Is the worst over?

Just as San Jose, Calif., was planning to open four new library branches, a community center and a regional police substation, the city was hit full force by the worst economic storm since the Great Depression. Without funds to operate the facilities, the city had to forego ribbon-cutting ceremonies and a grand opening and instead installed lengths of chain-link fencing to help protect buildings that have remained unoccupied, at least for now. In the past decade, the city has reduced its workforce by almost 30 percent, falling from about 7,450 to about 5,400 employees today. Slightly more than 75 percent of those position reductions occurred in the last three years.

Despite the financial hit, the tide may be turning in San Jose, with the first budget surplus — albeit less than 1 percent — in nine years and even the prospect of hiring back a few positions in areas that suffered disproportionately, says Kim Walesh, the city’s director of economic development and chief strategist. The city’s 2012–2013 proposed budget includes recommended funding for opening the four branch libraries and the community center. The opening of the police substation, however, is recommended to be deferred for another year to direct funding toward gang prevention.

“The last several months, it seems fundamentally different,” Walesh says. “Like there’s light at the end of the tunnel. We don’t see any more painful layoffs and service reductions.”

Though the scene is uneven nationally, recent data indicate that the drastic shrinking of employment in the public sector may be over, with hopeful signs of a rebound in some pockets benefitting from an improved economy. If the current trends continue, government officials across the nation would breathe a collective sigh of relief. “It’s a challenge predicting with any crystal ball,” says Elizabeth Kellar, president and chief executive officer of the Center for State and Local Government (SLGE), a Washington-based think tank on local government workforce issues. “But I would not expect any major layoffs in the near future.”

Recent numbers foster optimism that the scene may brightening, even if only in comparison to the recent trauma. In March 2011, the U.S. Department of Labor reported 15,000 state and local employees lost their jobs. A year later, the number of layoffs had dwindled to 1,000 for the month, though it blipped up by 3,100 in April. Most notably, local government layoffs from January through March 2012 totaled only 3,700 employees, or 0.1 percent.

A recent report from SLGE confirms that state and local governments are slowing the pace of layoffs in 2012. The survey of government human resources officials from February 27 to March 13 found that 28 percent of employers are seeing layoffs this year, down from 40 percent in last year’s survey.

“The worst of the decline seems to have leveled off,” says Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities, a Washington budget think tank. “But there will be a long climb back out of the hole.”

The effect on revenue

State and local governments took a double hit from the recession. Not only was employment savaged, but so was the property tax base, the economic underpinning of state and local finances, which in the past had continued to grow even during recessions.

For 2011, overall city government revenues were projected to fall by 2.3 percent, the fifth straight year of declines, according to the National League of Cities (NLC), the Washington-based advocate for the nation’s cities. Its annual report on city fiscal conditions, which was released in September 2011, projected a 3.7 percent fall in property tax revenue in 2011, with further declines expected in 2012 and 2013. The previous year’s (2010 vs. 2009) 2 percent drop was the first year-to-year decline in city property tax revenues in 15 years, according to the report.

But data released in March 2012 by the Census Bureau brought more encouraging news, showing that total tax revenue for state and local government rose 4.5 percent last year, the biggest gain since 2006, and property taxes have increased for two consecutive quarters. “The worst might be over in the aggregate,” says Chris Hoene, NLC’s director of the Center for Research and Innovation, “but it masks dramatic variations.”

Many cities in pockets of the country remain mired in deep slumps because of falling property values. In recent months, a number of cities — including Hartford, Conn.; Providence, R.I.; and Detroit — have been in battles with their states, as their fiscal conditions deteriorate and they contemplate the trauma of bankruptcy.

Even local governments that face much less severe consequences have been forced to cut deeper than during past slowdowns, because of the extended length of the recession — now entering its fifth year, Hoene says. “I don’t think local government has been able to manage the retrenchment in a way that residents don’t feel it,” he says. “It’s not the case this time. The trench is too deep.”

Innovative workforce management keeps governments operating

Local governments have attempted to manage their way through the economic downturn prompted by the financial crisis by seeking innovative solutions to workforce issues. In Coconino County, Ariz., the second largest county in the nation by area, leaders have cut staff through attrition and moved staff facing layoffs into vacancies. Although county leaders contemplated furloughs, they never had to impose them.

“We began a plan that we called voluntary furloughs,” says Allison Eckert, the county’s director of human resources. “Employees could purchase up to 10 extra days off, which they could spread out around the year and still save their vacation balance. It was popular at all levels, and now we’re using it as a recruiting tool with regard to work-life balance.”

Though the county has not had a merit pay increase for several years, it made an across-the-board, one-time pay increase of 2.5 percent, as recognition of the employees paying a larger share of contributions to their pension plan and other give-backs.

The county has been undertaking a three- to five-year “strategic budgeting process” to implement the most important programs for the county, Eckert says. “We want to do the right programs well,” she says, “instead of trying to do everything.”

