Many urban counties hurt by economic downturn
The recent turmoil on Wall Street is adding insult to injury for counties already hurting from the national economic downturn and the foreclosure crisis.
“When you get a recession, the demand for our services goes up, our ability to pay for it goes down, and so we’re caught in that right now,” said Peter McLaughlin, Hennepin County, Minn. Board of Commissioners.
Sally Heyman is a Miami-Dade County commissioner. She added, “The most recent economic downturn and financial situation have just compounded what has been a problematic budgeting process that has trickled down from the federal to the state, state to the large counties and even the large cities — all levels of government.”
Their situations are emblematic of what many large urban counties are facing, as borne out in a new NACo survey, the State of County Economy.
Seventeen counties with populations of more than 500,000 residents from 12 states in all regions of the country were surveyed by NACo Oct. 8–17.
Of the responding counties, 87 percent said they anticipate a revenue shortfall, and 27 percent said they expect increased expenses.
Forty-seven percent of the counties said that they are experiencing a revenue shortfall in the current budget. Fifty-nine percent said they anticipate a shortfall in the next year’s budget, which will lead to more severe budget- cutting measures such as furloughs and layoffs.
Hennepin County expects to cut 258 positions and lay off in excess of 100 employees next year, McLaughlin said during a break at a recent meeting of NACo’s Large Urban County Caucus (LUCC) in Baltimore. “That’s the first time we’ve done layoffs in years. That’s what we’re facing; that’s real.”
NACo Urges Feds to Purchase Short-term Municipal Debt
On Oct. 15, NACo sent a letter to Federal Reserve System Chairman Ben Bernanke urging that the Fed determine a mechanism that would allow it to purchase short-term, tax-exempt securities.
“State and local governments issue short-term instruments for the same reasons that corporations do — to access capital to pay debts until revenues are received, or could “provide some much needed stability in the short-term market.”
Emphasizing the low financial risk of these types of securities, NACo stated it is time for the federal government to help state and local governments address the credit challenges they face. “Local governments are responsible for ensuring that Main Street continues to function — that police and fire services are maintained, essential public infrastructure projects proceed, schools have the resources necessary to teach our children, and parks and libraries remain open.”
The National Association of Local Housing Finance Agencies, National Association for County Community and Economic Development, American Public Works Association, and National Association of County Collectors, Treasurers and Finance Officers joined NACo in the letter sent Oct. 15.
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Of the counties that expect a current budget year shortfall, eight counties (80 percent) plan hiring freezes, six (60 percent) will cut budgets, and six (60 percent) will reduce services.
To address next year’s anticipated budget shortfall, 10 counties (91 percent) cited employment freezes, 10 counties (91 percent) cited budget cuts, and eight counties (73 percent) cited service delivery cutbacks.
NACo Executive Director Larry Naake said: “The survey results suggest that this is only the beginning of a looming financial crisis for counties.
At the LUCC meeting, County News spoke with a geographic cross-section of county commissioners and supervisors: McLaughlin; Nancy Boxill, Fulton County, Ga.; Scott Haggerty, Alameda County, Calif.; and Sally Heyman, Miami-Dade County, Fla. Their counties were not represented in the survey, however their experiences typify what their urban county colleagues are facing.
Boxill, a Fulton County commissioner, said her county is in better shape this year than some, because it maintains an 8.33 percent “rainy day” fund. “So that gives us a small amount to plug any holes in ’08,” she said. “For ’09, I think the question is, ‘How we are going to maintain the current level of service with reduced resources?’”
Issuing new debt harder
Naake added, “It’s clear that the challenge for counties to continue to deliver the services residents have come to expect is fast becoming more difficult as a result of the housing/foreclosure crisis, declining taxes and revenues and increased borrowing costs.”
Seventy-one percent of responding counties said that high interest rates are the biggest difficulty in issuance of long-term and short-term bonds to raise necessary operating cash.
Five counties (36 percent) said they have experienced failures to purchase bonds when issued. As a result of these recent difficulties, seven counties (58 percent) said they will delay issuance of the debt, which Naake said will, in turn, delay maintenance and repair of critical infrastructure. “It’s one more hurdle for budget-strapped counties to clear to provide essential services and programs to communities,” he said.
Haggerty, president of the Alameda County Board of Supervisors, knows this all too well. “We have a debt that goes out to auction I think about every 30 days, and the last time it went out to auction we were not able to sell it. What that means is millions of dollars extra in interest rates associated with not being able to do that.”
He added that the state requires that the county hospital be rebuilt — it sits atop an earthquake fault. “The estimate is somewhere around $700 million,” Haggerty said. “We are now having to look at that and say, ‘Are we going to be able to get to money to be able to build this hospital?”’
McLaughlin is in similar straits regarding infrastructure. “We’re trying to make some major improvements in the transit system in the metropolitan area,” he explained. “If interest rates on public debt go way up, it’s going to cut back on our ability to make those investments.”
This was NACo’s second survey in recent months gauging counties’ response to economic conditions. A June NACo survey on mortgage foreclosures found that 52 percent of responding counties were experiencing revenue shortfalls, either as a result of foreclosures or declining housing values.
“I never thought in my life that I would face this kind of situation,” McLaughlin said. “My mother’s 90 years old; she called me and asked me if she ought to take her money out of the bank to keep it safe in case she needed to buy food and things.
“She’s a woman who went through the Great Depression, and to think that she has to face this again; it’s just scandalous. In my mind, that’s what we’re facing.”
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