Earlier this year the U.S. Conference of Mayors reported that, despite a slowly improving economy, only one in 10 metropolitan areas had regained the jobs lost during the Great Recession. Many are projected to take more than five years to return to pre-recession employment levels. This tough economic news only makes matters worse for cities and counties facing budget shortfalls.
Jefferson County — Alabama’s largest county — has declared bankruptcy. Harrisburg, Pennsylvania’s capital, tried to do the same, only to have the state effectively place the city into receivership. Vallejo, Calif., recently left bankruptcy protection, but only after dramatically cutting police and fire staffing.
The federal government prints money. State governments can help solve their fiscal woes by taking revenue from or cutting funding to cities and counties that are, by law, “mere political subdivisions of the state.” That frequently leaves local governments holding the bag and with limited options. Even for cities and counties not facing bankruptcy, the choices are hard: service cuts, layoffs, reduced salaries and benefits, higher taxes. When will it end, and what if it doesn’t end?
The slow economic recovery means that local revenues will be equally slow to bounce back — most local governments haven’t fully realized the impact of the downturn, from declining property values to reduced return on pension investments.
For too many cities and counties, the recent recession has only exacerbated fiscal distress resulting from decades of population and economic decline.
In these municipalities, the basics often are not in place and elements of effective administration are missing.
Some have seen endemic and systemic corruption, combining with demographic changes to deplete their fiscs and limit capacity to deliver essential governmental services. Many have never written a next act for local economies that were once dependent on manufacturing.
We all know the problem, but are there any solutions short of bankruptcy?
Most of the time, acute fiscal distress is the result of failed policies at the local level. Avoiding bankruptcy and turning around a locality requires cities and counties to pursue a different course.
A decade has passed since Washington, D.C., exited federal oversight, and more than 30 years since New York City’s financial crisis. Now, 29 states have laws on the books that provide for various levels of oversight and assistance to distressed cities. While there are no easy answers, there are proven strategies to stop the bleeding and turn around fiscal fortunes in even the toughest situations.
Understand the depth of the problem. Too many governments “fix” the imminent crisis, using precious political capital and financial resources to reach a workable but partial solution that will only last a few years.
Instead, local governments need to start with a realistic projection of the multi-year financial challenge — not just a year or two, but five years or even a decade or more.
Bring in other government agencies. States and state agencies typically have a key role. Much local government spending and revenue is controlled by independently elected justice officials, parking authorities or the water utility.
Many times these other entities are part of the problem and they almost always need to be part of the solution.
Focus on core services and don’t rule anything out. In tough times, no city or county can afford to have budgetary sacred cows. Rather than focusing on specific departments or programs, local government must identify priority outcomes, determine what it can afford and invest in approaches that produce the best outcomes at the lowest cost.
For example, the public safety debate should be about how to reduce crime, not just whether to fund more or fewer police. Smaller government may be necessary, but smarter government will be essential.
Make tough choices, but share the burden. Any solution that is perceived as penalizing a single group too heavily will fail. Salary, pension and health care costs drive local government budgets, and must be addressed. But there are also almost always opportunities to save money through tougher contracts with vendors and by collecting revenue from delinquent taxpayers.
Match long-term structural problems with long-term structural solutions. It’s not easy for officials elected every four years to focus on a pension change that will lower costs in two decades. But if the challenges are large and long-term, the solutions have to be as well.
Too many governments have improperly used asset sales to plug short-term budget holes. However, generating revenue from exiting non-core businesses or establishing public-private partnerships can be an important part of funding long-term liabilities and creating recurring budget balance.
Be regional where possible. Rightsizing local government may mean cities and counties and school districts working together to avoid duplication and overlapping services. If the choice is cooperation versus reduced services and higher taxes, local officials need to rise above differences that are usually more political than substantive.
Upgrade capacity. Successive rounds of cuts, layoffs and early retirement programs mean governments lose their most experienced, knowledgeable employees and can’t replace them. Local governments need to identify critical positions and make sure they are funded, and restore limited training and professional development funds on a targeted basis.
Monitor and report. Distressed governments often have weak financial recordkeeping and reporting systems. Incomplete or incorrect reports breed lack of confidence in government and lack of accountability. Rebuilding basic financial and performance reporting is a critical factor in making the public confident that recovery is possible and that it is occurring.
Be inclusive. Ask everyone to participate: residents and non-resident commuters, business leaders and those who head community, ethnic and religious groups, higher and lower levels of government, employees and their unions. Leaders need to take time to explain the reasons for financial pressure on government. Everyone in the community needs to be part of the solution.
None of this is easy. In many cases, step one will be ensuring that local government has the right people in place to take it through recovery. But turnaround is not impossible and with the right help, no city should need to resort to bankruptcy to cure its ills, no matter how severe.