Still, the budget forecasts an operating deficit every year until 2015, and city officials are looking to put on hold lower priority areas in technology and facilities management. “We have a plan in place for the next couple of years,” she says. “We’re not seeing any real growth [in revenues].”

San Francisco has laid off 556 employees since fiscal year 2006–07, with most of the cuts coming in fiscal years 2009 and 2010. “The past few years, we had big pockets of city layoffs. And we’re still dealing with budget deficits,” says Donna Kotake, the city’s director of workforce development. “It’s nothing near the last.”

Still, she says, the job picture seems to have stabilized. There were only 47 layoffs in fiscal year 2010, and “we haven’t had significant layoffs this year,” she says.

The city has been consolidating its operations. In some departments that were organized into several groups, managers created new cross-functional teams, Kotake says. The city also used federal stimulus funds to pay for a number of projects that were high priority.

In addition, the city became more flexible in its policies, for example allowing more telecommuting as a means of maintaining higher morale. “One mother said that she can use video from her home to perform some of the duties exactly as she does in the office,” she says. “She can save on the commute and still bring her children to school. She doesn’t have to choose between work and her family.”

San Jose challenges benefits

For San Jose, the Great Recession has hit with unprecedented force. “We’ve been through, historically, the most difficult fiscal challenge and downsizing in the city’s history,” Walesh says. “It’s been an incredibly difficult time. Almost nine years of deficits.”

Even before the financial collapse forced drastic reductions, the city’s workforce was efficient and lean, she says. “It’s been gut-wrenching reductions across all aspects of the city,” she says. “We’ve laid off police and fire. We’ve gotten out of businesses entirely — outsourcing functions. Everybody says, ‘Do more with less,’ but we’re doing less with less.”

One source of the city’s financial distress was rooted in its pension system, which the city runs independently from the California Public Employees’ Retirement System (CalPERS). “We were getting dramatic projections of what it would cost in the future,” Walesh says. “It turned out that retirement costs were growing to 20 percent of the general fund. We had to find a way to get escalating staff costs under control.”

City officials hope that a June 5 ballot measure will help restore financial stability and confidence to the city’s fiscal situation. The measure, if approved by voters, would require workers to choose to stay in the same benefit plan but pay significantly more of the cost, or opt into a lower future benefit and pay less.

“There’s no other way to get the city on a sustainable footing,” Walesh says. “We can’t cut staff anymore.”

With the prospect of the reduction in pension expenses, the city is talking to neighborhood leaders about a quarter- or half-percent increase in the sales tax later in the year that would be used to pay to maintain the city’s infrastructure. Eventually, the city would like to open the facilities that remain behind chain-link fences. “There’s been a noticeable shift in sentiment,” she says. “People see we’ve made changes. They can see the visible effect of the service cutbacks.”

As for the employees, Walesh admits that the financial strain has taken a toll. “Understandably, morale is not what it used to be,” she says. “But many have stuck through the difficult times to get to a better place. They’re committed to San Jose.”

Walesh does not believe that once the crisis is over the city will spring back to its pre-recession form, undertaking all of the functions of the past. “We’re not going to go back to what we did before,” she says. “We’re forever changed.”

Some of the changes include getting by with a smaller staff with a higher skill level, and support from neighborhood volunteers and local businesses. Deciding which services still remain with the city has been part of a strategic planning process that forced a ranking of the most important functions of the city, out of the hundreds that were cataloged. “This financial situation has forced a prioritization,” Walesh says, “not just a downsizing. This has forced a redesign of the city government.”

Despite the trauma of the harsh cutbacks, the city ultimately will find itself changed for the better, Walesh says. “I wouldn’t wish this on anybody,” she says. “But it has put the organization in a positive position going forward.”

The experience of San Jose and the other communities is typical of how local government responds to crisis, Hoene says. “It’s the strength of local government,” he says. “If there is a service that the people want, the government finds a way to provide it. There’s always a local government solution.”

Robert Barkin is a Bethesda, Md.-based freelance writer.

Counting the cuts

Without question, the bleeding of state and local jobs was staggering. The fall in total employment in state and local government from 2009 (19,844,142) to 2010 (19,599,463) was the first annual decrease since 1992, with 224,479 of the 244,679 cuts coming from local government, according to the U.S. Census Bureau. Separately, Bureau of Labor statistics show that state and local cuts total 641,000 from the peak of employment in August 2008 to March 2012, a drop of 3.2 percent from the peak.

When those numbers are parsed out for education and non-education, the toll is even starker, amounting to 6.3 percent of all non-education state and local employees. Focusing solely on local employees, the impact was slightly reduced. For just non-education employees, 253,200 lost their positions, a 3.9 percent drop for the period from August 2008 to March 2012, according to Elizabeth McNichol, a senior fellow at the Washington-based Center on Budget and Policy Priorities.

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