Archives for the month of: July, 2010

Our nation’s cities are a fiscal mess. This financial free-fall has been attributed to declining tax revenues and rising government expenses, with the latter resulting from pension obligations and social program spending. According to the National League of Cities, the proceeding months look even bleaker for local governments as economic prospects spiral further out of control, necessitating cuts in personnel and the cancellation of long-delayed construction projects.

Sadly, cities are often their own worst enemy. Part of the problem is that local governments rarely have to worry about bankruptcy, let alone going out of business. In the public sector, as opposed to private companies, there is virtually no competition to incentivize efficiency and prudent spending. Here’s one example: My wife had the unfortunate occasion one morning of discovering that her father had passed away in his sleep. A 911 call yielded an entire fleet of emergency vehicles, from the gas guzzling hook and ladder truck to the paramedic van. Upwards of 10 personnel visited our house, including three law enforcement officers who arrived in separate cars.  Known in union parlance as featherbedding, a practice where more workers than are needed show up to perform a certain job, this inefficient form of behavior characterizes many city governments, leading to fiscal deficits and waste.

Perhaps the most contentious issue pertaining to city expenses is the stranglehold unions have on local government coffers, particularly the über expensive pension benefits they continue to demand. In his recently released book, Plunder: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives, and Bankrupting the Nation, author Steven Greenhut decries the irresponsible lack of accountability relative to government treasuries, and the tax and debt implications it will have for generations to come. Greenhut notes that legacy pension plans—which often allow public employees to retire with 100 percent or more of their salary, including cost-of-living adjustments and free lifetime medical plans—are quite common and yet unsustainable. These public-sector compensation packages include massive, unfunded pension liabilities that far exceed those of the private sector and present a barrier to fiscal solvency.

But, there is good news. I believe that our current economic downturn may represent a silver lining in terms of sparking a structural correction in our nation’s cities and local governments. It is during unprecedented times like these that city leaders and the unions they collaborate with will finally pursue long-term, innovative solutions to the fiscal crisis.

However the sea change will come gradually, as the public sector historically has been slow to embrace creative ideas that are common in the private sector. Wasteful habits are hard to break, particularly when there are few market incentives to provide encouragement.

But change is coming, albeit the hard way. Many cities had to ax their annual 4th of July fireworks event due to budget strains. Layoffs are occurring in record numbers, and benefits are being slashed. Even public pools are closing – an ingenious move in many California communities since one in three homes has a pool in the back yard.

Maywood, California, the third-smallest incorporated city in Los Angeles, deserves credit for boldly and painfully taking a step toward addressing its fiscal inefficiency. On July 1st amid a $10.1 million general fund deficit and the loss of its general liability and workers compensation insurance, it laid off most of its city employees and the entire police department. To reduce costly duplication of services, it now outsources its finance, records management, parks and recreation, and street maintenance services to the neighboring city of Bell. Law enforcement will now fall under the purview of the local sheriff.

Vallejo, California, which filed for Chapter 9 bankruptcy in 2008, has used the economic downturn to force the hand of its intractable unions to rein in spiraling compensation and benefit costs. This action may be the saving grace for this Bay Area community of 121,000.

Despite frequent criticism for his unorthodox, political methods, Mayor Richard Daley of Chicago is not afraid to pursue bold, privatized measures to generate revenues and reduce expenses for the Windy City. Recently he proposed plans to lease space on bridge houses along the Chicago River to generate city revenues.

It’s clear that these revenue generating/expense reduction tricks will become more of the norm as cities recalibrate for the future. With numerous local governments reporting worsening fiscal and economic conditions, we are likely to see cities participating in high-stakes competition for tax generating entities. Regional collaboration will also rise as cities look to create greater economies of scale and less duplication in the community services they provide.

Cities would also be wise to focus less on housing starts and more on the jobs necessary to pump dollars into local economies. Economic development agencies must think beyond their outmoded practices and pursue more creative solutions for job generation. Those that have proven successful in their recovery efforts recognize that it begins by linking education or training with emerging job fields. Ultimately it’s about strategically branding a city to capitalize on area resources and strengths, rather than just attracting new industries to town.

While painful, the impact of the economic downturn may be a blessing for cities perpetually stuck in neutral. As battles erupt over pieces of a shrinking pie, now is the time for local leaders and the corresponding community to stretch beyond their normal thinking and reach for new models of fiscal growth and sustainability.

Michael Scott is the Editor of Urban Engagement WebCity. He can be reached at michael@vdowntownamerica.com