"Unbalanced Mayhem" presentation on municipal finance, presented by Kenneth Hunter for American Society for Public Administration (webinar), November 2012

1. Unbalanced Mayhem
Trends, Challenges & Failures in
Local Government Budgeting
Presented By
Kenneth Hunter, MPA

2. What’s On Tap?
Current Trends
The Economy’s Impact
Revenue & Expenditure Issues
The Good, the Bad & the Bankrupt
Where are we heading?
What do we need?

3. About ABFM
The 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.

4. About ABFM
Annual Membership
$25 for ASPA Members
$50 for Non-ASPA Members
$150 for Institutions
Membership includes subscription to Public
Budgeting & Finance Journal
2013 Conference - Washington
October 3rd-5th

5. www.ABFM.org
Organization Info & Updates
Valuable Resources
Public Finance News & Commentary

6. Current Trends
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
Considerable external pressures

7. Meeting Financial Needs
National League of Cities, City Fiscal Conditions in 2012

8. External Pressures
National League of Cities, City Fiscal Conditions in 2012

9. Pressures Influence Budgets
National League of Cities, City Fiscal Conditions in 2012

10. The Economy’s Impact
Loss of manufacturing,
private investment
Localities show wide variance
Employment still millions of jobs less
than pre-recession levels
Stagnant wages & income

11. National GDP
Performance Index (Year 2000=100)
US Real GDP & Components, Annual, 2000 to 2011
Real GDP, +18.6%
+0.7% since 2007
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
National League of Cities, City Fiscal Conditions in 2012
Total Real GDP

12. National GDP
Performance Index (Year 2000=100)
US Real GDP & Components, Annual, 2000 to 2011
Federal, +50%
Personal Consumption, +24%
Government, +20.3%
Real GDP, +18.6%
State & Local, +5.8%
Gross Private Investment, -11.2%
Net Exports, +11.1%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
National GDP
Total Real
Net ExportsLeague of Cities, City Fiscal Conditions in 2012
Personal Consumption
Government Consumption
Gross Private Investment
Federal Government
State & Local Government

13. Metro GDP Performance
125% Percentile Analysis of GDP Growth,2000=100) Areas (%)
Performance Index (Year US Metro
US Real GDP & Components, Annual, 2000 to 2011
Federal, +50%
100%
Personal Consumption, +24%
Government, +20.3%
75%
Real GDP, +18.6%
State & Local, +5.8%
50%
Gross2001-2010 MSA
Private Investment, -11.2%
2001-2010 US Distribution
25% Baseline,
+15.2%
0%
Net Exports, +11.1%
2007-2010 US
2000 20012007-2010
2002 MSA2003 2004 2005 2006 2007 2008 2009 Baseline, 2011
2010
Distribution -1.1%
National GDP
-25%
Total Real
Net ExportsLeague of Cities, City Fiscal Conditions in 2012
Personal Consumption
Government Consumption Federal Government
Gross Private Investment
0 State & Local Government
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

14. 2-Yr Employment Trend
Percentile Distribution of Job Growth/Decline in US Counties,
50%
March 2010 to March 2012 Maximum
153.0%
25%
National Growth: 3.127%
0%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
1st Quartile Median 3rd Quartile
-1.1% 1.8% 4.7%
-25%
62% of US Counties BELOW National Rate
1/3rd of US Counties experienced Job Decline
Minimum
National League of Cities, City Fiscal Conditions in 2012
-50%
-44.6%

15. 5-Yr Employment Trend
Percentile Distribution of Job Growth/Decline in US Counties,
50%
March 2007 to March 2012 Maximum
226.1%
25%
0%
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%
1st Quartile Median 3rd Quartile
-8.5% -3.7% 1.2%
-25%
54% of US Counties BELOW National Rate
Minimum 70% of US Counties experienced Job Decline
National League of Cities, City Fiscal Conditions in 2012
-50%
-41.1%

16. Personal Income
125% Percentile Analysis of Per Capital Personal Income Growth,
US Counties (%)
100%
75%
2001-2010
50% Distribution
2001-2010 National
Avg., 36.3%
25%
2007-2010 National
Avg., 7.3%
0%
2007-2010
Distribution
National League of Cities, City Fiscal Conditions in 2012
-25%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

17. Revenues & Expenditures
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively

18. Revenues & Expenditures
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012

19. Tax Revenues
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012

20. How Is Housing?
Inventories declining
Prices stable, slightly increasing
Slight uptick in construction
Lag effect on property tax revenue

21. How is Housing?
Housing Data Wrap-Up, Wells Fargo, October 2012

22. Increasing Revenue
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012

23. Adjusting Spending
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012

24. Personnel Cuts
Six straight years revenue decline
Overall expenses kept in line
Municipalities responding effectively
National League of Cities, City Fiscal Conditions in 2012

25. 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

26. The Good…
Stable bond markets
Potential for salary increases

27. Stable Bond Markets
“Humming along”
No “earth shattering” changes
Dan Smith
Municipalities, counties continue
NYU Wagner
to have access to credit

28. Employee Salaries
Current environment remains
“cautious”
“Expect this trend to reverse itself
over the next several budget cycles
Steve as the economy strengthens &
Condrey
unemployment declines.”
ASPA
President-
Elect “There is pent-up demand for salary
increases, governments are going
to have to respond to this or risk
loosing their best employees.”

29. …The Bad…
Property Tax may not have “bottomed”
Borrowing too much?
Pension liabilities
Declining state revenue

30. Property Taxes
Housing assessments do not
reflect prices “in many areas”
“Housing may have bottomed,
Christopher but revenues have likely not
Goodman and won't until assessments
Rutgers-
Camden
catch up… vary by jurisdiction
based on assessing practices
and the state of the housing
market.”

31. Borrowing Too Much?
Atlanta Federal Reserve

32. Borrowing Too Much?
Property Tax may not have “bottomed”
Rising municipal bond defaults
Pension liabilities
Reducing federal revenue
Moody’s

33. Pension Liabilities
Center for Retirement Research, Boston College

34. Declining State Revenue
National League of Cities, City Fiscal Conditions in 2012

35. …& The Bankrupt
28 Total Since 2010
7 Local Governments
21 Authorities (9 in Omaha)

36. …& The Bankrupt
Debt Issues
Jefferson County, Central Falls,
Harrisburg
Pensions/Real Estate
San Bernardino, Stockton
Legal Disputes
Boise County, Mammoth Lakes

37. Where Are We Heading?
Prepare for the fiscal cliff!
Emphasize price discovery for local debt
Employee benefits will change

38. 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

39. Price Discovery & Debt
Bond insurance “gone” for
municipal market… rating
agencies “recalibrated”
Justin
Marlowe
“How do investors fill the
University of information gap?”
Washington
Local issuers need to “expedite
the price discovery process”

40. Price Discovery & Debt
Means of enabling price
discovery
– “More frequent financial disclosure”
Justin – “Aggressive investor relations…
Marlowe
quarterly conference calls… budget
University of
Washington updates… road shows”
– Strong state oversight (ex, NC
Local Government Commission)

41. Changing Benefits
Cobalt Community Research, 2012 National Survey of Local
Governments

42. Changing Benefits
Cobalt Community Research, 2012 National Survey of Local
Governments

43. What Do We Need?
Applicable analysis
Time-sensitive & concise commentary
“Shovel-ready” graduates

44. Questions?
kwhunter@gmail.com
252-557-9594
www.abfm.org
www.nclgba.org