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Taking a Fresh Look
at Government

John Gross
By John O. Gross
Village Administrator
South Orange Village

We have entered a new age of public management. For many of us, these uncharted waters are both unfamiliar and uncomfortable. This notwithstanding, public managers must not only address long-term structural change to local government’s financial infrastructure, but as the agents of change, we must also restructure the way we look at government.

In order to meet this challenge head on, we must restructure our perception of municipal operations and budgets. Many of the old rules simply no longer apply and we have lost track of some of those that do.

What follows is some of the data that I have analyzed and ten pragmatic restructuring rules for your consideration.

Rule #1 Throw out the traditional budget document required by the state. We need to take the lead and recast our budget documents in a format that makes sense in today’s world.

New Economy one-was street sign

The traditional line item budget does not focus on programmatic costs but rather individual cumulative costs by department. For example, if you want to determine how much it costs to provide leaf collection services, you would have to manually add up unidentified portions of many budget lines, none of which are easily identified in a line item budget.

 Budgets should be created by grouping Personnel, Fixed and Other Costs and then breaking those categories down by program, allowing for program cost accounting. Additionally, this allows one to identify not only programmatic costs, but allows identification of incremental costs and residual costs, when considering changes to programs.

Rule #2 Use overtime strategically. Once considered to be less expensive than overtime, straight time (when pension and other costs are included) actually costs more than overtime rates of pensionable salary plus 50 percent. Today, the costs of health benefits, pension and other taxes and insurances for Police and Fire personnel is 59 percent of pensionable base salaries, whereas the cost of overtime worked contains a 50 percent salary premium plus 4 percent for taxes, or 54 percent, which translates to 5 percent less than pensionable straight time. Additionally, the pensionable straight time rate includes paid time off, creating a hidden 17 percent premium in straight time rates, increasing the overall benefit of using overtime instead of hiring new full time employees.

Rule #3 Forget Furloughs—Layoffs are here to stay. Once considered to be a viable alternative to layoffs, furloughs actually contribute to the structural deficits. The savings from a single layoff compared to furloughing 19 employees one day each month, yields savings 76 percent higher than the furlough option. Municipal governments can simply no longer afford to lose the level of productivity.

Rule #4 Labor contracts are as much about productivity opportunities as they are about compensation. It will likely cost less to expand the traditional 35 hour work week prominent in some segments of public employment than the 14 percent increase in productivity that results from a 40 hour work week. Reducing paid time off, currently ranging from 20-25 percent, instead of pay cuts will also have a profoundly positive impact on productivity. Negotiating management flexibility in scheduling will also improve a municipality’s ability to meet today’s challenges.

Rule #5 Fees for service are now unavoidable. Fees for service not provided to all constituents, traditionally avoided in lieu of an increased general tax obligation, must now be broadly considered, where feasible. For instance, individual taxpayer’s receiving home delivery of mulch must now pay directly for this disproportionate level of service. Through cost accounting, recreations fees can be set to reflect at least the variable cost to provide these recreational opportunities. Salary incentives to encourage employees to work toward maximum enrollment levels, and therefore tuition, in profitable ventures such as Pre-K educational programs should be implemented.

Rule #6 Avoid Shared Service Fatigue— Keep looking for the big hits and don’t ignore the small hits. Despite the relatively small level of success statewide thus far, we must resist the urge to give up on efforts to consolidate major programmatic activities. While working to overcome the obstacles to merging major services such as Fire or Recreation, don’t ignore the potential “small hits” which can be just as significant in their totality.

For instance; in South Orange we used to pay $90-120 per hour to local automotive repair businesses; for $60/hour, our sister town of Maplewood was able to prevent layoffs and provide us and our consolidated Board of Education a 50 percent discount on our costs.

Also, rethink your criteria for success. We expanded our Animal Control services to our residents by agreeing to cover both towns by simply coordinating the two community’s scheduling, expanding the availability of service to our residents from 8 hours to 12 hours daily. As an aside, we eliminated some overtime in the process, which was an incalculable factor when we initiated this effort.

One last example shows how the objective of future cost avoidance also presents consolidation opportunities. South Orange Village has a need for additional space, both short term swing space while we renovate our Village Hall and long term for expansion of our Police Department. Our analysis of the costs for renting or constructing additional space was astronomical. We have negotiated an agreement that consolidates our Violation Bureau and moves our Court operations to Maplewood in January 2011 for no savings, but allows us to avoid significant future costs by both eliminating the need to rent swing space and provide the Police Department space without new construction.

IN ORDER TO MEET THIS CHALLENGE HEAD ON, WE MUST RESTRUCTURE OUR PERCEPTION OF MUNICIPAL OPERATIONS AND BUDGETS. MANY OF THE OLD RULES SIMPLY NO LONGER APPLY AND WE HAVE LOST TRACK OF SOME OF THOSE THAT DO.

Rule #7 Consider reducing your capital footprint. With the cost of public financing 50-100 percent above the public’s anticipation of a CAP on tax increases of 2 percent, towns can no longer freely finance purchases through tax exempt bonds as they have in the past. Municipalities must look to downsize their physical operations at the same time as they downsize financial operations. While finding alternative for traditional public buildings is a significant challenge, their size and inefficient layouts make them prime considerations for repurposing their use and relocating operations to more efficient, less expensive venues.

Capital vehicle and equipment purchases must be scrutinized as never before and financed wherever possible with today’s dollars, not through bonding.

Rule #8 Expand the use of privatization. The economic downturn and subsequent unemployment increase has presented new opportunities for privatization savings. In South Orange, we recently privatized turf maintenance, planting and watering flower beds and shrubs, and outsourced the operations of the Finance Department to a private firm that performs services in our offices.

In the same vein, municipalities should consider joining together to contract for these services to save additional dollars, as we did with large turf maintenance, or, to jointly privatize services that would otherwise be cost prohibitive to each municipality alone, such as on site vehicle maintenance services provided by third parties.

However, care must be taken to avoid common pitfalls when making privatization decisions. Don’t forget to calculate and evaluate the cost of managing contracts, monitoring service levels, mobilization, demobilization and residual costs such as incremental unemployment, workers compensation and pension premiums that continue for some time after an employee’s termination.

Lastly, don’t make the mistake of believing that today’s opportunities will last forever. At some point in the future, public salaries will once again be aligned with private salaries and the cost to provide services with public employees will once again look attractive.

While municipalities must take advantage of these opportunities now, they must also plan for potential re-entry into the business of “making” services and transitioning away from “buying” services when it once again makes sense.

Rule #9 Restructure data collection methods. If you are not already collecting data, you must start now. The reality is you are already collecting most of the data you need, but perhaps you are not aware you have it at your disposal. Most finance accounting systems have the ability to “dump” information in a spreadsheet format which will be extremely beneficial. In South Orange, we monitor specific revenues with an online cashier system designed in-house to meet our specific needs. We also use daily manual assignment sheets to allocate personnel costs to specific services in our Public Works Department. In the near future, our payroll system will capture this data in real time to determine hours expended upon actual service assignments.
Lastly, South Orange is working with other municipalities to share data collected by our paid consultant to develop benchmarks for performance measurement to identify and understand the components of potential best practices that can be replicated in other communities.

Rule #10 Reset the expectations of the public and public officials about what can be done in this environment. Public officials are used to having municipal managers around who have always have somehow “pulled the rabbit out of the hat.” In today’s environment, we have to re-educate the public of our new reality in order to maintain the necessary political stability to at least be able to hold onto our hats, let alone the rabbit.

 

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