Difficult Decisions

(from Maine Townsman, May 2009)
By Douglas Rooks

As with most government budgets, personnel costs represent the majority of municipal spending in larger communities. Now caught between a steep economic downturn and continued high expectations from the public, municipal managers have had to execute some intricate and sometimes difficult maneuvers to keep their staffs intact.

So far, municipalities are weathering the financial crisis without resort to wholesale layoffs and downsizing – though it’s possible that could come later. Passage of an initiative to slash the motor vehicle excise tax – likely to go to the voters on Nov. 3 – would be another significant blow.

“What I really worry about is what happens in 2010,” said Ed Barrett, Bangor’s city manager. “We’ve managed to hang on this year by using reserves and finding short-term savings,” but a prolonged slump would be another matter, he said.

Even so, several city managers said the slump of 2009 has produced the most difficult budget deliberations they’ve ever seen. Many Maine cities, for instance, substantially reduced staff over the last decade and have less room to cut than they would have had before. Lewiston had more than 400 employees eight years ago, but has cut 58 positions, or 13% of the workforce, and now has about 355 full-time equivalent positions, according to City Administrator Jim Bennett.

Around the state, managers have been taking unusual actions in a bid to stay ahead of what continues to be a declining revenue curve – not only from local taxes, but also from state aid. The continued uncertainty over what municipalities will receive – Gov. John Baldacci has proposed further cuts in property tax relief programs including revenue sharing – means that municipal budgets may open July 1 without firm state revenue figures.

At least two managers have volunteered to give up their salary increments this year – Ruth Marden in Jay and Bill Bridgeo in Augusta. Marden said hers was intended as a good-will gesture to recognize Jay’s difficult situation; one major employer, Wausau Paper, announced it was shutting down operations on May 3, eliminating 100 jobs and a substantial amount of valuation.

Bridgeo said that he hopes his action would spur the city’s unionized employees to make similar reductions. “The city council appreciated it, but the unions decided not to go along,” he said. This has forced significant reductions both in staffing and programs.

Augusta

Bridgeo was one of the managers who said this had been the most trying time in 28 years as a municipal leader, including the last 11 years as Augusta city manager. “This is the toughest year ever,” he said. “There’s no money and state aid is a moving target.”

Cutbacks in Augusta started during the current budget year, as revenues fell sharply beginning last fall.

The city laid off nine staff members and the school board voted to close the capital’s last middle school, with students moving to Cony High School in September of this year, saving $850,000. Even though the new Cony was completed in 2005, it has sufficient space to accommodate the middle school students due to falling enrollments.

“There’s something about sitting across the table from a 25-year employee and telling them they no longer have a job, through no fault of their own,” Bridgeo said. “That’s not something you ever want to happen.”

For next year, the city is hoping to make fewer personnel reductions, though switching to biweekly trash collection would eliminate two public works positions, and ending the senior outreach program at the library would cut a part-time position.

Other planned cutbacks include reducing police and fire department overtime, closing one of the city’s three swimming pools, closing the Bicentennial Nature Park, a popular summer destination, and switching to a cheaper salt-sand mixture for winter road maintenance.

All of these steps were necessary to avoid any property tax increase, and – like the state’s biennial budget – Augusta’s budget will be smaller next year, down from $24 million to $22 million.

Bridgeo said that with the latest proposed state reductions, though, these reductions might not be enough. “So far the city council has not wanted to consider a tax increase,” he said, though Mayor Roger Katz raised the possibility of a “small” increase at a meeting in early May. Otherwise, more cuts will be needed.

“This is the land of no good choices,” said Bridgeo.

Jay

Ruth Marden said that the municipal unions, which are in the third year of a contract calling for a 3% increase, elected to keep their salary increments but were willing to negotiate for reductions in health insurance costs.

Jay, which contracts with MMA for health insurance, will go from the “A” level of benefits to the “C” level, which maintains eligibility but requires employees to pay higher deductibles and co-payments. That saved $50,000 for the 35-employee staff, and allowed the town to avoid a significant tax increase.

