Recession: Impact to Local Economy

Joe Casey, Hanover County VA

VLGAA

Williamsburg VA May 2009

Hanover County Vision: Where a family of communities inspired by its people, traditions,

spirit and history, is the foundation for its future

Background

• Hanover revenues have declined 4% in FY09− Property and sales taxes primary revenue shortfalls− Current year deficit overcome through capital reductions,

frozen positions and reduced operating targets

• FY10 revenues are projected to be flat− Continued strategies from FY09 mid-year actions− Contingent strategies in place if declines arise

• Balanced 5 Year Plan projects FY11 to also be flat

w/ recovery in FY12− Reinstatement of positions and deferred capital

replacement not complete until Year 5

Primary Local Economic Indicator

Hanover County Unemployment RateComparison with Recognized National Recessions

Jun. '75 - 3%

Jun. '92 - 5.3%

Feb. '83 - 6%

Mar. '09 - 6.8%

0

1

2

3

4

5

6

7

8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Months

Per

cent

Jan '74 - Dec '76 Jul '90 - Jun '93Jul '81 - Jun '84 Dec '07 - Present

Scaling Back of Resources• Short-term: Lower,

constrained budgets = cost

efficiencies− Becoming more efficient is not

correlated to effectiveness

• Service standards impacted− Cause and effect of lower

resources and less services should arise in LT

− Challenge is that cause and effect not as apparent in short-term

− Senior management must be aware of long-term ramifications

Business Model – Short-term “Wins”• LT sustainability is dependent upon

models with ST “wins”

• Defer, defer, defer today’s cost to

tomorrow and/or lower cost

• Find low/no cost employee morale

boosts – manage anxiety/stress

• “Low hanging fruit” - important and

relevant; not high profile, necessity

• “Cut the fat” – managing perceptions of

others through reality of already lean

organization

Short-term Cost Savings• Challenge: ST fiscal balancing

strategies consume all

resources and attention

• One-time tools in the

“toolbox”− Capital/technology deferment− Training reductions− Vacant positions− Overall operating expense

reductions – “discretionary”

• “Across the Board” cuts− Assumes (or ignorant): Each dept

has equal ability to cut budget

Service Delivery Impacts• Longer time to respond, higher

error rate− “Beg for forgiveness, instead of

ask for permission”

• Inability to have new initiatives− Survive #1 goal, #2 – see #1

• Customer service challenged

with employee morale and

stress

• Workforce not as current on

technical or evolving issues

without access to training

Long-term Sustainability• Challenge: LT focus is not a

priority− Need to operate w/ ST mentality,

but for LT sustainability

• Dependence upon an economic

recovery implied to overcome

future consequences of first

year actions

• Set Clear-Understandable Goals− Recognize “coach class” that

support services may be to “first class” ego of other depts

− But, still on the same “plane”

Weathering Recession Strategies

• Conservatively assume recession will endure a two year

budget cycle (Be wary of “expert” economists)− Keep current on all relevant economic indicators

• Employee morale, employee morale, employee morale

• Implement efficient practices; previously not accepted− Eliminate pay stubs, higher approval thresholds for procurement− Reduced custodial contracts, no “trickle down” computer installs

• Get customer “buy-in” of reduced service scope− Lowered expectations yields reasonable management

discussions

• Negotiate contracted services, projects for lower $$

• Identify projects for quick starts to access very low bids

If Recession is > 2 Years…..• Revenue support in year 2 s/b limited to estimates

with high confidence of attaining

• Balancing to flat or declining year 2 revenues will

ensure difficult decisions made today, benefit

tomorrow− If not, more painful awakening or over-correction needed• Year 3 recovery

assumptions may have limited conservative one-time “catch-up” assumptions (pent-up demand)• If Year 2 recovery indicators are not present, then budget for lower Year 3

Year 1

Year 2

Five Year Capital Replacement• Previously accepted replacement programs have

deferrals putting pressure on replacement program− Greater chance for capital to break, higher repairs,

downtime

• Overcome deferrals, by getting “back on track”− Provide comfort that any reductions in year 1-2 of previous

plan in capital replacement will be corrected in years 3-5

• Service and utilization strategies in the interim− Re-assignment of under-utilized capital assets to maximize

useful life and productivity of capital asset− Budget a replacement reserve to provide inventory for

those that may break, end of useful life (computers, vehicles, equipment)

Vehicle Deployment/Assignment

Debt Management Plans• Business model: Cash low, finance capital, fund

operations− Model dependent on future revenues being high enough to

overcome debt service (including interest expense)

• Multi-year plans need to provide financial comfort− Capital funded w/ debt illustrates that debt service and related

operating costs can reasonably be funded via operating budget

• Debt policy constraints should be followed− Debt per capita, debt as % of expenses, etc.

• If debt is > policy or multi-year plan can’t provide

comfort, then debt should not be solution to budget

problem− Mitigate principal deferrals, capitalized interest, premiums

Fund Balance Plans• “Carryover” funds also incorporated as part of topic

− Managing through the “use it or lose it” mentality

• Planned use of available unreserved fund balance >

policy threshold may be prudent− For one-time expenses (capital), with multi-year plans

showing pathway to replacement

• If Year 1 has exhausted all fund balance capacities for

operational needs, Year 2 will be a significant

challenge− More dependent upon future recovery or significant expense

reductions − Even more of a challenge in Year 1 if revenues fall short of

budget with Year 1 deficit arising

Primary Indicators• Developing primary economic and service

indicators helps management assess impacts to

operations

• Key indicators: Best gauge of resource deployment

• Timely “dashboard” - captures positive or negative

trends – service, financial, economic, employee,

customer

Vacant Positions• Process to identify what positions to freeze, eliminate

− How long, coverage issues− Reduction in force (RIF) policies - challenges

• Budgeting strategy− Maintain frozen positions in departmental budget but have it

offset with “credit” in another part of budget to reflect full compliment of authorized positions

• Approvals to reinstate may then be less needed, noticeable• $ and % change in department salaries would not be

impacted by reinstatement of position• Illustrates “vote of confidence” to department’s FTE count

− Manage the “credit” becomes focus as new vacant positions may supplant other previously frozen positions w/ greater demands

Employee Morale• No salary increases, net pay impact

• Creative practices of “win (no $) – win

(employee likes)”− Flexible schedules, LWOP

• Continue career ladders, certification

maintenance, low cost training options

– on-site options

• Employee assistance program for

employee, their family

• Create low cost fun environment

• Reward later those employees who’ve

weathered the storm w/ you

Redeployment Matrixes• Best allocate existing resources from one department

w/ capacity to another department in need of resource− Resource need: frozen/cut positions, higher demands, seasonal− Resources supplied from lower demands, better coverage

abilities

• Distinguish amongst redeployments those that may be

permanently assigned− Hire w/in organization for vacancies not frozen vs. temporary

where employees return to department after “tour of duty”− Opportunity to give some “apple” employees in “orange”

department, opportunity to succeed with “apple” department

• Simple goal: Redeployment saves jobs− Quicker employees understand that, quicker the team is

formed

Redeployment Byproduct• Morale boosted - job protection goal better achieved

− Employee statement: “I’m saving someone’s job”

• Unparalleled cross-training (always “preached”)

• Vested TEAM employees for benefit of entire organization

• Practical exercise for certain business continuity action

plans requiring interdepartmental assistance

• Proactively positions organization for retirees of positions

that will be frozen to cross-train prior to departure

• Best management practices for the vacancy “credit”

Don’t Settle for Mediocrity

When in Doubt, Stimulus – It’s all in the Formula