10 best local budget practices
…focusing on the ten best ways for towns and other municipalities to save money
while maintaining, or improving, local services. The ideas, presented here in
random order, will likely change over time as they will be selected on the basis of
proven usefulness across the country.
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How to Save an Underfunded or Unsustainable Municipal Pension Plan
Hardly a day goes by without a news story about some community struggling to bridge the gap between
retirement promises to public employees and the reality of unaffordable pensions and benefits. Here
SmartTowns describes two policies that have been shown to repair seriously troubled municipal pension
plans.
Mayors and other community leaders across the nation have good reason to worry that underfunded
plans will at some point come back to haunt their respective municipalities. According to a 2013 Pew
Foundation study of 61 key American cities (defined as the most populous in each state plus all other
cities over half a million people) the gap between pensions promised to municipal workers and what has
actually been saved is more than $217 billion. Even worse, few of these same cities have reserved for
other promised post-retirement benefits such as health care and life insurance.
Some states like California have presumably “solved” their municipal problem by requiring local
governments and school districts to fully fund annual contributions to two statewide pension plans, one
for teachers (CalSTRS) and one for other public workers (CalPERS). But in the current era of slow
economic growth and (as a result) reduced tax revenues, fully funded pension contributions mean less
money for essential services, such as public education, parks and recreation, sanitation, and local road
repair. It is not a coincidence that California has a disproportionate number of cities known to be in or
near bankruptcy including Compton, Fresno, Oakland, San Bernardino, San Jose, Stockton, and Vallejo.
Although exact budget numbers for all of America’s towns, counties, school districts, and other local
government entities are difficult to come by, experts believe the problem of underfunded or forcefunded pensions is widespread and growing. Elected officials increasingly say that something must be
done to relieve the escalating financial burden on their municipalities while union officials argue back
that their members are only asking for what has already been contractually promised.
In spite of what seems like an insoluble problem for many financially pressed localities, agreeable
solutions have in fact been worked out in cases where representatives of all interested constituencies –
taxpayers, officials, current workers, pension managers, and retirees – are prepared to accept two
guiding priorities. Even the most troubled municipalities have been saved from the ravages of excessive
pensions if they have been willing to, first, keep faith with benefits already earned and, second, to
muster the discipline required, over an extended period of time, to prevent a repeat of funding
problems in the future.
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The first part of this prescription requires union leaders to accept the need for some kind of quid pro
quo. If taxes are to be raised or local services streamlined in order to guarantee public workers the postretirement benefits they were promised, then voters should reasonably expect some flexibility in costof-living adjustments (COLAs), current employee contributions to their pensions and health care, and
even modest salary adjustments. Putting limits on so-called “double dippers” – pensioners who
undertake a second municipal career with a whole new set of benefits – should also be on the table.
Understandably, this is not an easy compromise to negotiate. It is especially challenging in those states
where statutes – and even the state constitution itself – prohibit any contract concessions from current
workers, effectively putting the entire burden for give-backs on new hires. But attempts to trade the
guarantee of an intact pension for concessions in other areas have been far more successful across the
country than generally known.
In 2011 Atlanta Mayor Kasim Reed and his City Council saved the pensions of current and retired
workers by negotiating a so-called “hybrid” plan. It gives new city employees a smaller defined benefit
when they stop working but combines it with a defined contribution plan, similar to a private company’s
401(k) focused on income. The Atlanta reform also extends the retirement age for new employees and
creates a minimum retirement age as a cap on the city’s pension contributions.
Lexington, Kentucky, has also negotiated a viable plan. In 2012, after years of irresponsibly
shortchanging annual pension fund contributions, the city created an emergency task force made up of
municipal officials and union representatives. The result was an agreement that guarantees Lexington
will increase its annual pension payments from $11 million to $20 million. In return, employees have
agreed to an older retirement age and increased paycheck deductions. “Active police officers and
firefighters are now giving one percent more out of their paycheck and new employees are staying on
the job five years longer,” says Lexington Mayor Jim Gray. “Retirees now have lower COLA rates that are
tiered based on income, though they can rise after the health of the fund is secured.”
And earlier this year, the city of West Warwick, Rhode Island, whose financial troubles led it to the brink
of a state takeover, instead negotiated a settlement with its firefighters, police, and other municipal
workers. It actually included $850,000 in reduced health care coverage and a temporary cap on salaries
for teachers, who are covered by a completely separate state retirement plan but felt that they should
help out their community.
