Saturday, September 14, 2013
Why is Running the Government Like a Business So Tricky?
I’m a conservative. I own a small business and I budget conservatively. I run my household the same way and the result is at the end of the year, my revenue exceeds my expenses. Doesn’t it make sense that the government should function the same way? I’m finding it’s not that easy.
I have an accounting degree; I was an independent auditor of governmental entities; I know my way around financial statements. I’m not going to pretend I’m an expert though. I was recently appointed to Council in the City of Perrysburg and even before I was appointed, I was delving into the City’s financial statements.
One could get nit-picky and find faults in the way the City of Perrysburg has been run over the past decade, but by-and-large, the administration (with proper oversight from the mayor and council) have done a good job of stewarding the citizens’ tax dollars. If the administration in Perrysburg could be cloned and sent to the Statehouse and to Washington, this country would be in a far better position.
What have they done right? They’ve been running the City like a business. They’ve under budgeted revenue and over-budgeted expenses so that at the end of the year, there is consistently an increase in net assets.
What have they done wrong? They’ve been running the City like a business. In the normal course of a business cycle, it makes sense to have a plan to weather the storm during a bad year (which they did), plan for big projects for the future (the City implemented a new refuse collection system with a short-term loan), increase net assets (which is happening) and save a small sliver of pie each year so that we have a solid reserve fund balance (which they are working on).
So why is that such a problem? The problem is the local governmental entity is permitted to save some of the pie in a nice little container, which will help to plan for bad times and big projects, but because of ORC 4117 and a myriad of other State and Federal rules, the local entity is not permitted to put a tight-sealed lid on that container.
In 2009, the citizens of Perrysburg experienced their worst year in this recession. People were losing jobs, taking huge pay cuts and losing their homes. Businesses were losing revenue and many succumbed to the economy and had to shut their doors. Perrysburg wasn’t isolated. Income tax collections were down 17% and investment earnings were down 80%. The City had an overall decline in revenue of 13% available to operate city services (that’s $4.6 million).
What else was happening in 2009? - union contract negotiations. Through a number of meetings, tax dollars spent, fact finders and arbitrators, every union managed to negotiate a raise for 2009, 2010 and wage reopeners in 2011 (which some subsequently also went to fact finding). The City’s position was that the union employees have been and continue to be fairly compensated, economic times were bad, the future was unknown, so they were offering little in increased compensation. The unions had varying responses but it boiled down to the fact that there was a large enough piece of pie that they should be given some of that pie regardless of its intended future use. Because of the flaws in ORC 4117, the taxpayers lost the battle and there were raises across the board.
I’m not making note of this because I have an issue with the unions. They operated fairly within the confines of the State laws. The conciliators and fact finders clearly stated (although I find it insulting) that because of Perrysburg’s affluence, the citizens must pony up the cash for these raises. So why do I really mention this? Over the past nine years, the hardworking citizens of Perrysburg have gotten up every morning, gone to work and paid their taxes. The administration in Perrysburg has been such a good steward of those tax dollars that net assets have increased 423%. Through a combination of increased revenue, eliminating general fund debt, managing the growth of government and increasing assets without incurring debt, they’ve baked a pie so large, that there is no way the State will allow the City to put a lid on it. Success will be punished.
So what do we do about it? Lower taxes, lower taxes and then lower taxes. The City almost needs to stop being run like a business; it needs to be run closer to break-even. It is no longer safe to continue amassing funds because the City isn’t permitted to properly protect them for future use.
The current system is designed to reward failure and punish success. Councils have two options, neither of which are great choices and both have their risks.
Option one – collect a little more in taxes to properly prepare for future projects and unknown economic times BUT even if that is done properly, those reserves cannot be properly protected.
Option two – collect just enough taxes to break even BUT that will require loans for future projects and going into the red during poor economic times. Because the rules of the game do not allow a municipality to operate like a business, we have to stop trying to run it like a business. Neither option is good, it’s a no win situation and I will never pretend to have all the answers but what I do know is that allowing taxpayers to keep their own dollars is always best practice.
At the September 17th City Council meeting, the Council will have an opportunity to make a small but significant difference. The City assesses property owners for street trees and for street lights, both expenditures I would argue are important to our community and should continue.
However we do not need to be assessed for those two programs and are better funded through general fund revenues. The City managed to weather the $4.6 million drop in revenue in 2009, I have full faith they can weather a $270,000 drop in revenue in 2014. Besides, the citizens deserve a piece of their own pie.