Flatlined Cities
An article that I read soon after coming to Burlington was a
White-Paper published by IBM entitled Flatlined,
Rethinking the local government business
model for a future of zero revenue growth (Prieto and Edwards, 2012). It highlighted several factors that have led
to a need to rethink the status quo of local government services as we approach
the future due to a multitude of factors.
The first issue they focused on has to do with the nature of local
government funding, and the factors that will impact those funding streams in
the future. Local government revenue
grew at an average rate of 6.1% between 1992 and 2008. This was driven by two main components, sales
tax and property tax revenue growth. Over
the past two decades, these sources have grown at a dramatic rate. Sales tax revenue, for example, averaged a 9%
growth nationwide between 1982 and 2008.
This phenomenal growth stopped in 2008; in fact, Flatlined noted that the 15 year range of local government revenue
growth varied from 2-12% annually before actually turning to a 4% decrease
in 2008. The authors stated that, in the
post-2008 environment, local governments needed to be prepared for a future
environment with zero revenue growth.
This was a startling perspective for me personally. I shared the article with our Department Heads
and Councilmembers as a basis for the approach we have taken over the past year
to adjust our entire budget and business process. We have looked at local government needing to
face a new normal, a new environment where the past expenditure increases
(increasing from 2% of GDP in 1900 to 5% in 1960, to 7% in in 2008) cannot
continue. We have discussed the need to
look at each of our departments, not as silos that operate on their own, but as
cohesive parts of a whole that must work together for the public good.
Flatlined notes
cities need to overhaul how they collect revenues, how they provide services,
how they meet long-term liabilities such as employee pension costs, and how
they need to pro-actively fund their capital investment needs. It identified, and discussed, four building
blocks to a sustainable business model.
These four elements were as follows:
1) Medium and long term revenue forecasts, 2) A capital investment plan, 3) Service levels set at a level that can
reasonably be supported throughout the business cycle, and 4) the city needs an
adequate cash reserve to accommodate the business cycle.
Flatlined was an
article that has driven my desire to ensure that Burlington restructures its
budget to accommodate these goals. We
have worked to raise fees for services systematically rather than let them fall
behind our cost of doing business. We
have worked to create new revenue streams that were never considered
before. We have also worked to reduce
our operating costs by considering outsourcing opportunities, reducing our
operating costs in several departments, increasing our fund balances to create
a cushion for difficult economic times, and to begin prioritizing long-term
capital investment needs to our infrastructure.
These changes don’t happen overnight, but beginning this attitude change
is why we focused on a five year budget outlook this last budget cycle.
We have accomplished a lot in the last year to deal with the
new economic reality facing cities, but we have much more to do. Flatlined
cities operate in a larger context, a context in which not only people, but
businesses as well, are free to move if the city does not provide the services
they expect at a cost they are willing to pay.
We need to be more proactive in looking for new funding sources,
exploring new grants and marketing options.
Flatlined identified the need
to stimulate revenue-generating economic activity, by which they referred to
the need to eliminate regulatory rules that cause more harm than good; we need
to work on this over the ensuing years.
The article also focused on taking an ROI approach to spending,
supported by advanced analytics. This is
a concept that I have been struggling to get my arms around, but it is
essentially about measuring the public value that can potentially be created
through alternative prioritization of funds, and ensuring that we prioritize
the spending that occurs in a way that maximizes the return on investment. Burlington needs to work towards this type of
analytical model as we move forward, whether it is using a company such as IBM
to create predictive analytic models, or some other method that helps us to
objectively measure the complex interplays that occur with any specific funding
decision that we make. Flatlined cities need to consistently
work to achieve efficiencies in operating expenses, but this calls for a change
in culture.
Part of this change in culture means we cannot operate as
separate departments within the City of Burlington. On a larger scale, we cannot act as separate
government entities in our region, nor can we operate as separate isolated
individuals without regard to the larger community. One of the concluding thoughts from Flatlined was that “municipal governments find it very difficult
to reduce service levels despite dramatic improvements in outcomes. This needs to change.” How true, yet how difficult to accomplish in
the Public Square. I envision that we
will be returning to this Contested Public Square quite frequently in the
coming weeks and months if this series of posts continues.
For those of you interested in going a little more in depth
on this topic, I encourage you to read the white paper I referenced heavily in
this post. It can be found at the
following link:
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