LAS VEGAS — The economic decisions municipal governments are making right now could serve as a good guide to how they might behave under fiscal stress, Public Financial Management managing director Michael Nadol told muni analysts Friday.
Nadol made that suggestion during a panel discussion on the final day of the National Federation of Municipal Analysts conference. Nadol, who heads PFM's management and budget consulting practice, said his municipal government clients exhibit enormous diversity in their attitudes towards fiscal responsibility. He said that Baltimore is culturally inclined to fiscal responsibility despite facing difficult underlying economic conditions in recent years, while other cities are "incorrigible."
Credit analysts try to understand the attitudes of local governments because it can be an indicator of whether they will responsibly manage their money, particularly in times of stress. Nadol said that how the stewards of municipal coffers behave in this period of relative economic stability is something analysts should pay attention to.
"I would suggest that how people are behaving right now is a pretty good indicator," Nadol said. "Are they fixing the roof while the sun is shining?" he asked, "Or are they trying to make everybody happy again?"
Joining Nadol on the panel were two local public officials: Las Vegas chief financial officer Mark Vincent and North Las Vegas director of finance Darren Adair. Fitch Ratings managing director Jessalyn Moro led the three men through a discussion of local government flexibility and the ability of municipal governments to react to fiscal stress when it occurs.
Nadol said that when he is initially hired to help a local government cut costs, he first looks for what the unique fiscal stresses for the city are and where it has the flexibility to cut costs. Costs like wages and pension benefits could be fairly flexible if determined solely by local government appropriation, but could also be rather inflexible if spending levels have been determined by binding arbitration or other legal agreement, Nadol said.
Vincent and Adair said that in Nevada they have to look primarily at cost-cutting rather than revenue increasing strategies, because they are legally restricted from growing revenue sources like property taxes beyond a certain pace.
Nadol said actions that are both short and long-term positive for governments are pension reform, compensation restructuring, and refinancing for savings. Pension deferrals and early retirement incentives are short-term positive, but can be negative in the long-term.
The NFMA's annual conference concluded Friday. It will be held next year May 3-6 in Chicago.
