Unbalanced Mayhem Presentation (National Trends in Municipal Finance)
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Transcript of Unbalanced Mayhem Presentation (National Trends in Municipal Finance)
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Unbalanced MayhemTrends, Challenges & Failures in
Local Government Budgeting
Presented ByKenneth Hunter, MPA
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What’s On Tap?Current Trends
The Economy’s ImpactRevenue & Expenditure Issues
The Good, the Bad & the BankruptWhere are we heading?
What do we need?
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About ABFMThe Association for Budgeting and Financial
Management (ABFM) is a section of the American Society for Public Administration (ASPA).
ABFM aims to promote the professional development of budgeting and financial management in the public and non-profit sectors.
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About ABFMAnnual Membership
$25 for ASPA Members$50 for Non-ASPA Members$150 for Institutions
Membership includes subscription to Public Budgeting & Finance Journal
2013 Conference - WashingtonOctober 3rd-5th
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www.ABFM.org
Organization Info & Updates
Valuable Resources
Public Finance News & Commentary
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Current TrendsSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
Considerable external pressures
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Meeting Financial Needs
National League of Cities, City Fiscal Conditions in 2012
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External Pressures
National League of Cities, City Fiscal Conditions in 2012
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Pressures Influence Budgets
National League of Cities, City Fiscal Conditions in 2012
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The Economy’s ImpactLoss of manufacturing,
private investment
Localities show wide variance
Employment still millions of jobs less than pre-recession levels
Stagnant wages & income
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National GDP
National League of Cities, City Fiscal Conditions in 2012
Performance Index (Year 2000=100)US Real GDP & Components, Annual, 2000 to 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Real GDP
Real GDP, +18.6%+0.7% since 2007
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National GDP
National League of Cities, City Fiscal Conditions in 2012
Performance Index (Year 2000=100)US Real GDP & Components, Annual, 2000 to 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Real GDP Personal Consumption Gross Private InvestmentNet Exports Government Consumption Federal GovernmentState & Local Government
Net Exports, +11.1%
Real GDP, +18.6%
State & Local, +5.8%
Federal, +50%
Personal Consumption, +24%Government, +20.3%
Gross Private Investment, -11.2%
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Metro GDP Performance
National League of Cities, City Fiscal Conditions in 2012
Performance Index (Year 2000=100)US Real GDP & Components, Annual, 2000 to 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Real GDP Personal Consumption Gross Private InvestmentNet Exports Government Consumption Federal GovernmentState & Local Government
Net Exports, +11.1%
Real GDP, +18.6%
State & Local, +5.8%
Federal, +50%
Personal Consumption, +24%Government, +20.3%
Gross Private Investment, -11.2%
Percentile Analysis of GDP Growth, US Metro Areas (%)
2001-2010 US Baseline,+15.2%
2001-2010 MSA Distribution
2007-2010 MSA Distribution
2007-2010 US Baseline,
-1.1%-25%
0%
25%
50%
75%
100%
125%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Statistics 2001-2010 2007-2010Minimum -15.4% -21.9%1st Quartile 6.6% -4.2%Median 14.6% -0.9%3rd Quartile 22.5% 2.8%Maximum 115.5% 30.0%Metro Average 15.7% -0.4%Percent Below Avg. 54% 54%
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2-Yr Employment Trend
National League of Cities, City Fiscal Conditions in 2012
Percentile Distribution of Job Growth/Decline in US Counties,March 2010 to March 2012
-50%
-25%
0%
25%
50%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
National Growth: 3.127%
Minimum-44.6%
1st Quartile-1.1%
Median1.8%
3rd Quartile4.7%
Maximum153.0%
62% of US Counties BELOW National Rate
1/3rd of US Counties experienced Job Decline
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5-Yr Employment Trend
National League of Cities, City Fiscal Conditions in 2012
Percentile Distribution of Job Growth/Decline in US Counties,March 2007 to March 2012
-50%
-25%
0%
25%
50%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
National Growth: -3.057%
Minimum-41.1%
1st Quartile-8.5%
Median-3.7%
3rd Quartile1.2%
Maximum226.1%
54% of US Counties BELOW National Rate
70% of US Counties experienced Job Decline
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Personal Income
National League of Cities, City Fiscal Conditions in 2012
Percentile Analysis of Per Capital Personal Income Growth,US Counties (%)
2001-2010 Distribution
2007-2010 Distribution
2001-2010 National Avg., 36.3%
2007-2010 National Avg., 7.3%
-25%
0%
25%
50%
75%
100%
125%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Statistics 2001-2010 2007-2010Minimum -15.3% -37.6%1st Quartile 27.4% 3.2%Median 34.9% 7.2%3rd Quartile 44.0% 11.6%Maximum 193.1% 92.1%National Average 37.3% 7.9%Percent Below Avg. 58% 55%
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Revenues & ExpendituresSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
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Revenues & ExpendituresSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012
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Tax RevenuesSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012
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How Is Housing?Inventories declining
Prices stable, slightly increasing
Slight uptick in construction
Lag effect on property tax revenue
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How is Housing?
