This is the first of a two-part series addressing the budget dilemma faced by most Illinois municipalities.

WHAT IS OUR GOAL?

The Illinois Municipal League staff approached me with the purpose of providing their membership a practitioner’s insight into the budgetary dilemma currently being faced by most Illinois communities. To say the least, I think most public officials are finding these times very challenging. Although most of us continue looking for some light on the economic horizon, things seem to be deteriorating further as opposed to stabilizing or getting better. We now find ourselves entering yet another municipal budget season full of financial uncertainty. Most of us continue searching for reasonable means to salvage this situation.

WHY ME?

During the last five years as a member of the IML’s statewide Managers Committee, I have provided insight on budgetary matters to the League’s membership. As a result of prior presentations and lectures, League staff received favorable feedback about my approach to public budgeting and asked me to assist them with this article. I consider it my professional responsibility to help others when I can and have accepted the IML’s request to write about these difficult economic times.

As I began thinking about the number and complexity of issues now facing most local public officials, I concluded this topic warranted a two-part series. This first article will focus upon key philosophical, societal and leadership issues which I believe are impacting many of us as we attempt to navigate through these uncharted waters. Next month’s article will concentrate on various examples of how to structurally deal with our current financial times. I will attempt to keep these two articles straightforward while stressing the complex linkage between today’s economic reality, historical budget practices and evolving societal influences. All of these factors will impact how we as leaders address this complex problem. Hopefully, you will find this thought provoking and insightful.

WHAT’S WITH THE ECONOMY? . . . IT DOESN’T MATTER BECAUSE IT’S REALITY

With the exception of a few short term glitches in our national, regional and state economies, the past several decades have been generally noted for consistent and stable economic growth. Depending on community size, geographic location and development trends, municipal leaders (for the most part) have enjoyed reasonably solid economic expansion over a fairly extended period. In general, unemployment rates have remained relatively low and inflationary pressures have been kept in check. In addition, economic related revenues such as property, sales and income taxes have generally trended upward for the majority of communities. Lower interest rates have stimulated residential and business development in many communities also resulting in supplemental economic benefits.

Over time, these trends enabled most of us to meet rising operational costs, allocate resources to expand or improve services along with increasing wages and benefits for our employees. Sure we endured some milder recessions in the early nineties and post 9/11 era, but our economy seemed to always rebound in healthy fashion. For the most part, we could count on more revenue flowing into our coffers on an annual basis. As the saying goes “Those were the good ole days.” Simply put, local officials have not previously been challenged to the degree necessary to deal with the current economic climate. The current fiscal downturn happened at a faster pace, is more severe and will last longer than any economic recession this generation of public leaders has experienced before.

RECOGNIZE THAT THIS PROBLEM BELONGS TO YOU!

This sounds like a simple premise....right? However, accepting the new budgetary order as reality comes with some pretty heavy baggage. Whether you are an elected or appointed official, embracing this new reality includes several important and difficult leadership challenges. These challenges will no doubt include a significant number of complex and unpopular policy decisions down the road. However, the longer we talk about how bad things are as opposed to acting on them, the more difficult our financial situation is likely to become. Accepting and embracing this responsibility is the mark of a true leader and inspires others to rise to the challenge as well. Assuming an active leadership role will define your willingness to tackle difficult problems and stimulate long-term thinking. This approach also “sets the stage” to begin preparing your community about the new budgetary order. The bottom line is that you cannot successfully overcome a tough task without taking it head on.

THERE IS NO “ONE SIZE FITS ALL” SOLUTION TO THESE PROBLEMS

Budgetary systems on the local level have evolved over the past several decades primarily based on economic, political and social factors unique to each community. A community’s size and population along with historically accepted practices regarding services, programs, taxation, etc., all combine to make every community distinct to some degree. As previously stated, recent history has not required local government officials to cope with a financial downturn this severe. As a result, we lack tried and true budget contraction models to analyze, modify and potentially implement in our own communities. Although many communities do share similarities, it is impossible to develop or adopt a “one size fits all” solution that will be effective across the broad spectrum of Illinois municipalities.

In some cases, municipal leaders are currently taking bold action based on creativity, insight and the spirit of leading their community out of this dilemma. While doing so, there are new programs and models being regularly developed to cut costs and reduce budget outlays. Many of these ideas and concepts can be emulated and modified for use in your community. Although all of us look for ideas and concepts that may work, many of these new approaches have yet to be tested over time. As a result, it can be difficult to predict with certainty whether these new programs or models will truly be effective in the long term. Facing such uncertainty naturally raises anxiety levels among local officials making it even more difficult to reach decisions and implement actions with confidence.

IT’S HARD TO HIT A MOVING TARGET!

Unfortunately, today’s creative budgetary solutions are often overshadowed by tomorrow’s even more negative economic news. The current recession appears to be somewhat of a moving target often resulting in a series of ongoing and painful discussions about how things are deteriorating even more severely than previously anticipated.

In my opinion, the single biggest problem regarding this recession relates to its ongoing and unrelenting intensity. Growing unemployment rates have led to significant declines in state income tax revenue while sales tax also continues its downward trend on a statewide basis. Even the historically reliable IML revenue projections underestimated the severity of this economic downturn. Since many of us rely on the IML’s per capita revenue projections, it was quite a surprise last summer when the League released modified projections just a few months into most of our fiscal years. In many cases, communities had already adopted much trimmer budgets based on the IML’s springtime projections, only to find the updated forecasts calling for unprecedented decreases in both income and sales tax revenues (on a statewide basis).