“The budget is up about 1%,” Marden said, “and that was because of some sewer work that couldn’t be put off.” Other cost-saving initiatives include aggressive bidding on fuel contracts, and energy savings from insulating buildings and turning down thermostats.

Marden, who’s been town manager in Jay for more than seven years, said this was the most difficult budget to put together. “It was harder, and more emotional. Not only are town employees worried about their jobs, but the townspeople are anxious about the future.” She said that she’s “optimistic by nature,” but that she “wouldn’t even venture to guess” about what next year’s budget and personnel situation will look like.

Kennebunkport

In Kennebunkport, Town Manager Larry Mead said that things went relatively smooth, in part because the sole municipal union contract expires this year, and selectmen are budgeting no salary increases for next year, although negotiations continue.

Kennebunkport has 48 municipal employees, and Mead proposed cutting 2 1/2 positions to avoid a tax increase, and selectmen accepted cutting 1 1/2, including one police officer. Overall, the salary account is down 4.6%, and the town was also able to reduce health insurance spending by 8% by covering fewer people, despite what Mead called “a standard increase” of 6% from the town’s insurance carrier.

The town will also cuts it capital spending by 6.5% by not replacing two police cruisers, as previously scheduled, and postponing purchase of a new front end loader. There will also be significant cuts to road repairs and sidewalk maintenance, Mead said.

Town employees were also in the spotlight in April when the York County Coast Star published a series of front-page articles detailing municipal employee salaries in its coverage area, which also includes Kennebunk, Wells, Ogunquit, and Sanford.

Despite the media splash, Mead said he saw little reaction from the public. “We didn’t get any calls, and selectmen said they didn’t either. I didn’t even see anything in the letters-to-the-editor column.”

Mead isn’t sure why there wasn’t a response similar to listings of state employee salaries, which prompted an unsuccessful bill to bar publication of employee names. “My guess is that the people likely to be outraged are already upset about other aspects of municipal government, and this is nothing new to them,” he said.

One of the questions raised by a reporter was the use of overtime in the police department, which results in six officers being among the town’s top 10 highest paid employees.

Mead says that paying overtime is necessary to provide ’round-the-clock police protection – including two officers on the night shift – and that it’s cheaper than hiring additional officers. With the costs of benefits being at least a quarter of annual salary, or more, it really doesn’t make sense to add to the payroll, he said. Kennebunkport will stick to its 12-member department, plus some summer help.

Portland attorney Larry Winger, author of the Maine Employee Handbook, agrees that the old formula of hiring to avoid paying time-and-a-half for overtime rarely works anymore.

“When wage-and-hour laws were first passed, during the Great Depression, the intent clearly was to get employers to hire more workers rather than have them work more hours,” Winger said. But the rising cost of benefits, particularly health insurance, has defeated that purpose.

“I don’t think you’ll find anyone who says that avoiding overtime will save much money anymore,” he said. “There may be a case where an employer is routinely scheduling tons and tons of overtime, and it would make sense, but not very often.”

Winger said that for purposes of evaluating overtime use, municipalities should consider police and fire departments, which often demand 24-hour staffing, separately from other departments. If overtime costs are sizable elsewhere, it might make sense to do additional hiring. “I’d make sure that there was a deeper analysis of costs, though, before taking on any long-term commitments,” he said.

Mead said that Kennebunkport uses a call fire department, so overtime there isn’t an issue. “I wouldn’t say the same thing about fire department overtime,” he said. “That could be a whole different situation.”

Lewiston

In Lewiston, like several other cities, putting together this year’s budget has been a protracted process.

Jim Bennett, the city administrator, engaged the six union bargaining units due for pay increases in negotiations that were part of the city council’s strategy of ensuring no tax increase for the coming year. The plan included a six-month deferral of scheduled increases, and was designed to avoid layoffs, though some vacancies might not be filled.

Four of the units agreed to wage deferrals, and the other two agreed to find comparable savings, such as eliminating uniform allowances.

Once the agreement was complete, however, Bennett was not successful in convincing the council to ratify it. On a 4-3 vote, the council rejected the deal, sending city budgeters back to square one.

