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Local governments face painful budget choices

Local officials in city and county governments across the country are scrambling to maintain services in the face of a sharp drop in revenues. By John W. Schoen.
Image: City workers backfill a ditch with stones after installing new drainage pipes.
Elkhart County Department of Public services personnel backfill a ditch after installing new drainage pipes. The county has experimented with four-day workweeks to reduce costs.John Makely /
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After a long winter, this is high season for road repair, and the Elkhart County Highway Department has a busy schedule. But deep budget cuts have forced changes in that schedule to try to get the same work done with less money.

Instead of working a traditional workweek of five, eight-hour days, road crews now work four, 10-hour days. The hope is that those longer days will reduce the downtime that comes at the end of each day’s shift.

“You’ve got to secure the site — there's an hour. You’ve got to clean up — there’s an hour. And then you have to go back to the shop — there’s a half-hour,” said Rick Easton, one of the crew recently installing a new drain pipe on a county road. “So I’ve lost two and a half hours.”

It’s just one of the ways local governments across the country are coping with one of the steepest drops in tax revenues in decades, forcing them to try to maintain the same level of local services with a lot less money.

“We’re trying it this summer because we have to do something,” said Jeff Taylor, manager of the Highway Department. “There is no more money.”

It’s been almost two decades since the last time a weak housing market cut so deeply into property tax revenues, the main source of funding for many cities, towns and counties across the country. While most local finance and budget officials keep a close eye on economic forecasts, the scope and speed of the current housing collapse caught many by surprise, according to Christopher Hoene, research director at the National League of Cities.

To make matters worse, the process of updating tax assessments can take years. That means that local governments now in the throes of budget cuts can expect further cuts in coming years.

“The reality for local government is they’re probably in (fiscal year) '09 seeing the decline in property taxes in concerted fashion for the first time,” said Hoene. “That means 2010 and 2011 are likely going to be more of the same. Even if a recovery in the housing market begins right now, they’re still a couple of years away from seeing any rebound in those revenues. We’re just entering the woods.”

The problem is not limited to residential properties. A decline in commercial real estate values is also cutting into local tax bases.

“We’ve got a ton of businesses that have gone out of business and we’ve got empty buildings here that people have picked up and left or filed bankruptcy,” said Elkhart Fire Chief Mike Compton.

Other sources of revenues are also down. Local governments that rely on sales taxes have been hit by the drop in retail spending. And state governments have cut back on revenue they pass through to municipalities.

In Elkhart County, the bulk of the Highway Department's funding comes from state gasoline taxes, which have fallen as people drive less due to the recession. At the same time, the housing boom created subdivisions in unincorporated areas outside the reach of city and town governments. That’s created many more miles of new county roads to maintain.

“That new house does nothing for us in terms of new income,” said Taylor. “What it does is causes us to bring resources from somewhere else and place them in that subdivision. And now our level of services begins to drop."

So government leaders are trying to squeeze every dollar. Taylor says the shift to a four-day workweek was imposed partly to make up for several unfilled positions. But the experiment has created unexpected results. With more equipment idle on Fridays, shop mechanics — who still work five-day weeks — can get more done. But there's a downside, too. 

"When we go to four, 10-hour days and I lose a day to rain, I’ve lost 25 percent of my workweek," said Taylor.

The impact of the budget squeeze has also forced deep cuts in capital budgets, deferring maintenance and purchases of new equipment. Federal grants can help make up some of the shortfall. In Elkhart, Compton, the fire chief, was able to get a federal grant to buy a new fire engine for the airport. But he’s had to put off repairs on a leaky roof at the 30-year-old central fire station.

“During a mild rain we put out three buckets, and in a severe downpour there’s 11 of them,” he said. “The guys know just where to put them.”

Cutting operating expenses has been tougher. Maintaining and fueling fire trucks is expensive. And fire stations still have to be staffed around the clock. That means looking for dozens of little ways to cut back.

“We’ve got the guys really concentrated on — it sounds trivial — turning the lights out,” said Compton.

Instead of sending firefighters offsite for training, Compton hired a consultant to come to the department and train more people for less money.  Replacing several retired workers brought some cost savings in salaries. Lower fuel prices have helped, but those are only one-time savings.

Local governments are also feeling the squeeze from cuts in state funding.

Since the recession began in December 2007, some 39 states have cut services, according to the Center on Budget and Policy Priorities, a think tank that focuses on issues affecting lower-income Americans.

At least 22 states have cut access or raised costs of health care programs for low-income children, the elderly and disabled. At least 24 states are cutting spending on K-12 schools and early education programs. Some 32 states have cut funding for public colleges and universities, cut faculty and staff or raised tuition. And 40 states and the District of Columbia have cut staffing costs with hiring freezes, layoffs, wage cuts, and delayed pay raises.

Some local governments have tried to close budget gaps by charging usage fees for specific services. But they can be a tough sell among taxpayers who are already struggling to pay property taxes. Elkhart Mayor Dick Moore proposed charging a fee for trash collection, but the City Council didn’t go along with the idea.

While raising fees can help, it can also turn people away from the very services local governments are struggling to maintain.

“Those fees almost never make up for all the tax revenue lost, and they come with their own set of downsides,” said Hoene. “If every parks and rec program, or youth program, or every library service has a fee, or a fee that goes up, you worry about whether that service is actually getting to the people you designed it to a be a service to.”

The drop in property values comes on top of a decades-long push to slow or cap rising tax levels. In Indiana, the state legislature recently passed a law that calls for a cap on local property taxes and will force even steeper budget cuts beginning next year.

Unlike the federal government, state and local governments can’t borrow to make up for shortfalls in their operating budgets. With deep cuts already enacted and more expected over the next few years, it gets harder to find slack and boost productivity.

“I went from last year to this year cutting,” said Taylor. “You get to a point where we’ve taken an arm; now what would you like? A leg? Or another arm? Both?”