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Recession: Impact to Local Economy Joe Casey, Hanover County VA VLGAA Williamsburg VA May 2009 Hanover County Vision: Where a family of communities inspired.

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Presentation on theme: "Recession: Impact to Local Economy Joe Casey, Hanover County VA VLGAA Williamsburg VA May 2009 Hanover County Vision: Where a family of communities inspired."— Presentation transcript:

1 Recession: Impact to Local Economy Joe Casey, Hanover County VA VLGAA Williamsburg VA May 2009 Hanover County Vision: Where a family of communities inspired by its people, traditions, spirit and history, is the foundation for its future

2 Background Hanover revenues have declined 4% in FY09 −Property and sales taxes primary revenue shortfalls −Current year deficit overcome through capital reductions, frozen positions and reduced operating targets FY10 revenues are projected to be flat −Continued strategies from FY09 mid-year actions −Contingent strategies in place if declines arise Balanced 5 Year Plan projects FY11 to also be flat w/ recovery in FY12 −Reinstatement of positions and deferred capital replacement not complete until Year 5

3 Primary Local Economic Indicator

4 Scaling Back of Resources Short-term: Lower, constrained budgets = cost efficiencies −Becoming more efficient is not correlated to effectiveness Service standards impacted −Cause and effect of lower resources and less services should arise in LT −Challenge is that cause and effect not as apparent in short-term −Senior management must be aware of long-term ramifications

5 Business Model – Short-term “Wins” LT sustainability is dependent upon models with ST “wins” Defer, defer, defer today’s cost to tomorrow and/or lower cost Find low/no cost employee morale boosts – manage anxiety/stress “Low hanging fruit” - important and relevant; not high profile, necessity “Cut the fat” – managing perceptions of others through reality of already lean organization

6 Short-term Cost Savings Challenge: ST fiscal balancing strategies consume all resources and attention One-time tools in the “toolbox” −Capital/technology deferment −Training reductions −Vacant positions −Overall operating expense reductions – “discretionary” “Across the Board” cuts −Assumes (or ignorant): Each dept has equal ability to cut budget

7 Service Delivery Impacts Longer time to respond, higher error rate −“Beg for forgiveness, instead of ask for permission” Inability to have new initiatives −Survive #1 goal, #2 – see #1 Customer service challenged with employee morale and stress Workforce not as current on technical or evolving issues without access to training

8 Long-term Sustainability Challenge: LT focus is not a priority −Need to operate w/ ST mentality, but for LT sustainability Dependence upon an economic recovery implied to overcome future consequences of first year actions Set Clear-Understandable Goals −Recognize “coach class” that support services may be to “first class” ego of other depts −But, still on the same “plane”

9 Weathering Recession Strategies Conservatively assume recession will endure a two year budget cycle (Be wary of “expert” economists) −Keep current on all relevant economic indicators Employee morale, employee morale, employee morale Implement efficient practices; previously not accepted −Eliminate pay stubs, higher approval thresholds for procurement −Reduced custodial contracts, no “trickle down” computer installs Get customer “buy-in” of reduced service scope −Lowered expectations yields reasonable management discussions Negotiate contracted services, projects for lower $$ Identify projects for quick starts to access very low bids

10 If Recession is > 2 Years….. Revenue support in year 2 s/b limited to estimates with high confidence of attaining Balancing to flat or declining year 2 revenues will ensure difficult decisions made today, benefit tomorrow −If not, more painful awakening or over-correction needed Year 3 recovery assumptions may have limited conservative one-time “catch-up” assumptions (pent-up demand) If Year 2 recovery indicators are not present, then budget for lower Year 3 Year 1 Year 2

11 Five Year Capital Replacement Previously accepted replacement programs have deferrals putting pressure on replacement program −Greater chance for capital to break, higher repairs, downtime Overcome deferrals, by getting “back on track” −Provide comfort that any reductions in year 1-2 of previous plan in capital replacement will be corrected in years 3-5 Service and utilization strategies in the interim −Re-assignment of under-utilized capital assets to maximize useful life and productivity of capital asset −Budget a replacement reserve to provide inventory for those that may break, end of useful life (computers, vehicles, equipment)

12 Vehicle Deployment/Assignment

13 Debt Management Plans Business model: Cash low, finance capital, fund operations −Model dependent on future revenues being high enough to overcome debt service (including interest expense) Multi-year plans need to provide financial comfort −Capital funded w/ debt illustrates that debt service and related operating costs can reasonably be funded via operating budget Debt policy constraints should be followed −Debt per capita, debt as % of expenses, etc. If debt is > policy or multi-year plan can’t provide comfort, then debt should not be solution to budget problem −Mitigate principal deferrals, capitalized interest, premiums

14 Fund Balance Plans “Carryover” funds also incorporated as part of topic −Managing through the “use it or lose it” mentality Planned use of available unreserved fund balance > policy threshold may be prudent −For one-time expenses (capital), with multi-year plans showing pathway to replacement If Year 1 has exhausted all fund balance capacities for operational needs, Year 2 will be a significant challenge −More dependent upon future recovery or significant expense reductions −Even more of a challenge in Year 1 if revenues fall short of budget with Year 1 deficit arising

15 Primary Indicators Developing primary economic and service indicators helps management assess impacts to operations Key indicators: Best gauge of resource deployment Timely “dashboard” - captures positive or negative trends – service, financial, economic, employee, customer

16 Vacant Positions Process to identify what positions to freeze, eliminate −How long, coverage issues −Reduction in force (RIF) policies - challenges Budgeting strategy −Maintain frozen positions in departmental budget but have it offset with “credit” in another part of budget to reflect full compliment of authorized positions Approvals to reinstate may then be less needed, noticeable $ and % change in department salaries would not be impacted by reinstatement of position Illustrates “vote of confidence” to department’s FTE count −Manage the “credit” becomes focus as new vacant positions may supplant other previously frozen positions w/ greater demands

17 Employee Morale No salary increases, net pay impact Creative practices of “win (no $) – win (employee likes)” −Flexible schedules, LWOP Continue career ladders, certification maintenance, low cost training options – on-site options Employee assistance program for employee, their family Create low cost fun environment Reward later those employees who’ve weathered the storm w/ you

18 Redeployment Matrixes Best allocate existing resources from one department w/ capacity to another department in need of resource −Resource need: frozen/cut positions, higher demands, seasonal −Resources supplied from lower demands, better coverage abilities Distinguish amongst redeployments those that may be permanently assigned −Hire w/in organization for vacancies not frozen vs. temporary where employees return to department after “tour of duty” −Opportunity to give some “apple” employees in “orange” department, opportunity to succeed with “apple” department Simple goal: Redeployment saves jobs −Quicker employees understand that, quicker the team is formed

19 Redeployment Byproduct Morale boosted - job protection goal better achieved −Employee statement: “I’m saving someone’s job” Unparalleled cross-training (always “preached”) Vested TEAM employees for benefit of entire organization Practical exercise for certain business continuity action plans requiring interdepartmental assistance Proactively positions organization for retirees of positions that will be frozen to cross-train prior to departure Best management practices for the vacancy “credit”

20 Don’t Settle for Mediocrity

21 When in Doubt, Stimulus – It’s all in the Formula

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