Municipalities: Distress on the Horizon
Once deemed impervious to recession falling income and property tax revenues brought on by the “Great Recession” have left many municipalities in an economic quandary:
- Exploding Debt Levels: Municipalities have been forced to fill general fund budgetary gaps with borrowing causing per capita debt in major cities to increase several fold since 2005. (e.g., Phoenix, Arizona)
- Sticky Labor Costs: Unionized labor has made it increasingly difficult to downsize the governmental workforce and / or implement wage concessions (e.g., Detroit, Michigan)
- Rising Legacy Costs: Pension and health care obligations have reached unsustainable levels forcing some municipalities to seek Chapter 9 protection (e.g., Vallejo, California)
With labor markets not expected to recover until at least 2011 and commercial real estate values still in a downward spiral, the problems facing municipalities are likely to get substantially worse.
The core challenges faced by municipalities, high fixed costs combined with lower revenue, are typical of a business entity facing crisis. Like private businesses, municipalities will be forced to allocate scarce resources in a more efficient manner; tough decisions will have to be made.
BBK can help. For more than 30 years we have assisted hundreds of businesses address the same issues currently facing municipalities:
- What are our core services?
- How can we consolidate services?
- How can we grow revenue?
- What assets should we sell?
- What is our optimal level of headcount?
- How can we glean more productivity from our current resources?
- What services should we privatize?
- How can we restructure our current debt?
- What level of debt can we support going forward?
Sound familiar? If so, we urge you to contact BBK to schedule a brief, exploratory call to discuss how these and other issues may impact your municipality and how we may be able to assist you facing the challenges ahead.