, Flint was put under receivership which is with emergency managers.

Because they were put under receivership, their emergency managers, and by default, if you will, the governor, the state was the one that made the final determination to move Flint to the Flint River. To get the city back after all that happened, and all the cameras that left, to get Flint back to be the CFO when Flint was moved back to the full local authority as were original local authority, their problem because, again, when you look in the history books, you look at Flint, you look at the water crisis but the end of the story is the restoration of power to the local citizens.

I was the CFO during that time and in order for that to happen, you needed to have stability in the finances, and I was the CFO that oversaw that. very proud, very cool. Fast forward to Wayne County and we just have it posted on LinkedIn yet you're going to see it soon, Megan, but we just got through with yet another two-notch upgrade. While all this was going on, Wayne County had been on the brink of receivership, and the process to completely reverse being on the brink of receivership to the point that we're at A1 was Moody’s now.

Megan: Wow.

Hughey: We're hoping, knock on wood, [knocks] I literally knock on wood, by the way.

Megan: [laughs] I did hear that.

Hughey: [laughs] We planned, we hope that we will get another upgrade as well from Fitch. We've gone from basically speculative, what used to be junk bond, all the way to the very top-of-the-middle investment all the way to the point where just south of prime as definitely as it relates to Moody's if not also Fitch. I think that's very cool, right?

Megan: Absolutely, that’s huge.

Hughey: If you think about one of the big social issues that we've seen at least in the state of Michigan, this whole idea of local control and local governance and that idea of states taking over local government, for example, it happens a lot in Michigan, I know in certain states this happens as well. Of course, we all know about Flint and several other situations throughout the State of Michigan where the state has had to come over and take over from local governing bodies. It's a big question of this whole idea of local government and control and having people from a state as elected from a state’s political and social issues that are embedded in that.

To be a part of two communities really is three but definitely two communities, one to make sure that we completely reversed been at the tail end of the complete reversal of that situation to the point that we're about to compete with the state in terms of credit per year if we keep it up. Then on top of that to be the CFO when Flint was returned to local control, I think that's not something that you started.

Megan: Congratulations, those are two huge accomplishments.

Hughey: Thank you, thank you.

Megan: Having come from the corporate world, and now in the public sector, how did you prepare yourself for that transition? It sounds like a lot of it was trial by fire.

Hughey: It was a trial by fire. Do you want to hear a funny joke?

Megan: Sure.

Hughey: Do you know what I did? I got the call, we're going through the whole interviewing process and talking to people at the state and trying to get their grievances together and set a date so I did what a normal person would do. I go border some government finance and accounting books and I go read through them page by page, this is fun balance, this is this accounting standard, this is Public Act 2 and the whole idea of governmental funds and all that cool stuff, the technical stuff and you’re supposed to know. Funny.

When I get to the office, of course, it's not that that went out the window. I still needed it but the real problem is that I needed to understand what's in an accounting book, and how to account for a capital lease. What I really needed to understand was who the players were, who those stakeholders were, and how the pieces on the chessboard played.

This is a very political environment and because you're working in a political environment, is a cliche for a reason. Is not what you know is who you know and really understanding who you call quietly, who you call to get contextual information, and who you call because you need some help like political help. Just understanding the pieces on that chessboard is so important.

The technical part is it is super important too. You want to be able to scrutinize everything that comes across your desk, you're going to sign the annual financial statements so it'd be nice to be able to read them. I think that at the end of the day it is so important to understand who the players are, and really start to figure out alliances pretty early. They're good guys and they're bad guys you want to figure that out and discern as quickly as possible.

Megan: Let's switch gears for a minute and let's talk about ESG. This is literally something I've only heard of in the last two years, even though it's been around for a while. First of all, what is ESG, and secondly, why is it important to a CFO?

Hughey: First ESG let's talk about what ESG stands for. Environmental Social Governance. Is the collection of metrics upon which an organization is measured and then those measurements are disclosed. In a simple nutshell that's what it is. How's it used? It's used for a lot of different reasons. Is used in the corporate world to make sure that organizations that say that they're environmentally responsible, socially responsible, and good governance models they're rated on these metrics and those metrics are as much as possible standardized. Then those reports are then used and cascaded out to the general public.

