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Back to basics: Advice for cities in fiscal crisis

SANTA CLARA, Calif. (MarketWatch) -- Cities have become accustomed to swings in the economy, but the length and depth of the current downturn is cause for alarm. Cities from both coasts have declared bankruptcy, and others are considering declaring insolvency. Large and small, urban and rural -- no local government seems immune to the drop-off in revenues and the escalation of expenses.

I was mayor of Santa Clara, Calif., located in the heart of Silicon Valley. During my tenure we experience the dot-com boom -- the greatest growth in personal income, corporate profits, and successful startups. We also felt the impact of the dot-com bust, when inflated values dropped to reasonable levels and cities looked at the aftermath: empty office buildings, a substantial drop in investment values, and in some cases, relocation of both businesses and families to other states.

Based on my experience, I would say we have arrived at the point where no state is a refuge. That was also the conclusion of the Task Force on the State Budget Crisis. Their report looks at six heavily populated states: California, Illinois, New Jersey, New York, Texas, and Virginia. The bottom line: "Large expenditures are growing at rates that exceed reasonable expectations for revenues." One of the problems the task force found was a lack of transparency around budgeting that kept liabilities, such as pensions, hidden.

What should cities do to manage the current crisis and set in place safeguards against future economic recessions? They must return to the basics. Local government (cities, counties, schools, special districts) must take a hard look at the following five areas, and be able to make clear and decisive changes where necessary.

1. Spend only what you can afford. Candidates and officeholders offer up a list of exciting programs and projects, but they often show only the cost of "bricks and mortar," not the staffing and ongoing operation and maintenance costs. Public servants must be forward thinking when they make such proposals. And they must be flexible when economic realities change. If you have promised a youth soccer park but find you must spend money to repair roads or hire more public safety officers, tell the public in clear terms why you cannot deliver on your earlier promises. Moving ahead on unfunded projects by banking on future revenues or the hope that the economy will turn around is an irresponsible use of public funds.

2. Be realistic about what you need, versus what you want. We all enjoyed the days when cities were flush and could offer major fireworks displays on July 4 or concerts in the park. But times have changed. Cities may have committed to wonderful capital improvements or expansions of services, but in the current environment, those will have to go on a "wish list" for later.

3. Consolidate, cooperate, and collaborate. There are many opportunities to share services, buildings, and even equipment in many communities. While every citizen (and city council) would love to have a dedicated fire department, it may make more fiscal sense to align services with a nearby city. The same goes for public libraries, parks and recreation programs, and other services. Consider joint purchasing programs for office supplies and look into lowering insurance costs through self-insurance or by joining a cooperative. Forge public-private partnerships to sponsor projects that the city cannot afford; strengthen your ties with non-profit organizations that may be able to do the senior outreach or literacy programs you can't support; and engage in community building in your neighborhoods so that citizens clean up the creek or start a community garden.

4. Create, strengthen, and maintain a culture of ethics. Some of the most egregious budget problems have occurred in cities where there was little or no oversight, where public officials used city credit cards for expensive meals and vacations. Absent a values-based code of ethics, employees are left to follow the actions of others in the organization (sometimes their bosses) who, like the administrators in Bell, Calif., stole millions from the taxpayers. Encourage and reward integrity, and be swift in holding individuals accountable for their behavior.

5. Recommit to the importance of public service. It's easy to be discouraged, even embarrassed, to be a public servant these days. And yet public service is critical to our communities, our states, and our country. As we work to clean up some of the mess created by the fiscal downturn, we should not lay all the blame for the crisis on pensions or waste and fraud by public servants. We ourselves have been content to ignore looming problems in government funding, wanting more services but not more taxes. Now we must support the hard-working men and women in government as they struggle to confront these challenges.