By Cathy Swanson-Rivenbark, ICMA-CM, AICP, CEcD
The official dates of the Great Recession, from December 2007 to June 2009, mean that June 2019 signals the “supposed” ten-year aftermath to which we can apply hindsight. For local governments, the timeline of the downturn proved prolonged for employees and postponed for their governments. Employees first felt the impact at home – literally—as many experienced dramatic losses in home values and in personal investments. Then, over the next two years the plummeting of property values – in some instances as much as 70 percent—translated into the loss of their employer’s primary source of revenue (property taxes) necessitating cuts and adjustments creating a “double jeopardy” of sorts. Remembering the Great Recession’s specific impacts to and responses by local government will better prepare communities to ride out future downturns. Below are some lessons learned, and the steps taken to help insulate local government from future financial storms.
1. Practice Optimistic Realism. Prepare realistic, not optimistic, revenue and expenditure estimates. Then, if the revenues exceed projections, the additional revenue can be used to fund other one-time expenditures. This includes reflecting the full cost of proposed capital projects (not just construction but land, financing, operations, and maintenance) and full cost of labor contracts (including wages, benefits, and pensions) not just annually but over time.
2. Develop and implement a reserves policy and a responsible debt policy. Policies should be developed, approved, and in place to guide the proper use (and amount of) reserves and a responsible debt-service ratio before you actually need them. It becomes far too easy to “raid the reserves” if there are no policies in place. Cities can’t borrow themselves out of a financial crisis nor should they deplete emergency reserves to meet payroll.
3. Manage and prioritize. During great financial stress, hiring freezes are often instituted to reduce operating expenses. Because of the lag time needed in recruiting and training public safety, it is important to hire for the attrition to replace those leaving or retiring to ensure the proper complement of officers. Challenge the need to fill other vacancies. Review each job description to ensure it is up to date and relevant. When vacancies occur, ask if the particular service is essential, and if it can be filled another way such as an outside contract, intergovernmental agreement, part-time employee or temporary employee. Also budget for and add sustainable benefits to the part-time employee category (awarding government holidays, vacation, sick, and bereavement time but not health) to make it an attractive yet affordable option for you and the prospective part-time employees, including professionals. In many instances, these part-time offerings with select benefits are appealing to those seeking a better work-life balance.
4. Stay vigilant. Closely monitor changes in the local, state, and national economies for potential revenue impact. Although local governments may not have had advanced warning regarding the decimation of their investment portfolios in the Great Recession, adjustments in property values and tax collections provided opportunities and time to adapt. In fact, according to Adam Langley in a paper he presented at the Lincoln Institute of Land Policy, “local government revenue declines lagged behind economic changes by about three years in part due to cities accessing their emergency reserves.” Langley further notes “governments would have been better off avoiding spending increases in 2009 and using funds to avoid larger cuts in 2011.”1
5. Create a “Stop Doing” List. Jim Collins, author of Good to Great, challenges leaders to create a “Stop Doing list” rather than a “to do” list for themselves and their organizations. Add to this 2018 Nobel Memorial Prize in Economic Sciences winner Paul Romer’s observation of “A crisis is a terrible thing to waste” and you have a powerful framework for reform. Local governments can easily succumb to mission creep or adopt heart-felt practices that detract from core services. Difficult financial times give us permission to revisit and reset the work programs and priorities. Such revisiting should also include an emergency cut plan before the emotions and politics step in. When the ratings agencies were affirming our AAA bond ratings recently, the reviewers asked “how we would respond to a downturn in the economy, including what services would be eliminated, if we had another Great Recession necessitating mid-year adjustments?” I was able to give them a list of services and divisions that could be temporarily suspended or reduced to avoid using reserves. Where feasible, our emergency reduction plan would also allow employees to be temporarily transferred to revenue producing departments to minimize disruption. The ratings agencies were pleased we had a thoughtful and strategic advanced emergency plan that did not simply “raid reserves.”
6. Confirm the usefulness of your EAP (Employee Assistance Program). Job losses, reductions in benefits or hours, loss of homes (or at least their values), and personal financial worries were real issues during the Great Recession, with local government being one of the major and stable employers in many communities. Make sure they have access to good help – your employees can’t help your citizens if they are worried about providing for themselves and their families.
7. Keep talking. While you might prefer closed door discussions as you sort out a path forward, it’s your duty to keep your elected officials fully apprised. It’s equally important to develop a game plan and articulate it so your employees and community are informed and prepared. (This is also consistent with Tenet 9 of the ICMA Code of Ethics.)
8. Ask others to step forward and pool resources. Involve your volunteer boards and committees, neighborhood associations, houses of faith, chambers of commerce, large employers, educational institutions, and others in meeting the needs of your community. You’d be surprised the number of people and organizations that want to help if they only knew what kind of task or help their local government needed.
9. Maintain critical infrastructure. As tempting as it is to postpone maintenance when dollars are depleted, critical infrastructure must be maintained. Develop a priority list of what constitutes critical infrastructure and a plan for maintaining the non-critical. Otherwise, when the financial storm clouds disappear, you will be left with expensive catch up costs.
10. Take a breath. Financial downturns are very stressful times for communities, for employees, and for you, and you can’t lead if you can’t breathe. It also shows you and others the type of leader you truly are.
Today, many local governments have returned to or even exceeded their pre-Great Recession revenues. We must incorporate these, and other extraordinary lessons learned into ordinary practice or risk history repeating itself. Our communities, organizations, and employees deserve nothing less.
Endnotes and References
1 Local Government Finances During and After the Great Recession, by Adam Langley pp 171-197 in Land and the City published by the Lincoln Institute. https://www.lincolninst.edu/sites/default/files/pubfiles/land-and-the-city-full_0.pdf
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