Transcript Surviving Michigan’s Economy

Surviving Michigan’s Economy
The Springfield Story
About Springfield
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Population: 5,200
Tax levy: 14 Mills
AV 2009: $99.5 Million
TV 2009: $92.0 Million
2009-10 GF Operating Budget: $2.68 Million
29 Full-Time Employees
Funding Issues
• Cash Reserves June 2001: $1.97 Million
• Cash Reserves 2006: $820,000
• Planned 2007 Deficit: $236,000
According to Department Heads, we had cut to
the bone, and our cash flow problems were all
exclusively related to revenue sharing cuts . . .
there was no answer on the expense side.
We’re Doomed!
March 2007: We know it’s going to get worse, so
how do we solve this and prepare for the future?
• Reviewed staffing levels, upcoming events (retirements,
wage increases, etc.), OT, and other personnel-related
expenses.
• Reviewed existing purchasing protocols . . . especially
replacement schedules.
• Reviewed contractual services in place.
• Met with employees to discuss additional responsibilities,
job security, and overall expectations by the employer and
the employees.
• How do we capitalize on new revenue streams???
Staffing Changes
• Step 1 – Reduce personnel costs w/o layoffs.
– Office Manager position was set to become open in
August via retirement. We advertised internally and
filled it with our current Level II Assessor.
• The Assessor position was then filled with a jointly-hired
Level III with much more experience and expertise than we
could have otherwise afforded. Annual savings have been
approximately $55,000. OPEB savings are expected to equal
$500,000 – mostly by eliminating the Department Head
retiree health benefit normally provided to the Assessor.
• Our Assessor is on-site two days per week, and we feel our
services is better and our assessments are more accurate.
Staffing Changes Continued
– Early Retirement offered to DPW Supervisor
• This was also a Department Head position. The
employee had completed 34 years of services but had
not met his age requirement of 55. The cost to provide
the benefit was minimal.
• The vacant position was realigned from a Department
Head to a non-union supervisory position, and an
existing AFSCME member was promoted; the newly
vacant AFSCME position was not filled.
• Annual savings equal approximately $80,000 per year.
Staffing Changes Continued
– Public Safety Personnel costs were rising at a
greater rate than all other personnel costs.
• Annual OT expenses trended at $225,000+
• In June 2007, an executive order was issued by the City
Manager to the Police Chief eliminating all nonessential OT. Minimum staffing would remain at 3 PSOs
per shift. OT costs were reduced by $50,000. This was
still not enough.
Staffing Changes Continued
– DPS Continued . . .
• Six DPS positions became available over the next year
as a result of typical employee turnover.
– Four of these positions were kept vacant pending negotiations
of the new CBA with the POLC and forecasting of the economy
by the City Manager.
– An agreement was made to reduce minimum staffing levels by
one PSO per shift.
– The net result was 3% employee raises and nearly flat health
insurance for the 12 PSOs left in the DPS . . . The City’s net
savings as a result will equal approximately $400,000 per year
and OPEB savings are estimated at more than $1 Million.
Staffing Changes Continued
– Moved from 34 FT Employees in 2007 to 29 in 2009
– 4-Day Work Week
• In June 2008, when gas was out of control, we began looking
for ways to save $$ for the City and employees.
• Following an employee survey, we decided to move to a
Mon-Thurs work week, with hourly employees working 9.5
hour days.
• The net effect is a 2½ week unpaid furlough for all affected
employees.
• Employees liked this and unanimously approved of it!!!
• This option is a great alternative to layoffs, because it buys
time for normal attrition to take place, with the opportunity
to eliminate positions via attrition and then return to the
status quo 40 hour work week w/o overloading employees.
Staffing Changes Continued
Annual Employee Furlough Savings
(assumes $35,000 median salary, FICA, Comp, and 10% MERS contribution):
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10 Employees: $21,000
15 Employees: $31,000
20 Employees: $42,000
25 Employees: $52,000
30 Employees: $62,000
35 Employees: $72,000
Staffing Changes Continued
• Step 2 – Reduce short-term and long-term
employee benefit costs.
– Created an aggressive insurance deferral program.
• Defer your family and receive a $125 weekly stipend.
• 7 out of 24 eligible employees take advantage. Cost savings
over 10 years is estimated at 320,000 (60% savings).
• Similar program provided to retirees has also saved
significantly.
– Eliminated retiree healthcare for new employees.
• We now contribute to an HSA and do not need to worry
about estimating insurance costs 15-20 years into the future.
• At minimum, you should consider capping retiree health
premiums at the level in effect at retirement.
Staffing Changes Continued
• Step 3 – Make sure existing employees have the
tools, environment, etc. needed to be successful.
– If an employee is taking on additional work, find a way
to compensate them (financially, additional time off,
special acknowledgment, etc.).
– 25 happy employees will probably be more effective
and efficient than 28 unhappy employees.
• There is a good chance many employees could have an
unemployed spouse, mortgage problems, etc. – making
them feel secure with their jobs and pay/benefit levels will
be key in retaining them and maximizing their time in the
office.