One of the original reasons for it is because you have a lot of organizations that says, "We're green, we’re socially responsible. We have good governance," et cetera, et cetera. We need ways to standardize to measure that, and ESG even though has been around for a little bit is still in its infancy, in my humble opinion, in terms of standardization of what's being measured where. ESG entails a couple of different things. One of the things when you talk about the E and what’s measured on the E is a couple of things. There's risk management. Let's talk corporate for a second.

Risk management in terms of everybody's going to be moving from carbon to green soon, renewable at some point, we're going to move to a fossil-free environment, what is the transition risk for this particular organization? They're variant, they’re heavily dependent on fossil fuels that’s why I think there’s a transmission risk there. Now to something else, how much that stuff, how much greenhouse or carbon-based gases are emitted as part of their operations? That’s if you do really well then you get a good rating. if you do very poorly, it's bad. and this whole idea.

I will say, on the E side, we're more mature in terms of standardization of what we measure. We know how to measure emissions coming out of the smokestack. You'll hear people talk about scope one, scope two, and scope three, I don't want to get too technical but that's even bifurcating things, complicating things even further, where scope one is focused on how much your organization spew out into the world, scope two is based on what are you using for power generation? Are using carbon-based fossil fuel plants, or are you using wind energy to energize or provide power for your operations?

Scope three is a little bit more nebulous where that's the review of okay, how much emissions are embedded in your inbound and outbound supply chains? It's a little bit more difficult to measure that because then you're depending on somebody else to help you understand that. My point is the E is pretty mature, relatively mature compared to the S. What's the S look like? The S is a little bit more nebulous. What do we measure? A lot of people might know Elon Musk got and got delisted from the Dow Jones index. Tesla got-- I shouldn't say Elon. I should say Tesla got delisted because they had such poor S ratings.

What's that mean? Labor's right to organize certain in California had gotten bad press because of discrimination accusations. Some of that was found, some of that. That played a big role in him even though, Tesla, a green company. We're moving from the internal combustion engine to an electric vehicle. Tesla's very good in E in theory, but on the S side, they were struggling. That led him delisted.

Then finally, the G, which is how good of a governance model does the organization have? I'm using the corporate sector because it's a little easier to explain in corporate, then I move my way to the public sector in a minute. Do we have a lot of internal control issues? Cyber security is a big piece of the G. The G is, we have management turnover. We've got people that continuously go to jail because they're cooking the books.

Those sorts of things are what the G is supposed to measure. How well our people ethically manage the organization, so that you can rely on this coming out from a financial standpoint, from an operational reporting standpoint, and trusting. That's what ESG in a nutshell is. Trust me, I can spend hours and hours. You know I have the talking about it.

One of the things I'm excited about is this whole concept of bringing ESG to the public sector and how it translate. Right now, the rating agencies are starting to rate counties, cities, local authorities, and authorities on their ESG scores. It's a combination of two things. What's going on in the geographic boundaries of that government organization, and then what's going on with the operations? I will tell you this because I can because it's public information, and I'll give it to you in a nutshell.

The county has recently gotten these ESG scores. The problem is, how do you measure emissions county-wide? One of the things we got the bad scores for us because of our historic dependence on the automotive industry. Yes, manufacturing's been heavy in Wayne County, even though I think were less reliant on it than we were say 10, 15, 20 years ago, but because of our historic reliance on the automotive industry and heavy manufacturing, that hurt us in the E standpoint.

What helped us in the E, and this is one of my concerns with it, is that even though theory it's subjective. We got poor scores because of our historic dependence on manufacturing. We got good scores because our environmental-related risk is light. We're not prone to wildfires like you see in the west. We're not prone to hurricanes like Florida or the Gulf Coast. We're not prone to tornados like you see in say Tornado Alley like Oklahoma.

A lot of people will tell you that climate refugees will be coming to Michigan. It gets cold. You might get a tornado, but you're not seeing the level of climate-related catastrophic weather occurrences that you see in, say, Florida or California or wherever. Here's my problem with that, because you combine the two into one rating or one rating category, you Florida who might-- A county in Florida who might be expediting the process to electrify their fleet and encourage local businesses to move to renewables or what have you, but they get because they're in hurricane alley.

I might be slower to do that. Not saying we are. I might be slower to do that, but I'm getting a better score simply because of my geographic location. When you see a hurricane hit Michigan, you know it's over. It's just not going to happen. Why should I get that? If I'm looking at it. If you think about it, who's driving the need for ESG in the public sector? Right now, unfortunately, the only people that are driving ESG scores in the public sector are your institution investors. That's why the rating agencies are doing it.

