The Tipping Point

In the summer of 2008, I mailed a postcard as part of my primary campaign for city council.  It was titled “Ann Arbor at the Tipping Point”.  (It is now out of date, but if you are curious, it can be seen here.)  It exemplified my general campaign message that we were overspending on big buildings and “special” projects (often vanity items for the mayor) while making it less and less affordable to live in Ann Arbor and receive the services that we expect as residents and taxpayers.  These trends were clear to me but in that warm sunny summer I had trouble making the points resonate.  I found that as I went door-to-door, eyes would glaze over when I started to talk budgets and services.  It was much nicer to hear my opponent’s happy talk.

Some have said that “no one could have predicted what was coming”.  Pardon me, but that is simply not true.  This article from early 2007 states that Michigan was then in a “one-state recession” after “six consecutive years” of sliding employment.  And we knew in January 2007 that Pfizer was closing and we would be losing those tax revenues. Property values in the region have been declining for some time, though Ann Arbor has been somewhat favored. (The Assessor’s data show a decrease in the rate of increase since 2003.) At the Washtenaw County Board of Commissioners, I heard as early as 2003 that the state was cutting state shared revenues and we began laying people off because of it.  Cities are under a somewhat more favorable formula, but the loss of those revenues have been a problem for some time now. (The mayor now says that they may go away entirely. ) I got quite tired in that summer of 2008 of going around to interviews and campaign stops and having to talk about the impending economic doom.  But I saw the storm coming, as anyone should should have.

Yes, the city hall is history.  But we are continuing to make imprudent decisions, like taking on more debt for a huge underground parking structure and diverting money from basic operations through the Percent for Art program.

Well, folks, the storm has rolled in.  At the council’s annual budget retreat, (December 5, 2009) city administrator Roger Fraser laid out the grim news and the grimmer suggestions about the city’s financial state and possible fixes.  (A nice overview is on AnnArbor.com.)  Councilmember Stephen Rapundalo summarized it nicely at the beginning and near the end when he spoke of having to “amputate part of this institution”.  (The second mention was to say we had to figure out which fingers, toes, or bigger parts would go.)  There is a list of fairly stringent short-term cuts and then some really scary longer-term changes.  But left undiscussed was the role of taking down the city’s fund balance by millions of dollars to purchase a really big new addition to city hall.  (Irony: much of the justification was to give the police better quarters, and now police have been laid off and are facing more cuts.)

Of course, I had to say “I told you so” to city chief finance officer Tom Crawford during a break.  But he advanced the same argument that was brought up several times during the day: it doesn’t matter how much you have in reserve funds, that is, in the bank.  It is operational cash flow that matters.  As was often said, “you can plug the hole today but it will still be there tomorrow”.  So in Crawford’s and Fraser’s view, the loss of millions of dollars from the city fund balance, used for such things as the city hall and the down payment on the Fuller Road Station (its former name, abbreviated FITS, worked better for me), is irrelevant; you need to get the ordinary cost of doing business down to the same level as the revenue coming in.  So – if tax collection is down, let’s get that saw out and start amputating services.

Much of the problem, as I see it, is that we are operating the city like a business.  Many seem to think that this is the right model, but I think that it ignores the very reason that we have local government.  Business is all about the bottom line.  You build each department like a separate company subsidiary and make it pay its way.  If it is not profitable, axe it.  So some services that are loss leaders have to go (be shut down) and others get shifted into a branch of the company that has a better revenue stream.  Or – some are sold off at a loss to someone else that wants to operate it. (In government, we call this “privatizing”.) Above all, you want to be able to skim the cream for your own use.

But I think we should be running our local government like a household.  In a household, you save money during the good times so that you can tide yourself over during the bad times.  If one of the children is at an age when he costs a lot (maybe he is outgrowing his clothes too fast), you don’t jettison him, but cut the rest of the household expenses (hamburger instead of steak) to support him.  You certainly don’t buy a Mercedes, then complain about how much that kid costs.

Perhaps a better analogy is to consider our community as an ecosystem.  We are interdependent on each other in ways that may not be easily defined or predicted.  Why does a particular local business fail? What impact does that have on the lives of those who used the products and services it produced?  And on the businesses that its employees patronized?  And on the other businesses that were suppliers to it?  If residents find that the cost of services are higher than they can afford, did they cut purchases at that business?  Do they give less to a local charity on whom others are dependent?  And so on.  Our sense of community, the physical and mental health of individuals, and ultimately our prosperity are to some extent dependent on maintaining this ecosystem.

