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by Reagan Burkholder
The author is the principal consultant for Summit Collaborative Advisors,
a firm specializing in the needs of New Jersey municipalities.
For 32 years, he was a municipal manager and administrator in
Connecticut and New Jersey. He can be reached at

This article is based on a program offered at the NJ League’s 2010 conference. This month’s chapter focuses on the level of financial pain that towns are likely to face over the next five years. Next month, we will examine some specific ideas on how towns can rethink their basic services.

Part 1: What is the scope of the problem?

Welcome to our new world! Doing less with less = facing the new reality. New Jersey municipal officials are about to face a prolonged period of making the most difficult decisions they have had to make in generations.
Befitting his status as a three-time Pulitzer prize winner, NY Times columnist Thomas Friedman said it best: Government’s previous role was to give things to people; its new role is to take things away from people. Whether it’s pay raises and benefits taken away from employees or services and privileges taken away from residents, local officials will spend the next few years taking things away. Compared with giving raises and offering new services, this will be harder to do and not nearly as much fun.
We’re not alone here in New Jersey. Here are some headlines from the daily feed of the International City/County Management Association:

  • Hall County GA Discusses Outsourcing County Services
  • Mesa County CO Revenue Down 15.6% In 2011 Budget Year
  • Westchester County NY May Cut Up To 720 Jobs To Cover Deficit
  • Grand Traverse County MI May Eliminate Approximately 40 Positions
  • King County WA Jail Authorities Agree To Cost-Of-Living Freeze
  • Falls Church VA Cuts Bus Line Due To Budget Concerns
  • Macon County NC Exploring Cutting More Jobs
  • Royal Oak MI Employees Take Pay Cut
  • Highlands County FL Considering Ten Furlough Days For Employees
  • Kern County CA Raises Trash Fees
  • Morgan County IN Firefighters Worried About Response Times Following Cuts.
  • Scottsdale AZ Suffering From An "Unprecedented" Budget Shortfall

This article will examine where we’ve been over the past five years, and where the next five are likely to take us. To put our current situation in context, here is what’s happened with local budgets over the period 2004-2009:

The past five years

Some facts: over the five-year period 2004-2009

  • Average NJ municipal budget grew 27% (almost 5% per yr)
  • Use of surplus shrank 2% (-0.4% per yr)
  • Miscellaneous revenues grew 13% (2.5% per yr)
  • Revenue from delinquent taxes grew 26% (4.7% per yr)
  • Taxes grew 44% (7.6% per yr)

There were many reasons for this growth, some under our control, some not, but with budgets up 27% and taxes up 44%, the CPI grew less than 15% — those are the facts — and that’s why the state has decided to help our taxpayers by limiting our future growth.
Where are we headed? Here are some revenue forecasts for 2011-2015:

  • Towns will continue to use less and less surplus each year. A recent small study of twelve towns found that, on average, they had depleted their available surplus by 15% over two years. And this was before the impact of the tax-levy cap.
  • Delinquent taxes: my guess is that the 2004-2009 growth shown above was an accounting ploy rather than a real increase in revenue. That growth can’t continue for long, because it will rapidly run up against the total amount of delinquencies.
  • Perhaps miscellaneous revenues will continue to grow at 2.5% per year as towns impose new fees and — one hopes — banks begin paying higher interest on investments.
  • In my forecast, I’ve assumed that tax levies will grow annually at 2.5%, including exemptions.

Overall, perhaps we will see a 2.3% annual growth in revenues. But here’s the problem: our average municipal budget grew 5% a year from 2004 to 2009. If that growth rate continued unabated, there would be a 15-20% gap by 2015. Since that can’t be allowed to happen, a town with a $20-million 2010 budget will have to find more than $3-million in cost savings or revenue enhancements by 2015. Any savings will need to come from discretionary spending and any new revenues will likely have to come from miscellaneous revenues.

How are we going to do this? Based on a survey by the NJ Municipal Management Association, here is a list of what many towns have been doing since 2007 to meet current budget limits, and why they won’t work in the long term:

  • Increasing use of surplus: It’s disappearing already, and towns will reach a point where they cannot even sustain the amount used in the prior year.
  • Furloughs: Many towns are already 4% in the hole just to get people back to their old work schedules and salaries.
  • Pay freezes: These might work, but difficult to sustain if the highest paid people — police — still have arbitrator-awarded increases.
  • Not filling vacancies: This works only if the vacancies happen to fall in departments with excess employees.
  • Deferring maintenance: This may work for a couple of years, but eventually the town starts to fall apart.

Of course, the NJMMA survey also showed that many towns have already begun both small and major service reductions, which are more sustainable than one-time budget tricks. Here are some examples of how towns have already begun to deal with budget constraints:

  • Livingston Township Manager Michele Meade reported at the 2010 League conference on how the township switched from rear-yard to curbside garbage collection. In an imaginative way, the township addressed the concerns of many residents who were concerned about having to haul their garbage on long, sometimes steep driveways. The contract specification requires the hauler to offer rear-yard collection to those who are willing to pay a premium — directly to the hauler — for the added service.
  • Tinton Falls CFO Stephen Pfeffer told of how honest, adult, non-confrontational talks with borough employees resulted in numerous recommendations for new ways to do work, in addition to union concessions that will have lasting benefits.
  • South Orange Administrator/CFO John Gross has scrapped the state’s required budget format when working internally. South Orange groups all costs of a service — wages, expenses, benefits, and ancillary costs of maintenance and capital overhead — into a program budget covering that service. By paying a neighboring town $60/hour for vehicle maintenance, South Orange reduced its cost from $90-120 in local shops, and its neighbor avoided layoffs.
  • Ridgewood Village Manager Ken Gabbert believes in early and forthright discussions of budget issues with employees. While furloughs appear more compassionate, they spread pain widely and leave the town with the problem of restoring employees to full salary down the road. Layoffs, honestly discussed early in the process, can lead to retirements or other actions that mitigate the pain of the layoffs. In addition, force reduction also saves benefit costs, which furloughs do not.