I've yet to see my boss and county executives go to the public and say, "Re-elect me and I'm going to make sure your ESG scores are higher." I don't remember him saying that because he's not held accountable for it because the concept isn't mature enough, particularly in the public sector. The other stakeholders are looking at it. It's just the fact that right now the bond investors, your institution investors are worried about it because they want to make sure they pop $1 million in securities that are issued by the county. They want to make sure they get the money back, and so there's carbon risk and then there's carbon mitigation.

You can argue that they might be indifferent. Now, strictly from a risk perspective. It's a bit in its infancy. I'll admit that because other stakeholders aren't-- to use the word advance, but I'm going to say advance in their demand for this type of information. I think a lot of local entities, particularly on the S side. Affordable housing is a big, big deal in southern California. It's less of a deal here because we have a smaller per capita home, this population I think. Big deal.

This whole idea of access to affordable housing is a bigger issue in LA. Obviously, if I'm running for mayor of LA, I'm going to talk about how I am going to increase the rate of affordable housing. That's what you're going to in terms of the S. Other places like say Detroit, it might be a health disparity issue. Not saying there's not a health disparity issue in LA, but access to equitable health. We saw that as a big, big problem in the city of Detroit because of the pandemic.

We had mortality rates that were higher than our infection rates relative to other places in the country. The reason for that was that we had comorbidity issues. We had poor health going in the COVID and that's something in the theory that needs to be measured. That's something that's going to be very specific to us. How does that work in terms of ESG?

The county executive needs to say, "Here's my ESG score. Pay attention to what I've done for health disparities." The Mayor of LA is going to say, "Here are my ESG scores. Pay close attention to X, to what I'm going to do with affordable housing." They're both going to go straight to those metrics because those are very specific to them in terms of what their constituents are looking for as they go to the ballot box. That's another challenge. Why standardize when I know what I care about and that need access to locally?

Megan: It's a way where people can be held accountable, for their ESG score. Did they do what they said they were going to do?

Hughey: Shameless plug. I don't even know if you know this or not, but I've started to write for Forbes on this whole idea of ESG. Right now, it's ESG in the public sector. My prayer is that the next, my second will article comes out on Monday. Our first article dealt with this very idea. What is the possibility for using ESG not just as a way to make sure that institutional investors understand the risk of getting their return on coupons? Let's also use it as a way to baseline and benchmark. We can benchmark on the E, we can benchmark on the S.

We probably need to benchmark on the G too to make sure that we have officials that are acting ethically and know what they're doing. Yes, I think that that-- How do you get there? Who drives that? My hope was that people will just notice me as you would get to a certain level of popularity. Just like the SCC is-- I'm not sure where the SCC's going to land in terms of-- I know that there's going to be climate requirements for publicly traded corporations.

The MSRB is out. They are the body that governs the municipal bond world. They're the ones res-- Just like the SCC responsible for securities in the private sector. MSRB is responsible for security issues in the public sector for municipal bonds. They are currently looking at rules as it relates to both designated bonds and these green bonds that are out there. Making sure that there are rules around putting that label in there, but also disclosures that related to ESG as well.

What I'm getting to is, who's going to be the first to say, "We need to do this." Right now, ESG has its own public perception issues both on the left and the right, and so who's going to be that champion to say, "This is a great idea?" I don't know who that's going to be. I was hoping that it would get so popular in the investment community that it will spill over, but I've yet to see that really happening en mass.

Megan: It'll be interesting to see where it goes, but it is relatively new. As I said, I've only heard of it in the last two years. I think it's got a long way to go but-

Hughey: It does.

Megan: -it's a very interesting concept. How have you been able to position yourself to be at the table as ESG standards and norms are being developed for local and state governments?

Hughey: Good question. A couple of things. The one thing about the public sector, right or wrong, we're indifferent. The best way to do this is through the political avenue, I think. It's probably the hardest to do but it is probably the most effective way. I've taken another approach where I'm working my way through professional organizations.

Again, another shameless plug. GFOA is probably the standard when it comes to government finance officers or the concept of government finance and accounting. I'm chair-- Not chair. God, no. I'm sorry. I'm on the board of directors for Michigan's GFOA and I'm on one of the advising committees to the executive board at the national GFOA level. One of the things that my committee looks at is called the Debt Advisory Committee. One of the things it looks at is putting out best practices, and advisories, and having this finger on the pulse of what's going on in the highly regulated municipal bond world.

