Monday, December 28, 2009

From WSJ Cities start to look at Mergers to reduce costs, same as in AUSSIE in the 90's

As Slump Hits Home, Cities Downsize Their Ambitions


MESA, Ariz. -- The police department in this city of 470,000 has lost about 50 officers, and is hiring lower-paid civilians to do investigative work. The Little League has to pay the city $15 an hour to turn on ball-field lights. The library now closes its main location on Sundays, and city offices are open only four days a week. This holiday season, the city didn't put up festive lights along the downtown streets.

Mesa's tax receipts, depressed by the recession, will likely come back one of these days. But Mayor Scott Smith doesn't believe city services will return to prerecession levels for a long time, if ever. "We are redefining what cities are going to be," says Mr. Smith, a Republican who ran a homebuilding company before his election last year.

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Joshua Lott for The Wall Street Joural

Civilian investigator Rachell Tucker looks for fingerprints on a piece of glass as she investigates a vehicle robbery in Mesa, Ariz., earlier this month.
.The redefinition isn't sitting well with residents like Sandra West, 67 years old, who has lived in Mesa for more than four decades. She's noticed the city's parks looking a bit ragged, is unhappy the library has cut back hours and misses the Christmas lights. "It was really beautiful," she says.

Months after many economists declared the recession over, cities are only now beginning to feel the full brunt of it. Recessions often take longer to trickle down to local government, in part because it takes time for the sales and property-tax revenues on which municipalities depend to catch up with a depressed economy.

But the sting this time around is expected to be far more acute and long-lasting then in previous recessions. Projected deficits are especially deep in some places and tax revenues could be pinched for years as consumers turn thrifty and real-estate prices remain diminished. That means the relatively painless measures such as borrowing, deferred payments to pension plans and scattered layoffs that have been used during past episodes of fiscal strain are unlikely to be effective in some cities.

In the decade through 2008, municipal tax revenues grew at a rate of 6.5% a year, faster than the overall economy's 5.1%, unadjusted for inflation. Those revenues have started to slip. A national tally isn't yet available, but state tax collections fell 11% across 44 states in the third quarter of 2009, from the same period a year ago, according to a report by the Nelson A. Rockefeller Institute of Government at the State University of New York. In a recent survey by the National League of Cities, 88% of city budget officers said they were less able to meet their financial needs than they were a year ago.

.The specter of lean budgets for years ahead has some of the nation's 89,000 local governments rethinking what services to provide and how to pay for them. From Mesa to Philadelphia, this means some combination of higher taxes and fewer services. In some places, it means more and higher fees for permits and recreation programs. Museums, pools and the like are relying more on income from fees charged to users and from nonprofit organizations, and less on taxpayers.

These cuts matter greatly to the economy at large. Local government spending accounts for 8.8% of the nation's total output, including everything from employee salaries to snowplows. The sector employs one in nine workers -- 14.5 million in all, or about 8 million in education and 6.5 million elsewhere. More Americans work for cities, counties and school boards than in all of manufacturing.

More likely to be union members, government workers tend to be better paid and have greater job security than many of the taxpayers who pay their salaries. Benefits are often better, too. Virtually all full-time state and local workers have access to retirement benefits; in the private sector, about 76% of full-time employees had retirement benefits. Employment in local government peaked in August 2008 and has fallen by 117,000 since then, or less than 1%, compared with a 6.3% fall in private employment from its December 2007 peak.

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.About one third of the federal $787 billion fiscal stimulus was aimed at state and local government. The money has helped some local governments keep police and school teachers on the job, and has gone toward building new firehouses and police stations. Another stimulus program subsidizes municipal borrowing by paying 35% of local government's interest cost on borrowing for infrastructure.

But some cities have complained that too much of the stimulus was absorbed at the state level. President Barack Obama is promising to do more, calling in a recent speech for more "relief to states and localities to prevent layoffs."

Just as the recession has spurred businesses towards more efficiency, it has forced some cities to do the same. In upstate New York, for instance, the Village of Lake George and the neighboring town of Lake George are debating a consolidation plan that would create one government from two sets of lawmakers, two planning boards and two zoning commissions.


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.The move would save about $350,000 a year, or about 10% of the combined town and village budgets, according to Fairweather Consulting, which was hired to study the proposal. But some locals say the two places might sound alike on paper, but in reality are very different: Residents of the quaint village, which thrives on tourism, worry services could decline, while residents of the town, whose primary commercial center is a highway-adjacent strip with a Howard Johnson, worry that taxes will rise.

"It's the unforeseen," says Robert Blais, mayor of the Village of Lake George. "They know what they've got and they're happy with it."

In Philadelphia, where sales and corporate taxes have taken a hit, budget cuts are limited by the large fixed costs of city workers' pension and benefits plans. About one fifth of the city's $3.7 billion budget goes for health-care and pension costs for current and retired workers. The city's overall tax revenue has fallen 6% over the past two years, while pension costs have risen 6% and health-care costs 11%. Philadelphia Mayor Michael Nutter, a Democrat, is pushing union employees to pay more of their health costs and is looking to move new employees to a less generous pension plan.

The city has cut about 800 positions in the past year, mostly through attrition, and suspended some services citizens used to take for granted. It has stopped providing snow removal on some smaller, one-way streets, except in emergencies, and it suspended mechanical leaf pick-up in some spots. This fall and early winter, older, tree-lined neighborhoods like Mt. Airy and Chestnut Hill were littered with rotting leaves.

