Here’s a how-to on fixing city’s economic mess | Letters | Aug. 20
August 20, 2010 · 12:28 PM
At the end of 2002, the city had $3,537,250 in the bank. Today, the balance is near $0. That means that during one of the best economic periods ever, the city was spending more than it was bringing in.
In 2007, for example, the city spent $1.1 million more than it brought in.
And then economic Armageddon hits. What does the city do? It whistles past the graveyard and fails to cope with the realities of the day.
The net results? No reserves, no money to spend on critical services and a bond ratings downgrade that makes it difficult, if not impossible, for the city to borrow it it needs to. We are one big winter storm away from technical, if not actual, bankruptcy.
Why did this happen and what can the city do to get out of the problem? First, administrators need to remember who they work for. They work for the taxpayer, not city hall staff. The administration and council have done everything in their power to hold on to every staff member they can.
If the size of city staff was unsustainable during the halcyon years, how can they maintain staff levels when boom turns to bust? The answer is they can’t, they must downsize aggressively now.
The council needs to understand that every financial projection they get from the administration is, at best, a Pollyanna’s dream.
The numbers given to council are primarily to protect their jobs, not to provide an accurate assessment of the future, which is difficult or impossible to project with any precision.
The council’s mistake was, and is, to take these numbers at face value. Puffery and self-preservation happen in the business world, too, but CEOs and boards of directors understand the inherent bias in the revenue and cost guesstimates and take steps to ensure the future of the enterprise in a very different way than the council and administration have done.
It’s called “The Big Bath” strategy. Basically, here’s how it works. Take the projections from staff and deflate revenue by 10-15 percent, then increase spending by 10-15 percent to get a realistic look at what could really happen.
Then right-size staff and program budgets to that reality. Do it once and get it done. “The Big Bath” is a smarter management decision than the “death by a thousand cuts” that the city has gone through for the past few years.
With one big cut, after a short period of mourning, staff anxiety drops and everybody can get back to work with realistic goals.
With a slow death, anxiety remains high, paranoia reigns and productivity declines. In addition, the longer you wait to make the cuts, the deeper the cuts must be. So the total social pain now could be worse than if the city had right-sized at their first opportunity.
With all those employees at city hall, you can’t tell me all of them are A or B players. Staff cuts caused by economic catastrophe are a great way to get rid of deadwood without incurring the wrath of the unions.
Take “The Big Bath” now. It’s the only way out of this mess.