You've heard the tale of the health care and pension costs that American cities will be digging out from forever. Add a crime-ridden downtown, leaky sewer and crumbling roadway to the picture of urban America. But American cities are, by and large, recovering from the crisis. It's not all Detroit. In fact, among the roughly 17,000 municipalities covered by Standard & Poor's, most are performing well. In the third quarter, there were 280 state and local upgrades made by S&P and 83 downgrades, and local upgrades, specifically, have been the most prominent among positive ratings changes.
Cities are being conservative with assumptions even amid signs of recovery, including increases in property tax and sales tax base. Many are still cutting losses—as well as job and programs—as they seek to eke out revenue gains and stay ahead of long-term issues that tripped them up over the past decade.
When you look into the details of the latest big city budget documents, you can get a good sense for the full range of issue's city financial managers face. The "blocking and tackling" going on day to day surface in some surprising ways although often far removed from the big ticket pension burden and Detroit bankruptcy headlines that dominate.
—By Eric Rosenbaum, CNBC.com
Posted 22 Nov. 2013
Is there anyone who hasn't heard about Chicago's pension issues, which Mayor Rahm Emanuel recently spoke about as if it were a bigger headache for him than separating fact from fiction from Bill Clinton during the Monica Lewinsky crisis. Chicago's challenge is stark, but some of the ways it makes money on a day-to-day basis is less noticed. For instance, the Chicago Bulls and Blackhawks had successful playoff runs earlier this year, adding significant amounts to city coffers. And who would think that Jane's Addiction lead man Perry Farrell would be contributing to Chicago's effort to make ends meet: The Lollapalooza music festival that he founded in 1991 as a farewell tour for Jane's Addiction is still making considerable money for the Windy City.
But the biggest "hidden" revenue generator for the nation's third-largest city is a financial tactic that Chicago definitely wants to remain hidden: automated speed and red light cameras. Red light cameras in particular brought in $72 million for Chicago in 2012. In the category of "fines, forfeitures, and penalties," the city expects to generate $413.2 million in 2014, up from $337 million in 2013. But it's a controversial money maker: Critics say the city's claims that it's all done in the name of pedestrian safety are debatable. Now the city is removing 18 cameras and noted in its recent budget that the removal will dent revenue.
Philadelphia's budget is typical of city outlooks: a general sense that opportunities to organically grow the city's revenue base will be modest. Philly expects low fund balances over its coming five-year plan even as it assumes continued economic recovery. As such, the City of Brotherly Love is leaving no stone—or unpaid account—unturned, in trying to squeeze out revenue gains. Philadelphia hired a consultant before preparing its 2014 budget, whose recommendations have been assumed in the city's financial forecast.
The recommendations from FTI Consulting can be summed up this way: The city has not been firm enough with the financially irresponsible and must go after each and every bill that's overdue and don't stop until the debtor has paid or you have seized their property. FTI Consulting specifically recommended that Philly create the position of chief collections officer and more forcefully pursue every unpaid bill, from Emergency Medical Transport fees to water bills and residential real estate.
It's the nation's fifth-largest city playing the part of one of the country's largest collection agencies.
In contrast to Philadelphia's need to focus on the past—as in past due, Houston is looking for new, small ways to see a bump in revenue, including valet parking at its airports, according to its budget.
Parking revenues have for a long time been the largest source of airport revenue for cities excluding the airlines themselves. And the VIP treatment for stressed travelers and their cars has become a minor money maker for many cities. Cleveland's Hopkins International Airport has dubbed its new valet program a success, making the city a half million dollars, even though it was originally conceived as a "break-even" strategy.
While most revenue sources at airports remain flat, parking's contribution has increased in recent years around the world. Premium customers at the Stuttgart airport in Germany can drop off and have their car returned right in front of the terminal, and even get a car wash.
Houston, the nation's fourth-largest city, forecast an additional $4.2 million from its airport parking services, citing new valet and "ambassador" services.
The modern history of Dallas, the nation's ninth-largest city, is one of transition from farming and ranching town—it's not home to the Cotton Bowl for nothing—to a major industrial and business center.
And true to its roots, long before many cities decided it was hip to have a farmer's market, Dallas growers were bringing their crops to town. The Dallas Farmers Market has been operated by the city continuously since 1941, or was—Dallas sold its farmers markets in June. Over the last six fiscal years, it lost $3.7 million.
Privatization has become a primary means for cities to accomplish two goals—move underperforming assets off the books and get the help of private companies in redeveloping downtown areas. You could say Dallas decided to separate the wheat from the chaff in its budgets.
Under the plan Dallas struck with private developers, the Dallas Farmers Market will add to the vegetable and fruit seller stands a mixed-use complex of restaurants, retail and apartments.
Ah Phoenix, land of retiree milk and honey, and golf courses. In the middle of the driest, hottest part of the U.S., golf courses and sprinklers multiply like jackrabbits.