Housing Data Wrap-Up, Wells Fargo, October 2012
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Increasing RevenueSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012
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Adjusting SpendingSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012
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Personnel CutsSix straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012
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To What End?Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012
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The Good…Stable bond markets
Potential for salary increases
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Stable Bond Markets“Humming along”
No “earth shattering” changes
Municipalities, counties continue to have access to credit
Dan Smith
NYU Wagner
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Employee SalariesCurrent environment remains
“cautious”
“Expect this trend to reverse itself over the next several budget cycles as the economy strengthens & unemployment declines.”
“There is pent-up demand for salary increases, governments are going to have to respond to this or risk loosing their best employees.”
Steve Condrey
ASPA President-
Elect
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…The Bad…Property Tax may not have “bottomed”
Borrowing too much?
Pension liabilities
Declining state revenue
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Property TaxesHousing assessments do not
reflect prices “in many areas”
“Housing may have bottomed, but revenues have likely not and won't until assessments catch up… vary by jurisdiction based on assessing practices and the state of the housing market.”
Christopher Goodman
Rutgers-Camden
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Borrowing Too Much?
Atlanta Federal Reserve
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Borrowing Too Much?Property Tax may not have “bottomed”
Rising municipal bond defaults
Pension liabilities
Reducing federal revenue
Moody’s
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Pension Liabilities
Center for Retirement Research, Boston College
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Declining State Revenue
National League of Cities, City Fiscal Conditions in 2012
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…& The Bankrupt
28 Total Since 2010
7 Local Governments
21 Authorities (9 in Omaha)
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…& The BankruptDebt Issues
Jefferson County, Central Falls, Harrisburg
Pensions/Real EstateSan Bernardino, Stockton
Legal DisputesBoise County, Mammoth Lakes
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Where Are We Heading?Prepare for the fiscal cliff!
Emphasize price discovery for local debt
Employee benefits will change
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The Fiscal Cliff!Federal budget sequestration
Expiration of Bush Administration tax rate cuts
Expiration of the 2% payroll tax cut
Implementation of taxes associated w/the Affordable Care Act
Expiration of Federal funding for extended unemployment benefits
Expiration of bonus depreciation deductions, which will impact capital investment
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Price Discovery & DebtBond insurance “gone” for
municipal market… rating agencies “recalibrated”
“How do investors fill the information gap?”
Local issuers need to “expedite the price discovery process”
Justin Marlowe
University of Washington
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Price Discovery & DebtMeans of enabling price
discovery
– “More frequent financial disclosure”– “Aggressive investor relations…
quarterly conference calls… budget updates… road shows”
– Strong state oversight (ex, NC Local Government Commission)
Justin Marlowe
University of Washington
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Changing Benefits
Cobalt Community Research, 2012 National Survey of Local Governments
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Changing Benefits
Cobalt Community Research, 2012 National Survey of Local Governments
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What Do We Need?Applicable analysis
Time-sensitive & concise commentary
“Shovel-ready” graduates