Bill Roberti: Municipalities Are Getting Fiscal Houses in Order

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In the years following the financial downturn, states and local governments have become more fiscally disciplined, taking steps that will help them avoid becoming the next Jefferson County or Detroit, says public sector workout specialist Bill Roberti.

“A lot of municipalities have taken this time over the last three to four years to try to get their own fiscal house in order,” he said.

Some municipalities have taken a turn for the worse after the biggest economic downturn since the Great Depression, while others have responded to the wake-up call, effectively dealing with the financial pressures that have resulted. Predictions of rising numbers of municipal bankruptcies and bond defaults, from banking analyst Meredith Whitney and a Roubini Global Economics LLC report among others, have not come to pass, and Roberti doesn't think they will.

“We’ve seen some distressed municipalities, we’re going to see a few more, but I don’t think we’ve seen as many as people thought we were going to see,” he said.

During his ten years as managing director and head of Alvarez & Marsal’s public sector practice, Roberti has been all over the country, working with a broad range of distressed or underperforming entities.

He has been the superintendent for St. Louis public schools system, spent two and a half years working in New Orleans, during which time Hurricane Katrina hit, and worked with Puerto Rico to try to solve its deficit problems. Roberti has also worked with Mammoth Lakes, Harrisburg, Penn., Jefferson County, and other major distressed municipal entities.

Among many of these entities he has worked with with, pension obligations and healthcare liabilities are some of the larger problems they’re dealing with. Another major issue, as budgets get tighter, is figuring out how to fix decaying infrastructure.

“They don’t have the capital to reinvest in their cities,” Roberti said. “When you’re under financial distress, you don’t have the money to run the city properly, let alone invest money in the city.”

Much of these woes are driven by a combination of mismanagement, exacerbated by the sluggish economy, he said.

As head of Alvarez & Marsal’s public sector practice, Roberti focuses on providing crisis management and operational restructuring leadership to underperforming municipalities and organizations.

Many times when these entities get into trouble, they turn to restructuring firms for help. Roberti said sometimes they wait until they don’t have any other options, but the forward-looking municipalities will not wait to call operational specialists, such as Alvarez & Marsal, until they’ve exhausted all their options.

For the forward-looking entities, the firm is currently working on an “early warning package” to help municipalities avoid becoming the next Harrisburg, Jefferson County, or even Detroit. The package provides issues for entities to address before they start getting into financial trouble.

“One of the problems is that cities are so tight financially with the obligations that many times they don’t want to spend consulting dollars just to do an assessment,” Roberti said. “It’s not always easy to have an entity come in and want to spend some money taking an early look at their situation.”

The New Orleans public school system, for example, had already gotten into financial trouble when it turned to a restructuring firm for help. The system was the area’s largest school district, and one of the lowest performing districts in the state.

In 2005, Alvarez & Marsal was selected to restructure financial and administrative operations of the 127 schools in the system. Roberti brought a team to New Orleans in July, and ended up staying for two and a half years, after Hurricane Katrina hit and destroyed school buildings and drove out families and teachers within the district.

Roberti and his team helped to repair, renovate, and rebuild schools, and the school system was able to meet all of its obligations, avoid bankruptcy, and return to solvency.

That, along with the firm’s first public sector assignment in St. Louis in 2003, got Alvarez & Marsal into the education space, which is one of the six major areas it focuses on within the industry.

As the group has grown since 2005 when it was officially formed, it has continued to adapt in areas it’s needed, and build out where it sees opportunity. In addition to education, the firm works with distressed municipalities, federal agencies, and states, including Pennsylvania, South Carolina, North Carolina, and Maryland. The firm has also served as a third party fiduciary for Department of Education funds, and is starting to build out a public sector international operational team.

When Roberti joined Alvarez & Marsal in 2002, there was no public sector practice. In fact, there were only about 50 professionals in total. There are 2,200 today in the firm.

The public sector group has grown to include 33 professionals, and there are 13 other practice areas at Alvarez & Marsal’s  41 offices worldwide.

Roberti’s career path leading to the public sector has been anything but typical. He spent around 30 years in the retail industry, which culminated with his position as president and chief executive officer at Brooks Brothers, which he left in 1995.

He then began a career in the military, in both the National Guard and the Army Reserve, where he served in several senior staff positions at the Pentagon. It was there that his career in the public sector began to take shape.

In 1996, Roberti was the senior officer who led a team of restructuring consultants to deal with the army’s budget issues. At that point, he was working part time at the Pentagon, and part time doing consultant work.

In 2000, he was brought in a chief operating officer at Duck Head Apparel Company, and eventually became the CEO and chairman of the board.

“I always used to call it my 'Walter Mitty’ life,” Roberti said. “I was a business guy by day and a soldier by night.”

Shortly after, he made contact with Alvarez & Marsal, and joined the firm in 2002.

Roberti shared his army restructuring experience with Alvarez & Marsal at a business retreat, saying he thought they could apply their turnaround and restructuring skills to a government entity.

So when St. Louis was looking for a turnaround firm to run a school system in 2003, Alvarez & Marsal co-founder, Tony Alvarez, called Roberti and gave him the job.

“I had never run a school system before, so it was rather new territory for me,” Roberti said. “It was very difficult, very contentious, very political. Doing something like that in a short time span is not an easy task, but it can be done.”

Roberti spent 13 months in St. Louis. At the school district’s year-end in 2003, its deficit was sharply reduced, and a near-term $99 million cash shortfall was eliminated entirely.

As with his first job, and with others since, Roberti has found that the biggest challenge in his work is the political aspect. He says an entity must have the political will to make changes. Otherwise, it won’t work.

But when it does work, and a child’s educational experience is improved, all of the hard work pays off.

“The operational aspects and the financial aspects of the school system are just two pieces of what makes that school system run better,” Roberti said. “It’s the academic outcome that you’re trying to achieve.”

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