What appears to make such agreements possible is an ongoing program of community education
combined with a negotiating process conducted by an independent pension expert, preferably trained in
arbitration, who is trusted by all sides. When all the options are fully and fairly weighed, public
employee unions are more likely to accept the reality of what is economically feasible than to make
matters worse by stonewalling a viable resolution. As Lexington Mayor Gray puts it, workers can see for
themselves they are facing “mutually assured destruction” if something is not done.
If the first prerequisite of a viable pension bailout plan is the preservation promised retirement benefits,
the other involves taking steps to prevent the kind of mistakes that will lead to future shortfalls. These
include the adoption of budgets that are affordable and sustainable, written safeguards to prevent
municipalities from skipping pension payments in hard times or from buying labor peace by promising
unfunded benefits, and a clear strategy for managing pension risk in good times as well as bad.
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As recently as 2000 most public worker pension funds in America were adequately funded but lacked a
plan for dealing with something like the bursting of the dot-com bubble or the collapse of the real estate
market that came after. The biggest factor determining which pension funds have remained healthy,
according to the Pew’s study of the 61 key cities, has turned out to be the kind of fiscal discipline
outlined above.
In closing it is important to stress that even the most financially troubled municipalities have a fighting
chance to turn things around if they are prepared to negotiate a pension compromise that preserves
promised benefits and adopt fiscally responsible policies going forward. In 2010 Business Insider ranked
Jacksonville, Florida, as the sixth mostly likely American city to run out of money; but that did not
happen.
Instead, the Mayor established a task force to tackle a badly underfunded police and firemen’s fund. It
included representatives of Jacksonville’s retirement board, which the public employee unions had
authorized to act on their behalf. The result was a plan that increases the pension contribution from
taxpayers in return for concessions from current workers. Present retirees will get every dollar promised
them, new employees will still get a pension that gives them retirement security, and the city saves
more than enough to forestall bankruptcy. At present the recommendations have been adopted by
Jacksonville’s mayor; and the public safety workers, who have been represented from the outset, are on
track to ratify it as well.
For public officials, pension managers, and citizen groups seriously interested in tackling a pension
shortfall in their communities, here is a link to the March 14, 2014, report of the Jacksonville Mayor’s
Task Force. Although every community’s pension problem is unique, it provides a useful template for
describing a serious pension problem, putting it in historical context, appointing a task force, taking into
account relevant legal issues, and framing solutions.
____________________________________
The author, Lewis Andrews, welcomes comments at lew@lewisandrews.com
How to Save an Underfunded or Unsustainable Municipal Pension Plan is one of ten
best budget practices presented on SmartTowns.org - a website operated by NABR,
Inc., PO Box 177, West Redding CT 06896 USA.
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Save money by using graduate students as teacher aides.
Paying teacher substitutes and aides a salary with benefits is a waste of
taxpayer money, when there are so many education school graduate students
who would gladly do the same work for academic credit with their respective
academic programs. In Connecticut, some of the poorest districts (Bridgeport,
New Haven) as well as some of the wealthiest (Darien, Greenwich) draw on free
or low cost talent from local universities.
Many colleges and universities have staff specifically dedicated to placing their
students as interns with local K-12 districts. These programs generally work
as follows:
* Graduate education students serve one year as an intern at one, sometimes
two, K-12 school districts to gain real-life experience in the classroom; they
receive academic credit from their home college or university in return.
* The school district receiving the intern assigns that person to a variety of
jobs, including teacher’s aide and substitute. If scheduling and opportunity
permit, the intern gets non-teaching experience as well.
* The university’s internship staff guide the graduate student through the
entire placement to be sure that both the intern and the school district are
getting maximum benefit from the program.
* Often the university levies a fee on the K-12 district for services provided, but
then waives the intern’s obligation to compensate the graduate school for
placement, monitoring, and assessment.
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It is economical to pool services between and among towns.
A wide variety of community services, from the capture and housing of stray
animals to school curriculum oversight, can be pooled across jurisdictions at
significantly lower cost.
