When the Going Gets Tough, the Tough Get Going

The 2008 recession reinforced a painful yet critical lesson for all of us: effective municipal leaders must make tough and painful choices and tradeoffs. In Monterey, California, we were budgeting for 2009-10, attempting to cope with revenues that fell off a cliff and plummeted with no end in sight.

Our citizens repeatedly rejected sales tax measures before the recession, and they made it clear when the economy crashed that they were in no mood for any tax or fees increase. The year before, we had cut an already lean budget to its bare bones—negotiating compensation takeaways and furlough days for staff, leaving vacant positions unfilled, allowing no inflation adjustments, and deferring even basic maintenance. But now we needed to cut more.

I will never forget the anguish in my tough, old city manager’s face as he told department heads the truth we all knew at his weekly staff meeting. He had just finished an economic briefing from Finance, and knew the end of this disaster was not in sight. We still had some maneuvering room because we had reacted quickly to the recession by preserving reserves and creating savings by freezing vacant positions and deferring new programs.

But these measures did not reduce his pain as he looked around the table at his friends and colleagues, and made sure each one understood that no amount of savings in on-going operations could offset the falling revenue. We were actively dismantling the highly functional and effective city government that he and his team built over twenty years. Many key Department Heads had worked beyond the normal retirement age, and were proud of the services and capabilities they had assembled over many years of working together. They did not want or expect to end their careers by further taking apart these services and capabilities.

The Finance Department’s revenue division reviewed revenue forecasts one more time, looking for any sign of a bottom to the revenue shortfalls. Management called in their sales and property taxes consultants. Analysts reviewed local revenues possibilities with department teams. When they produced their final forecasts, they knew that they were as accurate as they were ugly.

When the Finance Department issued this year’s departmental budget worksheets at the beginning of the budget process, the city manager’s cover memo asked everyone to examine everything they did, and prepare 5 percent or more in fresh cutbacks. The next few staff meetings were as grim as any I had ever seen. Talk of new initiatives vanished. Somber silence replaced frequently shared success stories. When asked how their budgets were developing, the Department Heads offered little hope and no silver bullets. They were looking at layoffs, outsourcing, and service cutbacks, while trying to find ways to hold crumbling infrastructure together one more year.

As the department budget milestone date approached, we realized no one had the stomach to go through the normal round of individual meetings and eke out cuts and sacrifices one at a time. Instead, the department heads decided to lock themselves in the board room and make the cuts needed, together. They would work as one team in the room, as the leaders they were, looking each other in the eye, understanding the sacrifices being proposed, and doing what had to be done.

It was my honor and privilege to serve as staff to those meetings. I took contemporaneous notes, ran the numbers through the budget worksheet, researched and modeled, and sometimes just sat back and watched the all-too-real, human drama play out. My grandpa used to say that “when the going gets tough, the tough get going.” I watched the truth of that old cliche play out:

• Public Works proposed outsourcing functions that meant he would personally have to lay off staff he had hired, trained and led for 20 years.
• The library proposed cutting back days and hours, knowing the building was full of both school kids and homeless who would have nowhere else to go.
• Fire closed a station house in the overnight hours, knowing it gambled with fate and citizen safety.
• Police cut school resource officers, fully aware of their key role in helping steer at-risk youth away from trouble.

After two harrowing weeks, we had a balanced budget roughed out and ready for the budget team to finalize. The city survived, but the damage was real; we were not the same place we had been two years before.

Over the next year, some directors retired and other moved to new positions in other governments. They had done their duty—keeping the city running and poised to recover when the economy bounced back. In the following years, some services were restored, but the changes in how staff and citizens viewed the city were more permanent. The history of the Great Recession has not been written yet, but its damage to our civic culture was massive.

The effects were everywhere. Trees were not routinely trimmed as they had been for generations. Fourth of July fireworks were cancelled because the police department was unable to provide adequate security. Library and recreation program cutbacks sent parent scrambling for after-school alternatives. The fire station roof continued to leak. The long-term staff that lost their jobs did not return.

In a final irony, part of our cost-cutting strategy was an early-retirement incentive program lottery. I won one of the slots, and retired from government service six months later.

Looking back, there were certainly lessons to be learned. Unfortunately, local government’s revenue streams are largely at the mercy of the larger economy, so local leaders have to be alert to the earliest warnings of danger in the economy. Following the economy enables leaders to adjust when they see signs of trouble. Every government should build up adequate economic reserves when times are good, and avoid committing one-time funds to ongoing expenses.

We avoided even more draconian measures because we had the reserves to fund the transition to a smaller work force over a period of months, enabling us to place many staff into other open positions and provide good severance packages where needed. Because our policy required future funding streams be in place for all additions to staff, we did not have the extra burden of disappearing grant funding tied to positions.

There is no way to insulate government, at any level, from the economy as a whole. Prudent management, armed with the best possible forecasts, realistic budgets reflecting sound long-term planning, and access to the shared wisdom of their fellow professionals, is in the best possible position to weather these major storms and keep the ship of state off the rocks.

This article was adapted from the "From the Desk of the Finance Director" blog post series originally posted on the blog of OpenGov, a cloud-based performance and financial intelligence platform provider.