State of the Cities 2013: Strategically Balancing the Books

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This is the sixth post in a seven-part series on trends and themes in local leadership.

The National League of Cities’ 2012 City Fiscal Conditions report  projected a sixth year in a row of declining revenues for cities, and a 25 percent decline in ending balances (reserves) over the last four years. It’s clear that the financial crisis has taken a mighty chomp out of city budgets. But America’s mayors aren’t just standing idle, letting their budgets go by the wayside. They remain remarkably optimistic, innovative, and resilient while making tough choices to balance their budgets.

Our sample of State of the City Addresses provides anecdotal evidence that while there are still hurdles that need clearing (aren’t there always?) city budgets are slowly getting back on track as the economy gradually improves. Improved budget figures have materialized due to city leaders’ willingness to make difficult choices in the face of uncertainty surrounding macroeconomic conditions and state and federal support.

Difficult Choices, Innovative Strategies

Unfortunately, there are no easy paths to a balanced budget. Most budget problems can only be solved using brute force – raise revenue, cut services, or a little bit of both. That doesn’t mean that mayors are getting greedy like Scrooge McDuck or wildly axing services like Paul Bunyan. The speeches we analyzed showed that city leaders are using holistic processes and utilizing municipal finance experts in order to move towards fiscal sustainability.

One city that exemplifies this trend is Fort Wayne, Ind., led by Mayor Tom Henry. Henry and his staff “assembled a team of local and state experts, representatives of city council and staff who are developing strategies to deal with looming budget issues.” Fort Wayne is the first city in Indiana to establish a Fiscal Policy Group, and it recently released a “framework of ideas to save the community money and bring additional revenue to the city.”

Henderson, Nev. is also strategizing to find fiscal balance while cushioning the blow to citizens under Mayor Andy Hafen’s leadership. Hafen entered office at the beginning of a tremendous fiscal crisis. Assessed property valuations decreased from $16.3 billion circa 2009 to around $8 billion today, and consolidated tax funding went from a high of $103 million down to $77 million last year. In response, the city has found ways to save money through long-term debt restructuring and a compensation reduction for executive, managerial, and professional employees. According to Hafen, Henderson is also undertaking a “comprehensive classification and compensation study” that will “ensure our ability to continue to be competitive in how we provide programs and services in the future.”

Mayor Lioneld Jordan of Fayetteville, Ark. stressed a common sense approach, invoking a quote by Harriet Beecher Stowe: “seeing things as they are and doing things as they ought to be done.” In that vein, Jordan has recently initiated a Lean Government program that will improve customer service, increase efficiency, and reduce the need for additional personnel.

Revenue Stream Uncertainty

One of the factors that has taken its toll on city budgets over the last few years is the reduction in funding for cities from state and federal sources. After the surge in funds from the 2009 federal stimulus package that was passed in the wake of the financial crisis, federal and state aid has dried up, leaving holes to fill in city budgets – this is a reality that is likely to become the new normal.

Mayor Bill Bell of Durham, N.C.  acknowledged this when he emphasized the need to continue to “plan for unpredictability in state and federal revenue sources.” The city is grappling with less state funding for transit programs and the end to the federal stimulus-funded “Home Energy Savings Program.” Further, Mayor Bell noted that Durham may have to support non-core services normally funded by the state and county, including judges, district attorney assistants, and forensic labs.

Also threatening cities is the potential end to the tax-exemption for municipal bonds, which have “financed more than $1.65 trillion of infrastructure investment over the last decade (2003-2012),” according to a report released jointly by the National League of Cities, National Association of Counties, and US Conference of Mayors.

Incremental Improvement

In spite of this uncertainty, mayors are beginning to have more reason for cautious optimism about the state of their cities’ finances. Columbus, Ga., on the heels of reforming the city’s employee pension plan that will save taxpayers “some $25 million over 15 years while preserving benefits,” improved its bond rating from Aa2 to Aa1 (Moody’s). An independent audit of North Las Vegas, Nev. found “no findings of internal weakness” despite a reduction in property tax receipts by 56 percent over the last 4 years. And Memphis, Tenn.’s reserve fund balance and capital improvement budget has held steady over the last three years.

In her address, Mayor of Pine Bluff, Ark. Debe Hollingsworth quoted Harvard Business School professor John Kotter as saying “leaders establish the vision for the future and set the strategy for getting there; they cause change. They motivate and inspire others to go in the right direction and they, along with everyone else, sacrifice to get there.” Beneath that vision and strategy lies the budgetary framework that allows the “right direction” to be pursued. Because all the innovation in the world ain’t worth a damn if nobody can pay for it.