Even when the national economy improves over the next five years, it is doubtful that the public’s antipathy toward real-estate taxes will dissipate. Does anyone envision the day when the legislature and the governor collectively say, “Let’s allow the towns to raise taxes the way they used to?” Today’s situation is our new reality. Next month’s article will explore other specific ways that towns can reduce their costs by rethinking their basic services.

Outline for Part 2: Rethinking basic services

In 2009, an article in the Harvard Business Review was titled: Leadership in a (Permanent) Crisis, written by three management consultants who also teach at Harvard’s Kennedy School of Government.
Some quotes:

  • “It would be profoundly reassuring to view the current economic crisis as simply another rough spell that we need to get through. Unfortunately, though, today's mix of urgency, high stakes, and uncertainty will continue as the norm even after the recession ends.” (Emphasis added.)
  • Foster adaptation: People need to learn and develop new ways of providing vital services.
  • Embrace disequilibrium: Without threatening their jobs or their self-esteem, we need to let employees know that adaptation to the new reality is key to their success.
  • Generate leadership: Give employees incentives to try new approaches.

Said another way: We need to rethink everything we do.

Rethink services

To meet their obligations under
Do we need a tax collector?

  • Does American Express have an $80-85K employee for every 7,000 accounts? Towns in my survey do. Does Amex pay $25-30 per account per year to collect its bills? Towns in my survey do.

Do we need separate departments for recreation and senior services?
Do we still need to collect garbage from the rear yard? How much could we save with automated curbside collection?
Do we need to collect trash and brush from our residents once a week? Do we need to let them rake leaves into the street?
Should we charge for some services?
(No way I’m going to get out of this room alive!) Do we need a police department?

    • Sammamish WA 35,000  12 mi east of Seattle; Avg family income 2X national avg
    • $101/capita vs $314 in comparable communities (similar to NJ study)
    • Contracts with the county sheriff, who provides cars specially painted for Sammamish

That’s rethinking services; other less-radical possibilities

    • Contract for special services (traffic, investigations, training)
    • Contracts for night-shift services

Or, we can continue to listen to voices saying that cutting even one police position will result in pestilence, war, and famine.

    • Vallejo CA kept on keeping on till 70% of its budget went for public safety. Then it went bankrupt.
    • It did NOT rethink its service-delivery system…it kept doing the same old thing.

Rethink the role of our residents

What services do they really NEED?
Engage them in conversation in a very formal way
Commission a survey
Treat them like adults: lay out the situation in detail; show them alternatives
Hold massive community meetings

    • Not lectures; not public hearings: Discussions
    • Find people in our community who know how to run focus groups and large-group sessions
      • Discuss your problems

Rethink your balance of costs & benefits

Define the outcome we expect from a project or service
Look at different ways to deliver the results
Examine costs & benefits of each alternative
How MUCH benefit are people getting from a service?
How MANY people are benefitting?

Decide what’s important

Have each department list all its services
Evaluate the cost & the benefit for each one

    • Chart on handout at end of program

EASY: Get rid of the high-cost, low-benefit programs
ALSO EASY: Keep the high-benefit, low-cost programs
DECISIONS: All the rest

Rethink performance measurement

Compare in-house and contract services for garbage, janitorial, water & sewer utilities
Stuff you’re NOT going to contract:

    • How does our DPW compare with other towns? As efficient? More or less staff?
    • How many people do other towns have in their finance department?
    • Is our court handling as many cases as other towns?
    • How does participation in rec programs compare with other towns?

Unless we compare with other towns, we won’t know how well you are doing. We won’t know what’s possible.
But towns don’t do this; they just muddle through, thinking they are making improvements:

    • 30K local govts nationwide: fewer than 200 participating in a nationwide comparative performance measurement project
    • 566 in NJ: a dozen involved in comparative performance measurement

Rethink your budget process

Do detailed budget for 2011, but project numbers forward to 2012 and 2013

    • Most of all: Where are our revenues headed? Can we sustain our decisions?
    • What is the projected cost of this year’s decisions in Years 2, 3, 4?

Rethink relationships with employees

Indianapolis famous for rethinking its service-delivery system
Stephen Goldsmith, Former Mayor Indianapolis IN, hired by Michael Bloomberg as Deputy Mayor for Operations NYC

    • In many cases, those most responsible for these [improvements] were members of organized labor — the workers and their union leadership.

Again: treat employees like adults. Lay out the situation and discuss possible solutions. Who knows more about day-to-day operations: you or the people doing the work?
Remember the human element: You may take heat for reducing a service; they have to tell their families the paychecks are ending

Steps in moving ahead

Create a sense of need/demand/urgency

    • You need to engage your whole organization
    • You can’t sit in isolation & issue edicts
    • You need to build a team that will work on this problem

Develop a multi-year plan & communicate the plan to everyone involved
You need to empower your team to execute the plan

    • You can’t sit & snipe at each other over details

You need to measure your progress

    • Quarterly or semi-annual reports on how the plan is working

You need to market your efforts

    • Let people know what you’re doing
    • When you have a success, blow your horn
    • When you fail, announce what you’ve learned and how you are going to improve
    • Let people know you’re working on THEIR problems
    • Payoff: if you ever need to seek referendum approval of a tax increase




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