ULI’s Rose Center Addresses Fiscal Distress

Local governments need to reevaluate the services they deliver to constituents—and identify other sources that could help provide them—in order to cope with ongoing fiscal distress, government and private sector leaders from the United States and Europe said at a recent roundtable sponsored by the German Marshall Fund of the United States and ULI’s Daniel Rose Center for Public Leadership in Land Use.

The need for creative solutions will continue, panelists said, because the pressure on municipal finances is unlikely to abate soon. This could be the “eye of the storm” for municipal finance, said Chris Hoene, director of research and innovation for the National League of Cities. “I know there will be a couple of years, even after things start to recover, until we see revenue growth.”

The roundtable, held in Washington, D.C., in September, gathered elected officials, government staffers, philanthropic organization executives, and academicians from the United States, the U.K., and Germany.

Both U.S. Representative Mike Turner (R-Ohio) and Atlanta Mayor Kasim Reed warned that governments cannot afford to stop investing in their communities, even as they attempt a long-term restructuring. “I believe the natural state of a city is decay,” said Turner. If cities do not reinvest, they will decline, he said, causing a damaging out-migration of people and capital.

Reed said cities cannot afford to be inattentive to basic services, from potholes to police, if they are to maintain public trust. “If you start to have weakness in the public-safety space, when we emerge from the downturn you will have damaged your brand. You will be a loser.”

Reed recounted how Atlanta has dealt with what some panelists warned could be the next fiscal bubble to burst—inadequate funding for public-employee pensions. In June, Atlanta’s city government and employees agreed on a plan to address $1.6 billion in unfunded pension liability. To help ensure that the pension plan would survive, employees agreed to fund a higher share of their benefits and to accept an increase in the retirement age, among other changes.

Left unchecked, the pension deficit would have ballooned to $4 billion in ten years, Reed said. “And at that point, Atlanta goes out of business. We can’t pay a $4 billion liability,” he said.

Participants reported that they are relying on similar means to manage budgets: cutting personnel, consolidating government offices and functions, outsourcing to private sector contractors, and partnering with other levels of government, volunteers, and philanthropies. They also are trying to manage public expectations and reduce overall demand for services.

“Everybody wants their local government to control everything—until they find out what it’s going to cost them,” said Don Plusquellic, mayor of Akron, Ohio. In particular, Akron officials are examining which services would be delivered more efficiently at the county rather than city level. “This should force us to make some decisions we wouldn’t ordinarily do,” he said.

Mike Emmerich, chief executive of the Commission for the New Economy in Manchester, U.K., said one key to reducing spending is targeting the problems of dysfunctional families. Such families create a disproportionate demand for public services, including law enforcement.

New York City is attempting a similar focus on issues affecting families, said Linda Gibbs, deputy mayor for health and human services. For example, the city has connected data systems so various city workers —whether a parole officer, a child welfare worker, or someone handling Medicaid enrollment—can get access to the same family records. “We’re trying to take a more holistic approach,” Gibbs said.

The city also has streamlined the paperwork requirements for municipal contracts. Instead of establishing contracts with each unit of a government agency, a not-for-profit organization can sign one master service agreement with the city, which is maintained in an electronic database.

Noting that his city’s “core business” is social services, Birmingham (U.K.) City Council Chief Executive Stephen Hughes said the city is trying to implement social interventions, funded by nongovernment entities, that can reduce demand for government programs. “That’s about prevention—putting in place interventions that reduce social costs going forward,” he said.

“In a sense, America would be a better place to do that because the U.S. has great philanthropic foundations that we don’t have,” he added. “We’re so focused on government providing everything.”

However, representatives of philanthropic organizations, including the Kresge Foundation, based in Troy, Michigan, and the Herbert-Quandt Foundation, based in Bad Homburg, Germany, warned that local governments need to engage them as full partners, not as what Wendy Jackson, Kresge’s senior program officer, termed “charitable checkbooks.”

In Detroit, Kresge has been heavily involved in transforming the riverfront from industrial use to public space and is promoting construction of a new light-rail transit system. In these ways, philanthropy can focus on long-term improvements to the community while government focuses on basic services, Jackson said. “We aren’t the elected leadership, and we know it,” she noted.

Jackson said philanthropic organizations have not explained themselves well enough to municipal leaders. “When they’re truly working in sync, they’re game-changing,” she said.

The forum was cohosted by the ULI Rose Center as part of its ongoing efforts to encourage leaders in the public sector to envision, build, and sustain successful 21st-century communities.