Even as Phoenix, the sixth-largest city in the U.S., comes back from the housing bust, it needs to work on its slice. In fact, the rise of golf courses in Phoenix is a microcosm of the housing boom that went bust—over the past two decades, the number of golf courses increased 40 percent and "clearly outstripped demand for golf," the city said in a strategic review document considering what to do about the greens lack of green: a fiscal 2011-2012 deficit of $2.4 million and a cumulative deficit of $17 million.
In San Diego, golf is the fifth-largest budget item among capital improvement projects, a list that includes water and sewage—but Phoenix doesn't expect this handicap to improve: It stated that even economic recovery won't be strong enough to bring its golf program to full-cost recovery.
A plan adopted this year allowed the city to avoid closure of its golf courses by hiring a private company to help run them—except for one course that may be taken over by Arizona State University. The financial side of the deal is a big change—what was formerly part of an enterprise fund is now a golf debt to be paid down over the next three years from the same general fund as "essential" service. And the issue is much larger than a 3-foot putt: It doesn't matter if your debt is for a water system or a water hazard. If you can't pay it, municipal analysts will notice.
One of the trends that came out from the financial crisis was the resultant "sweep" of all city departments from top to bottom looking for each and every way to make a dent in deficits. Even as things are looking better, it's come to this—or maybe it's better to say, it's still like this—in the nation's second-largest city, Los Angeles.
Financial difficulties being dealt with by City Hall are also in evidence inside City Hall, and in ways you might not expect. A request for the latest fiscal budget included this "wish list" item costing $125,000:
City Hall Custodial Services
"Major reductions to custodial services have eliminated utility cleaning work like floor and carpet cleaning, and daytime restroom cleaning. Additional contractual services funding will provide annual carpet cleaning and cleaning of marble and granite flooring. The intense use of restrooms during the day leaves them dirty and in an unkempt manner. These funds will also provide for more frequent cleaning of restrooms.
In the nation's seventh-largest city, San Antonio, the most recent budget is a model of the tough choices and top to bottom scraping of every potential dollar raised or saved, that is still required to make municipal ends meet.
Here is a short list of some of the savings that San Antonio has earmarked for cuts:
You'll pay a buck more to visit the Governor's Palace and city's Botanical Garden, but that only takes it to $5. In Los Angeles, city officials are expressing concern about continued increases to attraction fees—the Los Angeles Zoo's $8.25 entrance fee of 1997 has risen to $16 today, and officials worry it could become a reason for visitors to stay away.
San Antonio is even reducing window cleaning services from twice to once a year for city buildings to save $18,000, but that cleanliness concession excludes City Hall—take that LA—which will continue to get its windows washed as scheduled. San Antonio is also reducing its contract with its "Japanese Representative." Did you know San Antonio had a local representative in Japan who managed relationships between the city and local Japanese businesses?
This is not to say San Antonio isn't spending even as it faces a financial shortfall; It's investing in downtown development and parks and recreation. And its decisions are understandable: In May 2013, the five-year forecast presented to City Council projected a 2014 budget deficit of $35 million to $50 million.
Successful cities don't just balance the books with conservative assumptions and squeeze out incremental sources of revenue while privatizing "dogs" in the portfolio and letting bathrooms and windows remain unclean a little longer. Successful cities think about an economic base as something to expand, rather than just defend during times of siege.
In the final weeks of the Bloomberg era in New York City, an ambitious plan for a new stretch of skyline along Manhattan's East Side was scrapped—too big a fight for a city that had taken a turn back from 21st century technocratic to "old school" liberal aspirations under Mayor-elect Bill De Blasio.
The Bloomberg administration is racing to cement whatever it still can before riding off into the sunset—literally: One night this week, much of the pedestrian pavement surface area in Times Square was behind metal barriers in the midst of being ripped up and repaved.
There is a middle ground, though, between private business-tested technocrats in City Hall and what some of De Blasio's critics fear is a return to ideals that failed cities in previous decades.
The Loews Kings Theater in Brooklyn is an example, undergoing a $94 million renovation—$51.5 million from public funding. It was once the largest theater in Brooklyn seating 3,600, but closed shortly after the 1977 New York City blackout, an event that was synonymous with one of the most troubled financial periods in the modern history of the Big Apple.
So here's a positive note to end on amid these adventures in city budget documents.
A cynic can look at the fact that Goldman Sachs is one of the investors in the Loews Kings Theater project alongside the city as a sign that California was right when it dissolved all city economic redevelopment agencies in the aftermath of its fiscal crisis, saying it was the state coffers that should be padded and not a thinly veiled shell for private developers.
However, when you talk to municipal bond analysts, they say that the successful cities of the future will be the ones that don't only figure out how to fix bridges and keep paying pensions. These cities also create long-term strategic capital plans that value the little pieces of infrastructure all over the urban landscape, including historic theaters—vital city parts that can be lost amid the tunnel vision of dollars-and-cents analysis. In a parting gift of fiscal discipline to residents and the next mayor, Michael Bloomberg announced today that New York City has unexpectedly closed a $2 billion budget gap.