We have a number of people that we work at different finance authorities, different local governing organizations throughout the country but one thing that we do, I think, a very good job of is making sure that we have access to-- I've had the chance to meet the past chair of MSRB, making sure we have access to the right people that are making these decisions but also positioning ourselves to be the one's to issue these best practices. Again, do your homework.

GFOA is probably the one predominant organization. I have a certification from AGA, which is the Association of Government Accountants. Both are based in Washington DC, by the way, or Metro DC. GFOA has issued certifications, CPFO, for instance. You can judge for yourselves, but I do believe that GFOA is the predominant professional organization when it comes to government finance.

We do a number of different things. We have the Debt Advisory Committee which I'm a part of. I'm a part of a cross-functional or cross-sectional, I should say, an organization called Disclosures Industry Workgroup or DIG. Disclosures Industry Group is a cross-sectional organization made of people from my organization, which is GFOA, SIFMA, NABL, National Association of Bond Lawyers. I'm blanking out on some of the-- Hopefully, [chuckles] I'm not blanking anybody but I'm blanking out on some of the other organizations that are a part of it.

If you think about the ecosystem and the very, very technologically advanced world of municipal bond issuances and structuring, the key players at that table, and DIG, and we work on best practices and disclosures, what's coming down the pipe in terms of Washington DC, in terms of Congress, and in terms of MSRB or Treasury and then making sure that we're keeping our constituents up to speed on best practices.

ESG is a component of it so it's a two-way street. Right now, the regulatory push isn't there. We're at the pulse of, as this is coming to fruition, as this is coming to maturity, these are the things you need to be thinking about. I can't think of any other organization that has issued any type of best practice or any type of advisory on ESG as it relates to the finance function in the public sector. I might be wrong but I can't think of one.

Megan: Last question on ESG, but what investments are you guys making in ESG? Are you making any specific investments associated with it or do other investments just impact it?

Hughey: As it relates to ESG, I'm going to go from, say, $10,000 to $30,000. Right now, we're mulling over how we're going to spend our portion of what we received through ARPA, American Rescue Plan Act.

Just for context, in a lot of communities, big cities, smaller cities, or medium-sized cities and counties, authorities received through some formula, some portion of money through what's called the state and local fiscal relief fund which was set up through ARPA, as well as other funding mechanisms. When that was passed in 2021, our share is managed by the US Treasury Department. Our share of that is $340 million, $339 million and change to be exact. One of the things that we are working to set up -- One of the things we're setting up is the idea of a sustainability office.

Our game plan isn't necessary to set up the measuring stick yet. It's more to set up a function. My belief is that we informally already look at the S-- We have to look at the S because, as I talked about early in the podcast, we have a heavy minority population in Detroit, largely African American population there. We have a heavy minority population in Dearborn with our Arab American population. We have a large, I would argue, underrepresented population, and so we have to adhere to those underrepresented communities. We are already doing some of the S anyway.

My hope is we can formalize that through a function within the county to take what we're doing from informal to formal, add more discipline to it, and then cover the-- Instead of measuring, let's actually do something worth measuring and then let's come back and let's measure what we're doing, and then report it.

One thing that we do want to do, and I think it will be a shame if I'm part of all these professional organizations yet we're not doing voluntary disclosures, we should be doing voluntary disclosures as it relates to the E, as it relates to the S, as it relates to the G. That's one of my personal goals, as well as one of my professional goals in the next three to six months. The key thing is I want to make sure we have things to report on and to measure that are externally visible and formalized, and then we can come to do our disclosures and then talk about how that impacts us from an ESG standpoint.

Megan: I guess, if you start doing all of these things involuntarily when it becomes mandated, it'll be very easy for you guys to make that transition.

Hughey: Yes, and don't tell anybody I said this. This is going to be our little secret. Of course, that's because we're recording a podcast, but I really do want it to become formal because I am kind of a fan I'm really a strong fan and advocate of the concepts of ESG.

Megan: I think so. Yes, definitely.