We have seen elsewhere on the SmartTowns website that firefighting can be
merged with police and EMS into a single service within a jurisdiction – or at
least firefighters can share facilities. Alternatively, firefighting services can also
be merged across jurisdictions at great savings without having to comprome
quality. Minnesota, which under Gov. Tim Pawlenty was a pioneer in this area,
has made available to towns in other states a helpful online manual called
“Blueprint for Shared Services,” written by the Governor’s Fire and Shared
Services Task Force:
https://dps.mn.gov/divisions/sfm/programsservices/Documents/Governors%20Council/Council%20Activities/SharedServi
cesBluePrint.pdf
Another promising area is shared highway services. Since 2005, the New York
legislature has encouraged municipalities to collaborate on road maintenance,
which is the largest non-education related expense in that state’s rural
towns. A helpful online guide is “Promoting Inter-municipal Cooperation for
Shared Highway Services,” published by the New York State Legislative
Commission on Rural Resources:
http://www.dos.ny.gov/lg/publications/Promoting_Intermunicpal_Cooperation
_for_Shared_Highway_Services.pdf
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Get graduate feedback from schools.
In most American communities, the single largest expense is public education. Even
in the smallest towns, local boards of education make multi-million dollar budgetary
decisions to further the interests of local children. And yet the vast majority of school
boards make no effort to poll high school graduates to find out how well the public
system has actually prepared them for college or work – and what the students
themselves would suggest to improve the curriculum cost-effectively.
In the summer of 2011, a taxpayer group in Redding, Connecticut, finally decided to
conduct such a poll. Obtaining the names and addresses of the 2010 graduates of
Joel Barlow High School (the local high school shared with the adjoining town of
Easton), the group contacted political science professor Lesley DeNardis at nearby
Sacred Heart University and, with her help, designed a questionnaire to determine the
strengths and weaknesses of the school curriculum. The questionnaire was mailed to
each member of the class of 2010 in such a way that he or she could respond only
once, but anonymously and therefore candidly.
The results were interesting. Most of the class felt the school had prepared them well
for life beyond high school, but felt there could have been a stronger emphasis on
teaching study skills and time management. The instruction in English received high
marks with math perceived somewhat less favorably.
While most local boards of education are undoubtedly well-intentioned, almost all
boards make their decisions in the dark without any real-world feedback from the
people who matter most – the students who are supposed to be well-prepared for life
beyond high school. Given that schools account for such a high percentage of local
spending, every public education system should engage in some kind of polling to
insure that its budgetary decisions are truly cost-effective.
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Cross-train Public employees.
For many years, private industry has found that the cross-training of
employees has many benefits. Not only is it possible to economize on staffing,
but resources are available to perform needed jobs when someone is sick.
One area where cross-training has become especially popular with local
government is emergency service. With a recent study by Public Sector Inc.
showing that the incidence of fires in America has decreased by 90% over the
last 25 years, many towns are training their policemen, firemen, and
emergency medical responders to perform each others’ duties. As a result, the
firefighter who identifies an arsonist while putting out a blaze now has the
authority to arrest him. Or if two police officers manage to stop a beating, one
can detain the assailant while the other escorts the victim to the hospital.
Bloomfield, Michigan, was one of the first to cross-train emergency service
personnel. The town’s 26 police officers, who have 8-hour shifts and operate
24/7, have been trained in fire suppression and emergency medical treatment,
as well as in the usual duties of a policeman. Kalamazoo, Michigan, saves $4
million annually by utilizing combined services. According to the Los Angeles
Times, at least 130 municipalities across the country employ some form of
public safety consolidation; and the town of Sunnyvale, California, which has
been also been an early leader in this area, has been contacted by half a dozen
entities that want to look into the idea, including Fairbanks, Alaska, two
Southern California communities, and a University of California campus.
By merging police and fire personnel, localities can also save on the needless
duplication of expensive facilities. Instead of a separate kitchen, recreation
hall, dispatch center, conference room, emergency operations center,
secretarial facility, and training room for each emergency service, one facility
can sustain multiple activities. The town of Holden (pop. 16,000) near
Worcester, Massachusetts, which needed to replace aging facilities for both
police and fire departments, saved $2 million on $12 million project for a
combined facility. Three other Massachusetts towns (Harwich, Foxborough,
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and Norfolk) have had similar experiences, prompting a number of New
England localities to imitate them.
In both the U.S. and Canada, there have been other promising experiments
with cross-training public employees. For example, the city of Kitchener,
Ontario, eliminated contracts for supplemental snow-removal crews and
instead trained parks and recreation staff to provide backup. The Sheriff's
Department in Porter County, Indiana, has initiated a program to cross-train
court security to perform jail securities duties as well. The county anticipates
that the program, which includes a small salary raise for court security
officers, will alleviate the overtime burden on jail employees at times when the
court is closed or overstaffed.