"Intellectually, I understand budget cuts need to be made but I do not think this was thought through," says Liz Macoretta, who lives in the West Mt. Airy neighborhood. "You're going to have half the street full of leaves and then you're going to have one-way traffic. I feel let down."

Anyone who wants to have a parade in Philadelphia now has to pick up the tab. The city's Mummers Parade, where 10,000 or so string bands and other performers don bright costumes and march up Broad Street on New Year's Day, won't receive the $336,000 in prize money that used to go to the best string band and other parade participants. The last time that happened was during the Great Depression.

"You used to get ten grand and a trophy, now you just get a trophy," says George Badey, chairman of Fund, a nonprofit that helps fund the parade. The Mummers also had to pay $8,800 for security, clean up and other services, all of which the city used to provide free.

Mesa was founded in the 19th century by Mormon pioneers who built a grid of wide streets to accommodate settlers' wagons. It's been growing ever since, from a quiet Phoenix suburb to the nation's 38th most populous city. More people might have heard of Minneapolis or Miami, but Mesa has more people than either. The stretch marks of growth are everywhere, from new freeway lanes under construction to miles of red-roofed subdivisions with curvy streets.

The city's revenues come largely from state aid and sales taxes, both of which have been hit hard by the recession. As a result, Mesa has spent the past year slashing services it spent decades adding, stripping 13% out of its general fund budget and cutting 340 positions through layoffs and attrition. Mesa's voters also approved a property tax this year, something that the city's generally conservative citizens had long resisted.

Mesa's police force now has 801 sworn officers, down from 858 last year. To keep the force just as visible on the streets, some detectives have been reassigned to patrol duty, leaving bigger case loads for the rest of the detectives.

The cuts have spawned new ideas. A nine-person investigative unit, based out of a Mesa substation on the eastern edge of town, consists of civilians, not sworn officers. Investigators make about $37,000 per year, versus $49,000 for officers, and carry out basic investigations for minor nonviolent crimes. They travel in unmarked white cars, don't carry guns and wear "business attire" -- usually a pressed shirt and pants -- instead of the blue uniforms sworn officers wear.

The team goes through 18 weeks of training, 20 weeks less than police officers do. Many of the classes are the same, but the course leaves out things like aggressive driving and time at the firing range. They come from a variety of backgrounds: One had been a police officer, a few had civilian desk jobs for the Mesa police department, while several others worked in retail stores including Costco and Barnes & Noble.

Sgt. Stephanie Derivan, who oversees the program, says hiring civilians reduces costs while improving services. It gives police officers more time to patrol the streets, she says, and the specialized investigators never have to hurry through a crime scene to get to a break-in in progress or chase down robbers. "My folks have the time to spend with people," says Sgt. Derivan.

On a recent afternoon, civilian investigator Rachell Tucker was sent to check out a burglary at a Mesa trailer park. Ms. Tucker was an officer in the Los Angeles School Police Department eight years ago, where she patrolled public school buildings, before taking time off to have kids. At the trailer park, she dusted a window screen for fingerprints and asked neighbors if they'd seen anything suspicious.

Becky Cumberland says she didn't notice that Ms. Tucker wasn't a police officer. "As long as she does what a police officer can do, that works for me," said Mrs. Cumberland as she sat on her back porch, sipping a Coke while writing down everything that had been stolen from her trailer, including an Xbox video game console and her son's birthday money.

Cuts in the parks department are easier to see. Michael Holste, Mesa's assistant director of recreation operations, pointed to the department's new brochure, which lists an after-school recreation program with kickball and other games with the word "cancelled" overlaid in bold letters.

In one Mesa park, a green-and-yellow jungle gym is surrounded by dirt because the city couldn't afford sprinklers. At Powell Junior High School, which itself might be closed due to tight budgets, swimming classes are cancelled; the pool has been closed all year, and isn't likely to reopen.

It's far from certain the city will resume funding parks at the same level, even when tax revenues return. Cuts in the recreation department eliminated a city-funded programmer who organized disabled sports programs such as wheelchair basketball and flag football games for people with disabilities including autism and Down syndrome. Mesa Association of Sports for the Disabled, a local nonprofit, has hired its own coordinator at a lower salary and fewer benefits. Lane Jeppesen, the group's executive director, says the new arrangement may be permanent. "I don't think the city will come back with another full-time position for a very long time because we've picked up the slack," she says.

All the cutting has put Mesa in a financial position stronger than that of many cities. Expenses are now in line with revenues. Standard & Poor's rates the city's debt AA and calls Mesa's financial management "strong, well embedded and likely sustainable."

And despite tight budgets, the remaining city workers are striving to add at least some services for the city's still-growing population. At a city council study session on a recent morning, library director Heather Wolf presented her idea for a new "express" library to open in 2010. "There is a need out there for library service and this is one way to fill the gap," says Ms. Wolf.

It wouldn't look much like Mesa's main branch, though, which sits downtown and is adorned with a plaque commemorating the library's 1980 dedication. Because of the shoestring budget, the new library would be housed in a mostly vacant strip mall, with two employees and open just three days a week. On days when the library is closed, the collection of mostly popular titles such as self-help books and airport fiction would be dispensed via vending machines similar to the DVD rental kiosks that sit in front of convenience stores in Mesa and many other U.S. cities.

Write to Conor Dougherty at