Lewiston is going ahead, however, with other personnel moves designed to cut costs. The city has offered incentives for early retirement to several senior staff members, who can then collect retirement benefits but also be rehired, generally for 15% below their previous salaries. “And some positions will not be refilled,” Bennett said.

He doesn’t have a prediction about when the city will have a budget “but I hope it’s soon,” he said. At this point, he’s not sure layoffs can be avoided, but given the existing shrinkage in staff, it’s a last resort. “We’ve been downsizing for at least five years,” he said. “We’re running out of things to cut.”

Bangor

Ed Barrett is one of the longest-serving city managers in the state, and was around to oversee cutbacks from the last previous severe recession, which hit during 1991-92.

In some ways, that was worse for Bangor, he said. At the time, the city charter required the city to roll over its surplus each year, much as school districts are required to do, and as a result, the city had few reserves to draw on when the recession hit.

One of the financial reforms undertaken after that experience was a change in the charter, approved by the voters, that allows the city to accumulate reserves.

One of those accounts, for health insurance, has proved useful in the past – such as when Bangor faced a 50% increase in premiums from its existing carrier. While the city was able to get a more reasonable rate from a competitor, planning for health insurance costs over several years remains a good policy, Barrett said.

A 12% premium increase last January required drawing on reserves; next year’s rate hike is “not as bad,” Barrett said, though the city will continue to shop around.

The city has a half dozen union agreements with overlapping expiration dates, covering such services as fire, public safety, and Bangor International Airport, and a large number of non-union employees as well. So the impact of wage increases is hard to sum up, though salary increments have generally been 3%. The city has not attempted to negotiate reductions, but tries to treat union and non-union workers similarly, Barrett said.

The city council continues to work on the budget, and is aiming for a “minimal” tax increase, if any. So far, the budget shows a reduction of 2 1/2 positions, plus a small number of fee increases, such as a jump from $10 to $15 for parking tickets and increased off-street parking fees.

The council has asked for a new cost analysis of switching city dispatch services to Penobscot County, whose call center is also in Bangor. A previous analysis, in 2006, found scant savings, said Barrett, in part because the city performs non-dispatch services with the same personnel, such as monitoring fire alarms. Penobscot County would not provide such services.

Even if a switch were made, it probably wouldn’t have much effect until the following budget year. Penobscot County “would have to double their staff” to accommodate the call volume Bangor covers, Barrett said.

Even without the potential effects of the initiative to cut vehicle excise taxes, non-property tax revenue is shrinking fast. Even before the latest proposed changes, Bangor was facing an $850,000 reduction in state revenue sharing. “It’s getting harder and harder to make that up anywhere else,” Barrett said.

A Longer Perspective

Jim Bennett has a reputation of being a municipal finance rescue expert. He was elected selectman in Lisbon in 1982, at a time when the town had defaulted on its bonds.

In 1990, he was recruited by Old Orchard Beach amid a budget year in which the town had overspent its budget by $850,000 – more than 10% -- and was about to market a school bond issue. “No one wanted to lend us money,” he said. “Paychecks bounced. We were getting disconnect notices for our 911 service.”

Nevertheless, he consider this year his most difficult experience as a municipal manager. This is not a good time to be laying off employees, he said. “You just know that a good employee won’t necessarily land on their feet.”

The emotional wear and tear of the process, for everyone involved, has been considerable. The prospects ahead, including lower state school subsidies, are also bleak, and the effects of previous downsizings is still being felt.

But the most difficult aspect, Bennett said, is that people’s expectations of what government can deliver are undiminished. While citizens often oppose cuts in services that benefit them while simultaneously insisting that taxes can’t go up, they increasingly seem to believe this is possible, he said. “There’s a sense that people really don’t think they have to pay for the things they want from government,” he said.

While it seems likely that hard times will continue, even a sense that the bottom has been reached would be helpful, he said. “People are so afraid right now,” which has made a difficult job that much harder.

 

Douglas Rooks is a freelance writer from West Gardiner and regular contributor to the Townsman.