To prevent tow truck drivers from being stranded at home during blizzards,
unable to clear the street of abandoned cars during, a group of New York City
police officers has been trained to open locked cars and prepare tow vehicles so
snow plows can get to work faster.
The city of Daly, California, has initiated one of the most ambitious crosstraining programs. Known as I-MTEP (for "internal management talent
exchange program"), it encourages public employees to self-select for crosstraining. Those who volunteer are then made aware of manpower shortages in
different city departments and offered the opportunity to fill in where they have
the most interest.
For a more detailed look at the possibilities of cross-training, see Governing
Magazine’s “Cross-Training Rundown”:
http://www.governing.com/topics/public-workforce/cross-training-rundown.html
For more information on combining emergency facilities, see: http://www.9-11magazine.com/Police-and-Fire-Sharing-Facilities/
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Reduce local budgets with a citizens' audit committee.
John R. Bartle, dean of the College of Public Affairs and Community Service at
the University of Nebraska at Omaha, wrote a very insightful article in May of
2013 for Governing Magazine.
He noted how at the beginning of the legislative session is almost every state
there are always demands for new ways to reduce the cost of local
government. The most popular proposals usually call for consolidations (city
with county, town with town, school district with adjacent district, and even
cemetery district with other districts) and use of purchasing pools.
The biggest problem, he notes, is that the local governments which would most
benefit from cost cutting alternatives often do not consider them, in part
because public employees fear for their jobs but also because officials get stuck
in their thinking. “While management consulting is no panacea,” he wrote in
the magazine, “I think many local governments would greatly benefit from a
top-to-bottom efficiency analysis or management audit done by people who
understand government.” What becomes clear from such audits is that there is
as much to be gained from smart policies as there is from structuring
work. For example, localities spend a fortune on computers and other
electronic equipment, especially in schools, yet have no system for tracking
it. A very effective, though rare, policy is not to fill any vacancy for up to 90
days except temporarily to allow for a comprehensive analysis to determine if
the position can be eliminated, consolidated, or provided at less cost.
The Yankee Institute in cooperation with Nonpartisan Action for a Better
Redding has developed a simple manual for helping taxpayer groups and
government officials develop a comprehensive audit of town finances for the
purpose of adopting cost-saving practices and policies. It has been used
successfully in many states around the country. You can download it here
free.
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Take advantage of volunteers for policing and other duties.
Just a few years ago, the police department in Redlands, California, (pop.
71,000) had a paid staff of 98 officers, 208 civilians, and only a dozen
volunteers. The department’s budget was $23.8 million, nearly half of the city’s
operating budget. Today, the police do the same job with only 75 sworn
officers, 138 paid civilians, and 291 active volunteers.
The volunteers do more than answer phones. They cordon off crime scenes,
direct traffic, patrol the city’s fourteen parks, write parking tickets, assist with
animal control, provide crowd control at special events, check in parolees,
assist with records processing, help staff DUI checkpoints, take reports on
routine property crimes, serve as the liaison with the San Bernardino County
district attorney’s office, provide counseling to crime victims and even monitor
sex offenders remotely. Two volunteers reserve officers even conduct
investigations alongside the city’s detectives, and one has his own caseload.
Policing is not the only services that can benefit from using volunteers. In
2010, when a 100-year flood submerged parts of downtown Nashville, the city
worked with a group of volunteers to mobilize thousands of additional
volunteers to sandbag against the rising Cumberland River. Since then the
Nashville has developed a service plan that uses volunteers across a number of
agencies, including education, parks, and the environment.
Helpful resources include Bloomberg Philanthropies and the Rockefeller
Foundation, which provide community grants to identify local priorities that
can be addressed with volunteers. In additional, National University has
produced a free online guide to “Reducing the Cost of Crime through Reserve
Police Officers and Volunteer Citizen Patrols.”
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Save money by frequently re-bidding services contracts.
Local governments contract out for a number of costly services, including
health insurance, energy (oil, gas), ongoing legal representation, and liability
insurance. Ever since the 2008 financial crisis, this practice has expanded to
include outside contracting for custodial services and, in the case of schools,
food and student bus transportation. A study by Michigan’s Mackinac Center
found a 98 percent increase in the use of outside contractors by that state’s
school districts in the decade following 2001.
Soliciting bids from private vendors adds an element of competition and
provides an incentive for quality services at lower prices, but only if service
contracts are re-bid at frequent intervals. This is something most adults know
to do in their private lives, but it is one of the most widely overlooked cost
saving measures available to localities.
