several years afterward, cities were
surprisingly resilient and by 2005 had
weathered the economic fallout from
the attacks rather well. The more serious
crippling event of the past decade
was the Great Global Recession of
2008. In fact, the repercussions from
the recession are still being felt and
likely will be for many years. The Great
Recession was also responsible for
forcing municipalities to enter the new
normal phase of municipal finance.
the federal government and state
governments also encountered.
There is less grant and entitlement
assistance available from both entities,
leaving municipalities to develop
sustainability solutions on their own.
from city to city. If a community
was slow to react to decreased
revenues, the inaction no doubt led
to a dramatic decrease in operating
reserves, also known as fund balance.
High unemployment rates coupled
with decreased wages and benefits
in the private sector have led to
taxpayer angst over perceived overly
generous municipal wage and benefit
structures. Citizens’ envy of public
employees’ salaries is expected to
play heavily on future decisions
to be made by city leaders.
Steps cities should have taken to
maintain financial composure over
the past four years included:
Elastic revenues that grew significantly
during better economic times, such as
sales and property taxes, plummeted
by more than 15 percent starting in
2009. Pressure on local governments
to decrease property taxes mounted
as citizens watched their real estate
valuations shrink. Cutting municipal
expenditures was and remains very
difficult because a large portion of
municipal budgets is personnel-related
and often tied to long-term labor
contracts. Other factors pressuring these
budgets have included spiraling health
insurance costs and pension obligations.
Although these realities may seem
overwhelming, they also provide
opportunities for cities to be creative
in developing new organizational
structures and policies that will help
reshape local government for survival
in the new normal environment.
• Make the Easy Cuts. Most
organizations have “low-hanging
fruit” that can be scaled back without
imposing too much pain, such as
travel and training activities. These
items can eventually be added
back when the economy improves.
Unfortunately, savings from such
categories are typically not material.
Other challenges have resulted from
the poor financial positions that
Addressing the Downturn
In most public institutions, change
happens at a much slower pace than
in private business. Municipalities
have been quick to acknowledge
the challenges imposed by the Great
Recession, but the pace of actions taken
in response has varied dramatically
Government Financial Distress:
A Picture of the Future and
of Present Remedies
• Implement Voluntary Early
Retirement Incentive (ERI)
Programs. In recent years the
private sector has successfully
used ERI programs to help achieve
structural balance. With traditional
municipal revenues down by at
least 15 percent and expected to
stay that way, employment levels
must be reduced. Cities should run
the numbers in advance to make
sure an ERI program provides
financial justification. The loss of
institutional knowledge is often
a major concern. However, most
incented retirees are happy to field
questions on request after they leave.
Learn about the seismic economic changes behind
municipal distress and Chapter 9 cases.
THURSDAY, MAY 23
NOON - 1:00 P.M. EASTERN
Scott A. Bremer, Quarles & Brady LLP
• Don’t Fill Vacant Positions. To
help reduce employment levels,
the workload of employees who
leave the organization should be
re-engineered. Remaining workers
may feel more stress because
of added duties, however, and
management must be sensitive to
problems that arise and be ready
to react in a timely manner.
Quarles & Brady LLP
John B. Filan,
Henry C. Kevane,
Pachulski Stang Ziehl & Jones LLP
• Pare Back Nonessential Programs.
An economic downturn is the
perfect time to evaluate individual
programs within every department.
It’s easier to justify a program’s
elimination or restructuring
when funds are in short supply.
EARN CTP, CPE,
AND CLE CREDIT.
Visit turnaround.org to register.
• Discontinue Funding for
Capital Improvements. This
is not a decision to take lightly.
However, if a thorough evaluation
and justification of existing
programs has been conducted
and communicated, a temporary
stoppage in capital improvements
funding is appropriate.