unbalanced mayhem presentation (national trends in municipal finance)

Unbalanced MayhemTrends, Challenges & Failures in

Local Government Budgeting

Presented ByKenneth Hunter, MPA

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?

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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$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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Organization Info & Updates

Valuable Resources

Public Finance News & Commentary

Current TrendsSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

Considerable external pressures

Meeting Financial Needs

National League of Cities, City Fiscal Conditions in 2012

External Pressures

National League of Cities, City Fiscal Conditions in 2012

Pressures Influence Budgets

National League of Cities, City Fiscal Conditions in 2012

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

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

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%

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%

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

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

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%

Revenues & ExpendituresSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

Revenues & ExpendituresSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

National League of Cities, City Fiscal Conditions in 2012

Tax RevenuesSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

National League of Cities, City Fiscal Conditions in 2012

How Is Housing?Inventories declining

Prices stable, slightly increasing

Slight uptick in construction

Lag effect on property tax revenue

How is Housing?

Housing Data Wrap-Up, Wells Fargo, October 2012

Increasing RevenueSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

National League of Cities, City Fiscal Conditions in 2012

Adjusting SpendingSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

National League of Cities, City Fiscal Conditions in 2012

Personnel CutsSix straight years revenue decline

Overall expenses kept in line

Municipalities responding effectively

National League of Cities, City Fiscal Conditions in 2012

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

The Good…Stable bond markets

Potential for salary increases

Stable Bond Markets“Humming along”

No “earth shattering” changes

Municipalities, counties continue to have access to credit

Dan Smith

NYU Wagner

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

…The Bad…Property Tax may not have “bottomed”

Borrowing too much?

Pension liabilities

Declining state revenue

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

Borrowing Too Much?

Atlanta Federal Reserve

Borrowing Too Much?Property Tax may not have “bottomed”

Rising municipal bond defaults

Pension liabilities

Reducing federal revenue

Moody’s

Pension Liabilities

Center for Retirement Research, Boston College

Declining State Revenue

National League of Cities, City Fiscal Conditions in 2012

…& The Bankrupt

28 Total Since 2010

7 Local Governments

21 Authorities (9 in Omaha)

…& The BankruptDebt Issues

Jefferson County, Central Falls, Harrisburg

Pensions/Real EstateSan Bernardino, Stockton

Legal DisputesBoise County, Mammoth Lakes

Where Are We Heading?Prepare for the fiscal cliff!

Emphasize price discovery for local debt

Employee benefits will change

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

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

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

Changing Benefits

Cobalt Community Research, 2012 National Survey of Local Governments

Changing Benefits

Cobalt Community Research, 2012 National Survey of Local Governments

What Do We Need?Applicable analysis

Time-sensitive & concise commentary

“Shovel-ready” graduates

Questions?kwhunter@gmail.com

252-557-9594

www.abfm.orgwww.nclgba.org