This incredibly bad news has now been compounded by the state of Illinois’ unpredictable delays in distributing payments from the Local Government Distribution Fund (LGDF) to municipalities. Combined, these factors are making it virtually impossible to develop reliable revenue projections. In many cases, reduced spending targets are getting modified with regularity to offset the continued decline in revenues. The net impact of this dilemma is a loss of confidence in those responsible for developing, reporting and explaining this mess. As a chief budget officer myself, I grimace each time new information is unveiled while I face the harsh reality of having to explain all of this bad news to not only the elected leadership, but to our citizens and fellow employees as well.

As we move forward, it is more important than ever to recognize that solving these problems will be an incremental, and to some degree experimental, exercise in leadership. As leaders, we are being challenged more than ever to take risks, reload when conditions change and be responsible for the unknown outcomes affiliated with our efforts. It’s OK to be anxious about this situation because most of us are right there with you! In fact, who wouldn’t be a bit nervous about captaining a boat in these uncharted waters?

OUR QUICK FIX CULTURE IS NOT SUITED FOR COMPLEX PROBLEM SOLVING!

I have observed a somewhat recurring theme regarding public decision making over the past decade. As a society, we are becoming generally more impatient while expecting answers, responses and solutions in just a few seconds……. or clicks of a mouse! We want problems to disappear based on quick and painless decisions. In our “quick fix” culture, problems are hypothetically resolved with little direct or indirect negative implications on programs, interest groups or people.

Hypothetically speaking, I am sure many of us have observed situations where a “ground breaking” solution to a difficult public budget problem is announced. The solution sounds fantastic and seems painless as no one will have to sacrifice anything because there are no hardships created and everything is a win-win. In many cases these programs become long-term failures because they are customized to meet evolving societal expectations as opposed to solving structural problems. Many problems keep getting rolled over to yet another budget cycle or the next generation of leaders without resolution. I believe this often occurs in response to societal pressure for a “quick and painless fix.” Even though the problem might be complex, societal expectations often lead to knee-jerk solutions, gimmicks or other alternatives which may sound good today, but don’t really address the necessary core issues.

This quick fix or “rollover” approach often leads to poor public budget policy and bigger problems evolving later. The new budgetary order (now more than ever) requires good information, adequate time and serious deliberations regarding the merits and potential (but realistic) outcomes of any given set of solutions. In a tough budgetary environment, this normally means that sacrifice is an integral part of long term problem solving. In my opinion, evolving societal influences are trending in the opposite direction from the new budgetary order.

This trend can no longer be sustained and our societal obsession for a quick fix needs adjusting if we are ever going to effectively cope with this dilemma. Whether you are an elected official or staff member, it’s best to recognize that the road to budgetary recovery will be a long one. It will not happen overnight and likely require a series of incremental and painful decisions which must be both calculated and focused upon re-building our financial foundations.

In a simpler analogy, today’s budgetary challenges are much like being forced to use a hand axe to chop down a large tree. There is some degree of caution required, you know it’s going to take quite a bit of time, blisters will eventually yield to calluses, and a good degree of old-fashioned sweat will be involved.

NOT EVERYONE’S ON BOARD AT “CRUNCH TIME”

By now, most of us would assume that everyone understands how these economic times have impacted local governments in Illinois. There are plenty of newspaper articles written about this issue and the topic is regularly covered by local television broadcasts and the nightly news. In addition, many people are struggling with their own household problems relating to this new economic reality. Surely everyone comprehends this situation and will support that tough choices must be made by their local officials. Think again!

It has been my experience that in general, people have a lot to worry about in today’s world. People observe the practices of their local governments from varying distances. Some pay very close attention and have a solid understanding of the issues while others prefer to view things from a more peripheral perspective. During the initial stages of this recession, cost cutting and budget reduction efforts often focused on such things as; equipment replacement, training, travel, memberships, etc. These budget reduction efforts were (in the bigger picture) somewhat insignificant since these decisions generally had little or no direct impact on interested parties.

Based on my own experiences, most people or interest groups will sit on the sidelines as long as they do not perceive themselves being significantly impacted by pending decisions. However, as the intensity of this recession has worsened, “crunch time” decision making has become more difficult and often results in outcomes which impact people to varying degrees. In some cases, competing interests are now attempting to exercise their influence during the decision making process (a trend which I believe will intensify). Competing interest groups will no doubt work hard to maintain a priority status during future decision making. Whether it is organized labor attempting to maintain negotiated benefit levels for its membership, a group of citizens banding together to oppose a service cut (or tax increase), we as leaders will face more intense and focused opposition from varying interest groups.

WHAT’S THE POINT OF ALL THIS?

There is an important linkage between the key points I have written about in this article. The realities of our economy, the need for bold leadership, the lack of tested models along with evolving societal influences must all be considered as part of the new budgetary order. It is indeed an interesting time for public leaders at all levels.

I have attempted to identify and explain what most of us are “living” on a daily basis. If you absorb one good idea or thought from this article, I will consider it to be a success. This article was intended to be both thought provoking and challenging. Next month’s article will be more technical in nature and focus on some structural approaches to dealing with this new budgetary order.