Local Governments Do More with Less to Do More

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1 Local Governments Do More with Less to Do More David R. Eichenthal Managing Director, The PFM Group Executive Director, National Resource Network May 13, 2014

2 The Key to Recovery in Older Communities What does doing more with less really mean? All cities but particularly those cities dealing with fiscal and economic challenges need to think about doing different things and doing things differently. Re-thinking the delivery of basic services, applying new strategies in critical policy areas and achieving fundamental reforms in key areas of spending Recovering cities need to save to invest as they invest to save : the goal of local government needs to be more than a balanced budget. Older communities don t have the luxury of choosing between fiscal and economic recovery they have to have a plan to do both. 2

3 More with Less by Doing Things Differently The definition of insanity is doing the same thing over and over again and expecting different results. When Peter Orszag took over as head of the CBO, he took a Willie Sutton approach to the nation s huge and growing fiscal mess: he went after health care, which makes up roughly a quarter of the federal government s spending, because that s where the money is. Bridgeland and Orszag, Can Government Play Moneyball? Apply the same approach to local government and you get the City and County equivalents of health care: Public Safety and Pension Costs 3

4 More with Less by Doing Things Differently Vallejo, California Fire Chief: He began, in short, to re-think firefighting. Lewis, Boomerang: Travels in the New Third World Between 1977 and 2010, total fires are down by 59% and structure fires are down by 56% 4

5 More with Less by Doing Things Differently Staffing has generally not declined with the reduction in fire risk because of national standards ISO ratings and NFPA response time. Unlike police departments and COMPSTAT, there has been no national movement to make fire departments more data driven. Challenge to local governments is to re-think firefighting and re-invent the fire service: Prevention (British model) vs. Response - staffing based on risk (age of structures, density, blight, poverty) EMS, Code Enforcement, Public Safety Officers Redeployment and Regionalism 5

6 More with Less by Doing Things Differently Between 1995 and 2010, in the U.S. Violent crime is down by 30% Property crime is down by 24% Arrests are down by 13% 900, , , , , , , , ,000 0 Jail Population Jail Population 6

7 More with Less by Doing Things Differently The increase in jail population has largely been driven by increases in pre-trial population individuals not yet convicted for crimes What has been the cost? Between 1995 and 2009, local correction costs grew at a 20% greater rate than the overall growth in local government spending City and County governments New York and Philadelphia, but also Madison County, Alabama and New Orleans -- are saving money without reducing public safety through better case processing, arrest diversion, providing alternatives to incarceration, establishing pre-trial programs and investing in offender re-entry 7

8 More with Less by Doing Different Things The growing costs of public sector pensions has affected virtually every state and local government Growing benefit costs combined with market decline has led to difficult choices for state and local governments during the most recent economic downturn increase taxpayer funded contributions to meet annual required contributions or allow unfunded pension liability to grow. The alternative is to enact fundamental changes in the structure of public pension systems in order to make them financially sustainable reducing taxpayer burden, but also ensuring that employees retain benefits into the future 8

9 More with Less by Doing Different Things 110% 108.9% 109.9% Chattanooga Fire and Police Pension Fund AVA and MVA Funded Levels 100% 90% 80% 99.8% 92.8% 101.3% 107.2% 99.2% 97.7% 89.2% 84.5% 84.5% 81.0% 80.8% 84.1% 79.8% 78.8% 78.8% 84.3% 85.4% 79.7% 80.9% 76.3% 74.1% 72.0% 70% 73.6% 66.2% 63.3% 60% 50% 54.2% 54.6% 55.1% 50.9% 51.8% 40% Actuarial Value of Assets Market Value of Assets 9

10 More with Less by Doing Different Things $16,000,000 Recommended and Actual City Contributions Year Ending $14,000,000 13,346,490 $12,000,000 $11,937,269 $10,000,000 $9,923,680 $8,000,000 $6,709,228 $7,428,607 $8,339,983 $8,366,294 $8,234,416 $6,000,000 $5,682,456 $6,167,911 $6,419,294 $4,846,309 $4,541,413 $4,000,000 $3,781,998 $3,749,260 $2,000,000 $0 Annual City Recommended Contribution Amount City Actually Contributed 10

11 Millions ($) More with Less by Doing Different Things Projected City Contributions (Status Quo) v. Task Force Recommendation $40 $35 $30 $25 $20 $15 $10 $21 $20 $20 $19 $18 $17 $16 $15 $13 $13 $13 $12 $11 $10 $10 $9 $32 $31 $30 $29 $28 $27 $26 $25 $24 $24 $23 $22 $22 $20 $20 $19 $18 $18 $17 $17 $16 $16 $15 $15 $14 $14 $37 $35 $34 $33 $24 $23 $22 $21 $5 $ Projected City Contribution - Status Quo Projected City Contribution - Task Force Recommendation 11

12 More with Less by Doing Different Things Step 1: Government sets outcome and timeline goals Step 2: Intermediary organization raises funds from investors and provides funding to service providers Step 3: Service providers implementation proven interventions to achieve prescribed outcomes Step 4: Independent assessor determines if outcomes are achieved Step 5: Government pays intermediary organization which provides ROI to investors based on terms of outcome achievement 12

13 Doing More with Less to do More Baltimore s Goals 1. Break free from annual cycle of cutback budgeting to establish a greater degree of structural fiscal balance 2. Address long-term liabilities and adverse budget drivers, such as unsustainable employee benefit costs 100% 90% 80% 70% 60% Growth in Revenues v. Workforce Expenditures FY 2007 FY 2012 (Budget) 89.3% 3. Identify resources to address other key strategies in support of the Mayor s goal of seeing Baltimore grow again, such as improved tax competitiveness and infrastructure investment 50% 40% 30% 20% 10% 0% 3.0% 19.6% Revenue Wages + Benefits (Active and Retiree) 38.7% Healthcare (Active Employees) Pensions 13

14 Doing More with Less to do More Ten-Year Plan Goals Base FY2013 Citywide demolition funding: $2.3 million Mortgage settlement adds $9 million one-time Significantly accelerate the demolition component of the Vacants to Value (V2V) initiative Ten-Year Plan quadruples base funding to nearly $10 million per year FY2014 surge funding of $10 million more $20,000,000 $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Local Blight Elimination Funding Surge FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 Baseline "Status Quo" One-Time Mortgage Settlement New Ten-Year Plan Recurring Ten-Year Plan "Surge" 14

15 Doing More with Less to do More Ten-Year Plan Goals Increase local capital investment for infrastructure From $552 million baseline to over $923 million A 68% increase, including rebuilding ten recreation centers 15

16 NRN: A New Resource for Cities Funded at $10 million by HUD, the National Resource Network (NRN) is a three-year program that will provide comprehensive technical assistance to distressed cities across the country. The NRN recognizes that cities face multiple, cross-cutting economic issues (e.g. poverty, crime, affordable housing) that need to be comprehensively addressed. 16

17 NRN: A New Resource for Cities NRN consortium: Enterprise Community Partners Public Financial Management HR&A Advisors New York University s Robert F. Wagner Graduate School of Public Service International City/County Management Association 17

18 NRN: A New Resource for Cities The NRN provides three core services: 1. A 311 for Cities service that will offer timely, ondemand access to expertise and assistance to cities across the country. 2. A team of experts to provide on-the-ground support to a city for up to 12 months to assess local needs, provide recommendations, and help cities identify and execute on strategies that align with their economic recovery. 3. The dissemination of strategies, best practices and lessons learned from its work through the creation of an NRN website, peer networks, and other resources. 18