The “New Normal”: Fiscal Reality Check in Local Government

Local governments in the U.S. are adjusting to a “new normal” on the economic and fiscal front, according to the results of a new International City/County Management Association (ICMA) survey of over 2,000 cities and counties. Per ICMA’s news release (emphasis mine):

Many local governments have established new “normals” that will remain in place after the U.S. economy rebounds, according to the results of a new survey released by ICMA. More than 80 percent of the 2,200 local governments that responded to ICMAâ??s “State of the Profession” survey report that they have been “moderately” to “severely” affected by the financial crisis and experienced an average budget shortfall of more than eight percent for 2010.

“That the recession has changed the way governments operate at the local level isn’t surprising,” said Ron Carlee, director of Strategic Domestic Initiatives at ICMA and former Arlington County, Virginia, manager. “However, the widespread belief that the coping strategies represent a new normal is a significant development with big implications for local governance.” […]

  • Ninety percent of local governments report budget shortfalls for FY 2010 that are the same (37 percent) or greater (53 percent) as FY 2009. The Mountain West and Pacific Coast regions of the country demonstrate especially hard-hit budgets, with an average FY 2010 shortfall of 11 percent of the general fund budget.
  • The three most popular ways that local governments are dealing with the recession are leaving vacant positions unfilled (66 percent), deferring capital projects (60 percent), and implementing targeted cuts in expenditures (52 percent).
  • By a 66-34 percent margin, local governments think that the changes they have implemented during the recession represent a new way of doing business that will continue beyond the fiscal crisis.
  • The highest average number of homes that went into foreclosure is in the South Atlantic division, which includes Florida, followed by the Mountain division and the Pacific Coast. As a percentage of the total stock of homes, this represents approximately four percent for these geographic divisions.
  • Localities anticipate the following percentages of decrease in revenue from these sources:
    • Sales tax â?? 10 percent decrease in revenue
    • Property tax â?? 10 percent decrease in revenue
    • Income tax â??10 percent decrease in revenue
    • Fees from activities/services â?? 14 percent decrease in revenue
    • Payments from the state â?? 16 percent decrease in revenue
    • Impact fees â?? 40 percent decrease in revenue
    • Interest from investments â?? 28 percent decrease in revenue.

In short, “doing more with less” is here to stay, according to local government managers. As the bleak revenue trends continue, we’ll continue to see strong interest in strategies like privatization, streamlining and budget process reforms. And I’d wager we’ll increasingly see these strategies applied to save core government programsâ??as opposed to eliminating themâ??which may seem counterintuitive to many people not versed in the nuances and inherent flexibility of tools like privatization and outsourcing.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary