Coping with crisis: budgeting in recession by large U.S. cities.

• Author: Lewis, Carol W.

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How are large cities around the United States confronting the recession that officially started in December 2007? A survey of the budget and finance offices in the largest city in each state was conducted in spring 2009 to answer this question. The survey tapped into local decision-making discretion by defining the "largest" city in each state as the one with the highest own-source revenue, according to the U.S. Census Bureau. (1)

To take into account other common measures of city size, the survey also included the largest city in each state as measured by total revenue and by population. In 42 states, a single city meets all three criteria (and in only one state does it take three different cities to do so).The goal was to get a broad geographic distribution that did not overweight particular regional variations in functions, fiscal authority, form of government, population growth (e.g., west and southwest), and the depth and timing of the economic downturn. With a population approaching 38 million, or 13.4 percent of the U.S. population, these 59 cities represent almost $71 billion in own-source revenue and $126 billion in total revenue. The mayor-council form of government is most prevalent, accounting for 75 percent of these cities.

Multiple e-mails and follow-up telephone calls to the budget and finance offices of the 59 cities selected for this survey solicited responses from 40 of them, for a 68 percent response rate. The Government Finance Officers Association (GFOA) and several state GFOA chapters encouraged responses as well. To capture the impact of deteriorating economic conditions, survey questions focused on two budget rounds, FY 2009 and FY 2010 (or, if the city's fiscal year runs January to December, then FY 2008 and FY 2009). The survey represents: all regions of the country (see Exhibit 1); 7.4 percent of the total U.S. population; almost $29 billion in own-source revenue; and almost $52 billion in total revenue.

SURVEY FINDINGS

1. The Robert Burns Effect. Several respondents vol unteered remarks about the long budget season, long days, and long meetings. The shortening half-life of budget decisions added to the work load. The budget's usual timeframe has been compressed as most city governments in the sample struggled to adapt to worsening fiscal conditions by amending their budgets. Only 2 of the 40 responding cities did not revise their budget in either year of the study Fully 95 percent (38) of the responding cities amended their budget in at least one of the two years, and 65 percent (26) took action in both years. In fluid circumstances, plans degrade and budgeting becomes continuous. As the Scottish poet Robert Burns so aptly put it, the best laid schemes of mice and men often go astray

2. Dominant Coping Strategies. By far the most common change in city budgets comes in the form of spending cuts. Of the cities that reported changing their budgets in FY 2009 or for FY 2010, an average of 83 percent reported spending cuts. When making these cuts, the cities tended to take a multi-pronged approach, as shown by the total number of reported instances in Exhibit 2. As expected, based on typical responses to past fiscal crises, (2) the most common technique was to institute a hiring freeze (68 percent of the reported instances of spending cuts). The GFOA recommends using a hiring freeze only" with caution" (3) Admittedly, a hiring freeze "is a convenient short-run strategy to buy time and preserve options. In the short run, it hurts no one already...