Recession Impact to Local Economy

							          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 Rate
                                                    Comparison with Recognized National Recessions
          8

                                                           Mar. '09 - 6.8%
          7

                                                                             Feb. '83 - 6%
          6
                                                                                             Jun. '92 - 5.3%

          5
Percent




          4

                                                                     Jun. '75 - 3%
          3


          2


          1


          0
              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
                      Jan '74 - Dec '76                 Jul '90 - Jun '93
                      Jul '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)                                     Year 1
• If Year 2 recovery indicators
are not present, then budget
for lower Year 3
                            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