Dr. Armand Fusco, a retired Branford, Connecticut school superintendent who
offers forensic audit guidance to towns and other localities nationwide, believes
that too many services are renewed with existing providers, a practice that
invites waste, abuse, and even fraudulent kickbacks to local officials and
school administrators.
As for the potential savings, Fusco cites the case of Somers, Connecticut,
which for twenty years assumed it was paying a fair price of $3.49 a gallon for
8,000 gallons of propane a year. But when the town allowed competitive
bidding, it received a low bid of $1.49 a gallon. Only then did the Somers’
regular supplier drop its price, first to $2.49 and then finally to $1.29 a gallon.
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Rigorous oversight of employment records saves money.
Thoroughly double-check payroll and benefit records. Local services are labor
intensive with salaries and benefits accounting for upwards of 80% of
municipal budgets.
According to Dr. Armand Fusco, author of School Corruption: Betrayal of
Children and the Public Trust (2005) and of two Yankee Institute for Public
Policy guides for reforming local budgets, even small towns lose millions of
dollars because part-timers are carried on the books with full-time benefits.
Fusco says that significant sums are also lost because of unnecessary
overtime, unjustified employee reimbursements, yearly salary and benefit
increases in excess of the cost of living, and even “ghost” employees.
The single most important employment policy is not to fill any vacancy
except temporarily until a comprehensive analysis has been completed to
see if the position can be eliminated, consolidated, or contracted out at a
lower cost.
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Combine the best of online learning with conventional teaching.
Few education experts believe that online instruction will ever completely
replace the benefits of a traditional K-12 education. But the current thrust of
academic innovation is clearly in the direction of “blended learning,” whereby a
student taking five courses per semester might take one, two, or even three
online. Blended learning recognizes that the value of human instruction,
especially in the younger grades; but it also recognizes that public education is
the biggest local expense and that staffing is the biggest cost driver of public
education. Blended learning also recognizes that no single teacher can ever
hope to cope simultaneously with the unique learning style of every student,
while electronic instruction does in fact adjust to individual
differences. Interestingly, the areas where good teachers are in short supply
(math, science, and foreign languages) are areas that lend themselves
especially well to online instruction.
The development of cost-effective instructional technology, combined with
growing pressure on local budgets, has already begun to change the incentive
structure of K-12 education in many states. In 2011, Utah’s legislature passed
a digital learning policy that ties funding for Internet courses in public schools
to student outcomes. Online providers receive half the per-pupil payment for a
course up front and the other half only after the student has mastered the
material. In November, 2012, Michigan Gov. Rick Snyder unveiled an
education reform plan that would allow his states’ high school students to get
credit for online courses offered by multiple sources including neighboring
districts, online academies, community colleges, and state universities.
For the latest guidance on the effectiveness of online programs and how to
implement a blended learning program, check the website for The International
Association for K-12 Online Learning: www.inacol.org
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Give high school students an incentive to graduate early.
Here is a cost-saving idea developed by the Yankee Institute for Public Policy at
Trinity College, Hartford, which has been adopted in some form by at least
seven states, including Arizona, Idaho, Indiana, Michigan, Minnesota, Texas,
and Utah – although not all of these states have publicized the opportunity.
The basic concept is to reward any student who graduates high school in three
years with a community college scholarship. Because the cost of community
college in most states is less than the per pupil cost of the high school senior
year, this policy has several benefits:
1. It reduces the amount of property, income, or sales taxes required to fund
public education;
2. It makes college education more affordable for all students, but especially
for those from poor and middle class families;
3. It gives communities a cost-free way to cope with the growing cost of teacher
salaries, pensions, and health care benefits;
4. It diminishes the financial burden of new school construction;
5. And it helps to attenuate the phenomenon of senior year boredom, which
drives some adolescents to drug abuse, promiscuity, and other self-destructive
activities.
Interestingly, the idea of encouraging high school students to meet all their
graduation requirements in three years so they can move on early to college
level work is not new. Most school districts in North America define graduation
requirements, not by years attended, but by the completion of certain required
courses. Since high school students are permitted many electives over the
course of four years, condensing the curriculum into three grades is largely a
matter of students substituting required courses for some electives. What is
new about the policy of rewarding early graduation is that it employs a
financial incentive that benefits both students and taxpayers.
To learn more, download “Free College for High School Students.”
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