We should be deciding what kind of community we want, what services we think are important to our sense of who we are and what we expect from our government.  The priorities in the way we spend money define us.  Government should be seeking to fill the needs, both physical and, if you like, spiritual, of all who comprise the community, not just those who can pay.  This last is where the business model really breaks down since it wishes to make each activity pay for itself, and that often means fees.  Whereas taxes are usually based on some measure of ability to pay (whether income, property value, or whatever), fees are collected from all regardless of financial status.  In other words, they are regressive and make life less affordable for those of limited incomes who are living in our community. One of the aspects of community in Ann Arbor that appeals to me is the diversity of its people and the possibilities that this creates in our networks of affiliation and interest.  I don’t like to see policies that seem to imply that people with more limited income are unwelcome.

One of the good things that were said at the budget retreat was when Fraser openly challenged the council to decide how they want the city to look in terms of the services it offers.  He stated that he was expecting that council had little or no interest in a “revenue option”.  But some members said yes, that should be on the table.  (Two options discussed were an income tax and a Headlee override, both of which would require a vote of the people.)  I agree that some hard discussion is needed of the kind of community we want and what we expect from our city – and from ourselves to maintain it.

A disturbing theme of the retreat was that many suggestions offered by administration were not merely budget cuts but radical restructuring.  In other words, not just amputation but detaching large body parts and stitching up the body in a different way.  I’ll go into those (which include solid waste, transportation, and parks) in detail in a later post.  But we have to be sure that we do not produce a Frankenstein’s monster.  I hope that the council will not move precipitately.

UPDATE: The Ann Arbor Chronicle now has a very thorough report on the retreat.

SECOND UPDATE:   CM Sabra Briere sent out an email with her summary and analysis of the budget retreat.  I think it is quite good.

Explore posts in the same categories: Basis, civic finance

5 Comments on “The Tipping Point”

  1. calmic Says:

    Vivian:

    When you do your more detailed analysis of where city services can be cut, would you please take a look at the “Housing Inspection Bureau”, which is responsible for inspecting rental properties. My experience with this entity has been largely negative – ranging from small (but irritating) items such as un-returned calls, to more serious errors that have cost hundreds of dollars and ended in court (the city attorney withdrew the case when he realized how silly the alleged “violation” was).

    • varmentrout Says:

      Interesting – I note that you also commented on AnnArbor.com. Clearly you have some direct experience and knowledge of poor service from this department.

      As I commented in response to your earlier comment, I believe that this function is important. If the department is poorly run, that is a different level of problem. We shouldn’t cut out important functions because they are badly done, but rather fix them so that they function properly.

      I’ll have to look into this once I have dealt with a number of the major earthquakes coming our way.

      • calmic Says:

        Vivian:

        Yes, I have had many troubling experiences with this department, but that’s not the only reason I find it irrelevant. Especially these days, with an oversupply of rental housing, tenants can vote with their rent checks — e.g. leave a place if it is run down. After a period of vacancy, the landlord will realize that repairs and upgrades need to be made.

        Having said that, I would be willing to change my mind were this department (and others for that matter) to undergo an objective evaluation both of professionalism and of value.

        I think it has been quite some time since the provision of city services were evaluated — I would like to see a department-wide evaluation done.

  2. Jack Eaton Says:

    Vivian,

    It is interesting that you would mention the building inspectors. During the budget retreat, Sue McCormick explained that the City had laid off inspectors even though the inspectors generate revenue and the lay offs caused long delays. She also defended the City’s decision not to lay off any of the senior planners even though there are currently no major projects pending for them to process. She explained that the planners are needed to work on Council initiated projects like the Area, Height and Placement zoning changes; the Area Plan consolidation project and the Zoning Ordinance Reorganization project. Projects that all seem targeted at increasing density throughout the city at a time when we cannot foresee any significant development.

    So, if you had to choose, would you lay off the busy, revenue generating inspectors or the highly paid senior planners who are currently engaged in busy work?

  3. varmentrout Says:

    Note to all: My name is spelled “Vivienne”. Odd, but I’m used to it and that was what my mother wanted.

    Jack’s point about revenue-producing vs non-revenue producing activities is a thought-provoking one. Some other services, like Parks recreation facilities, were being rated on that basis. I decline to answer the question he posed on the grounds that it would be above my pay grade.


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