Recession impact to local economy
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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 .

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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

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

Primary Local Economic Indicator


Scaling back of resources

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

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

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

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

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

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

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

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

Vehicle Deployment/Assignment


Debt management plans

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

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

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

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

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

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

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

Don’t Settle for Mediocrity


When in doubt stimulus it s all in the formula

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


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