[laughter]

Hughey: The naysayers on the left-- I've just read an article in financialtimes.com that talks about how ESG has its problems. There's plenty of literature and articles, and opinions out there, particularly on the left or on the right, but most people on the left that are concerned about it will tell you that it conflates measures that we need to worry about versus measures that we really don't need to worry about and it hides issues when it comes to responsibility, whether it be corporate responsibility or just ethical proper governing in the public sector.

My point is we've got to start somewhere. Sit at the table. Let's get this thing fixed. Maybe we shouldn't be conflating the scores. Maybe we should make sure that every single issuance or every single disclosure as it relates to ESG, every single ESG report has three distinct scores. Maybe it's not distinct scores. Maybe it's 27 distinct scores, whatever it is, and you have a dashboard, whatever it is, but you've got to start somewhere. Sit at the table and let's fix this thing.

Megan: Hughey, last question, but what advice do you have for CFOs that are looking to make a meaningful and lasting impact on their organization?

Hughey: I'm going to ask you a follow-up question. Is that as it relates to what I'm passionate about or is it related to anything that they're passionate about? Because I'm very passionate about this whole concept of bringing ESG to the table so I can walk you through the journey that I've taken.

Megan: Yes, absolutely. I love that.

Hughey: I've always had a desire to save the planet. Obviously, I've got this itch in terms of my public and social service ideas and I've always had one of my passion, and that's a general issue. The passion is really around climate change and environmentalism. My wife is the senior director of environmental justice at the White House. She just got appointed in April.

Megan: Wow.

Hughey: We definitely argue that we're a green family and one thing I wanted to say is every single functional area, whether you work in marketing, whether you work in engineering, whether you work like me, finance and accounting, everybody is going to have to sit at the table and provide their professional gifts, if you will, to solving this problem. We need engineers to design better batteries. We need people in marketing to be able to discern between greenwashing and true ethical proper marketing of what a corporation or public sector entity is doing.

Everybody is going to have a role if they want to participate in this battle.

As soon as I got my feet wet in terms of being a CFO, I spent all this time in management consulting, trying to figure out what the heck I was going to do when I grew up. Then, I guess I'm going to be a public sector CFO because I'm good at it and I like it even though boy it's hard. About two years in, I started looking at, how this capability now fit into this bigger fight that I want to be a part of. ESG is where it manifests the statement.

Now, the hard part is how do you feed a family with this? Because this is kind of I'm building that credibility in this space. Maybe in a year, you're going to do a podcast. I'm like a co-chair of MSRB response to the ESG, that's a joke. Whatever it is, but at some level, I am dedicating the rest of my career at some level to this. Hopefully, there'll be a market where I'm making more than $15 a year, doing this sort of thing. I think that in all seriousness, I really do think that there's a need for passion and capability, and skills to be at a table.

It's just a question of when I'm going to say in air quotes, "the market." When is the market going to be ready to have this conversation? Does it have to be listed in the public sector? I don't know, maybe the finance functions role in corporate responsibility, going back to CSR and measuring how well and how effective an organization is as it relates to these E and S metrics is going to be very critical and that's really, really, really maturing on the corporate side, whereas on the public sector side is less. It's not really clear where we're going, but I know that vision of where I'm going is what pulled me into, "Understand your craft very well."

Once you understand your craft, start doing research in terms of what other people are doing, and how your craft is going to help save the world. Once you do that, then learn as much as you can then find volunteer ways that you're able to share your intellect and also share some of the things, your experiences with it, and, oh, by the way, actually use your current world as a playground to help formalize this if that makes sense.

Megan: Your passion is definitely clear.

[chuckling]

Hughey: The journey is not close to being done. I have a lot of work to do to figure out how I'm going to achieve the goals I want to achieve, but no, I'm very excited about the future.

Megan: It sounds like your vision is pretty clear, even if the journey is just starting.

Hughey: Oh, Megan, I wish you would understand how long it's taking me to get a clear vision.

[laughter]

Hughey: I think I'm very close now. [chuckles]

Megan: Hughey, thank you so much for being my guest today.

Hughey: Oh, thank you for having me. This was a lot of fun. I guess I shouldn't have been as nervous as I thought.

[laughter]

Megan: I really enjoyed speaking with you and hearing about all of your experiences and the resulting insights that have come from it and I wish you and Wayne County, Michigan all the best. I think Wayne County, Michigan is lucky to have you.

Hughey: Thank you very much. I appreciate that. I'll tell my boss you said that.

[laughter]

Megan: To all of our listeners, please tune in next week, and until then, take care.

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