Purchasing Protocols
• New copiers? Nope. $20,000 savings.
• Previously, the DPS purchased 2 cruisers each
year . . . In a bad year, at least one was
purchased.
– This policy was immediately eliminated.
• Cars are rotated out when needed.
• No new cruisers have been purchased since 2007
• Two completely equipped used Tahoes were recently
purchased from MSU for $30,000.
• No vehicle purchases are planned for 2009-10, but funding
for one is included in the budget.
Contractual Services
• A change in auditors netted a $12,000 annual savings.
The 5-year contract will save $60,000 from current
audit costs.
• Recreation Plan was don’t in-house to save $5,000.
• Three street construction projects were engineered
with neighboring municipalities’ in-house engineering
departments.
• Master Plan is being created in-house.
• Our Attorney no longer reviews all meeting packets. If
there is an issue that I feel he needs to weigh in on, we
send that packet to him. The net affect was 7 less
billing hours per month @ $150/hr: $12,000/yr.
Net Expense Reductions
• 2006-07 GF Expenses: $2,711,674
• 2009-10 GF Expenses: $2,684,700
• 2009-10 GF Trend: $3,229,700
Revenues on the Decline
State
Revenue
Sharing
Property
Values
Investment
Income
Revenues Down 7%-8%
Creating New Revenues
• 2009-10 GF Revenues are anticipated reach
2006-07 levels.
• Trends should be around $3 Million . . .
• Budgeted revenue is $2,687,700 for FY 09-10.
Creating New Revenues
• New Housing
– Previously developed 41-lot Orchard Hills Subdivision was
paid for by the City in 2006, and eventually abandoned by
the City’s developer as the housing market failed in 200708.
– After studying housing needs and new homebuyer desires,
we reorganized the plat, shrunk some lots, added more
lots, and dramatically lowered the lot costs, utility hook-up
costs, and inspection costs.
– Net result is 4 custom home starts since April 2009, with 68 additional homes expected later this summer.
– Net new income to the City beginning in FY 09-10 is
$15,000 in property and income taxes.
Creating New Revenues
• Adjust Fees
– If the cemetery is not self sustaining . . . now’s the perfect
opportunity to justify a need to make it so.
• One-Time Revenues:
– Contacted the real estate agents of a number of
commercial properties that have been on the market for
18 months or longer, targeting those owned by larger
companies. We requested a tax deductible donation of
the building/property (using a local real estate agent to
show them the value of the tax deduction vs. the realistic
sale of the property). To date one building was donated
and flipped to an investor. Net income: $65,000
Creating New Revenues
• Looked for new investors
– On a recent visit to the Flint area, I noticed that a
cellular company named Metro PCS was flooding the
area with new stores. After doing some research, we
found that they intended to move into the Battle
Creek and Kalamazoo areas. We contacted their
tower consultant and convinced them that two cityowned areas were appropriate for towers. One lease
is in place and a second is likely in the coming months.
Annual revenue per tower is approximately $10,000.
This is the equivalent of $1.5 Million in new real
estate development (based on our tax levy).
Creating New Revenues
• Looked for new investors – continued
– Contacted real estate development companies in
other metropolitan areas (but not in Michigan).
Financially-stable firms are looking to invest the down
market in exchange for future returns.
– Organized one firm’s visit from Chicago . . . they have
determined that Springfield is a good place to invest,
and have agreed to purchase a struggling business and
a vacant neighboring property. We anticipate the net
affect will be two more-sustainable businesses in
Springfield. They are also interested in investing in
the City’s town center concept.
Creating New Revenues
Tips for Surviving Thriving in
Michigan’s Economy
• Make sure your employees have what they need to be
successful!
– Not necessarily the same as what they want . . .
– Listen to their needs and lead by example.
– With unemployment nearing 20% and housing values still
falling, it’s likely that some employees may have financial
problems looming. Don’t take advantage of them . . . if they are
covering for eliminated positions, taking on new challenges,
etc., the proper reward is not a pay freeze or a cut in benefits
just because the job market allows.
– If you cannot afford the long-term liability of a raise, consider a
cash bonus equal to 1%-2%.
– Don’t constantly remind them of how “bad” the economy is . . .
Ensure your employees that your leadership and their
dedication will make the difference.
Tips for Surviving Thriving in
Michigan’s Economy
• Be creative with cuts.
– Small cuts count, too.
– Try to forge personnel cuts in a way that also benefits
the affected employees.
– Get the employees involved.
– Get lean . . . and if you can effectively run your city at
the depleted funding levels, don’t grow your expenses
every time there is a bump in revenue.
– Now that we know how quickly funding can disappear,
start eliminating long-term liabilities to better position
your city for the next downturn.
Tips for Surviving Thriving in
Michigan’s Economy
• Search for new revenue
– Cell towers, land donations, new investors looking
to profit from the down market, etc.
– New, affordable housing is still desirable . . . know
your market, and help facilitate appropriate
development.
– Market your community to new residents and
investors . . . It’s not that expensive!
Tips for Surviving Thriving in
Michigan’s Economy
If all else fails . . .
I’ll meet you at the Downtowner