Local Governments Redefine the Economy
It’s a new year and, some would say, a new era. The steep economic downturn has collided with major demographic changes and shifting tides in core businesses that once defined our work, our revenue streams, and our understanding of world events. Although local governments may feel they are in white water without a raft, in fact they could well drive the recovery and redefine the economy.
Public services are always more important when a large number of people are out of work or struggling financially. All levels of government face major policy issues that are constrained by economic realities and an aging workforce. At the same time, there is a growing sense of energy at the grass roots as local government leaders forge new partnerships, harness technology, and leverage resources and ideas.
For every pundit, there are many more civic-minded individuals who are ready to serve or who want to build bridges with private sector or nonprofit organizations. One of the challenges is to find them and develop effective ways to engage them in solutions.
This article gives an overview of the economic downturn and how the financial picture is affecting local governments. It looks at promising local government initiatives to enhance retirement security and improve health care while controlling costs during a time when employee compensation and benefit packages are under increasing scrutiny. Complicating the situation is that the public sector expects many seasoned managers to retire soon, and replacing them will be a challenge.
“You have substantial challenges to address in local governments and the opportunity to do all of those efficiencies that you’ve thought about but that lacked sufficient political support,” suggested Dr. Alice M. Rivlin, senior fellow in Economic Studies at the Brookings Institution, at the ICMA Annual Conference in September 2009.
Dr. Rivlin noted that because of aggressive federal government actions by Federal Reserve Chair Ben Bernanke the United States will not suffer a great depression. She also observed that federal programs, including the establishment of Social Security in the 1930s, have protected seniors from income loss and have helped to keep spending up.
Although Rivlin expects modest growth in 2010, she predicted that the recovery will take years. Even as the private sector begins to recover, state and local revenues will keep falling in 2010 and 2011, as they always lag in a recovery. Unlike other recessions, this one has hit all sources of local government revenue: income, sales, and property taxes.
Rivlin observed that the recovery will vary across the United States. Communities that depend on the auto industry or financial services will take longer to recover than places that are energy producers, are state capitals with universities, or have had stable housing prices.
Some local governments with healthy finances have already borrowed money to invest in infrastructure and have created their own jobs programs. Others have been hit hard by the loss of manufacturing or a steep decline in housing values. They are doing all they can to maintain the social fabric in their communities, sometimes keeping valued cultural amenities up and running even as they make other painful service cuts.
Although inflation is unlikely for some time, Rivlin said, the huge federal deficit is a major problem. “We made overly generous promises on entitlements (Social Security, Medicare, and Medicaid). These increasing health care costs are unsustainable.” At the same time, she said that it is relatively easy to fix Social Security: “Raise the retirement age, change the indexing of benefits, especially at the higher end, and raise the cutoff where the payroll tax applies.”
A particularly painful aspect of this economic downturn is the growing number of unemployed. “Unemployment will rise and peak in 2010. It won’t hit 25 percent like it did in the Great Depression, but it will be the worst since World War II,” she said.
As state and local governments trim their budgets and their staffs to deal with the precipitous drop in revenues, they will add to those unemployment figures. California alone is projected to eliminate 60,000 public sector jobs by mid 2010. The state has furloughed 238,000 employees to avoid a $42 billion deficit. Pennsylvania has targeted the elimination of 2,000 positions to fill a $2.3 billion gap.
The list of fiscal challenges is daunting: pension liabilities have grown, and local governments also now must disclose their unfunded retiree health care liabilities. The times call for discipline, an examination of which compensation structures are fair and competitive, and a recognition that it will take years to work through the challenges. Business as usual is not an option.
As the recession drags on, it might be tempting to stop hiring new employees. But that could exacerbate the brain drain that is anticipated as a greater number of local government employees reach retirement age and leave the workforce. In the 1980s, local governments found they did not have enough talent in the leadership pipeline after the economic recovery. This time, because of the aging workforce and an extended period of economic constraints, it could be substantially more challenging to compete for the highly educated specialists who are needed for many local government positions.
By Elizabeth Kellar, president and chief executive officer, Center for State and Local Government Excellence, and deputy executive director, ICMA, Washington, D.C. (email@example.com).
Demographic Trends and Competition for Talent
During the past decade, average local government employees were five to seven years older than their private sector counterparts. There is nothing that suggests this will change soon, especially as some individuals are delaying their retirements because of stock market losses in 2008 and portions of 2009.
Also, while one-third of private sector workers require some formal training or education to carry out their jobs, more than two-thirds of local government employees need this level of education for their positions.
Regional differences are also significant, particularly for the age of the workforce. As regions, New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont) and the eastern portion of the Midwest (Indiana, Illinois, Michigan, Ohio, Wisconsin) employ the oldest local government workforces. The states of the South Central and Mountain regions (Arkansas, Louisiana, Oklahoma, Texas, Arizona, Colorado, Idaho, New Mexico, Montana, Utah, Nevada, Wyoming) have the youngest local government workforces.
Finally, during the first half of the coming decade, state and local governments are expected to have the greatest need for employees with skills and training in the areas of finance, health care, information technology, management, and education, among others. These labor requirements will be driven by factors ranging from general population attributes such as an older population requiring more health care and an increasing population requiring larger education networks, to the evolution of new issues of increasing importance such as the expansion of transit systems as part of environmental and regional planning.
Managers, councils, and department heads should be aware of these trends in 2010 as they will affect the ability of governments to fulfill their responsibilities and manage their budgets efficiently. In 2009, less than half of all state and local governments had a formal workforce development plan even though having a workforce plan can help local governments evaluate the skills of their employees and plan for the skill development they will need in the future.
By Joshua Franzel, vice president, Center for State and Local Government Excellence, Washington, D.C. (firstname.lastname@example.org).
Local Government Leaders Initiate Health Care Reforms
Whatever health care reform is adopted nationally, local governments know they cannot wait to address rising health care costs.1 They are already targeting chronic health problems among employees and retirees, rapidly rising insurance rates, and lack of access to health care for residents. Local initiatives have improved health care and overall wellness while also helping the bottom line.
Comprehensive wellness in Gainesville, Florida. Founded in 1992 in response to escalating employee and retiree health care costs, Gainesville, Florida’s LifeQuest program promotes health, nutrition, and fitness at no cost to city employees, retirees, and their families through five key elements:
- Diet and nutrition workshops.
- One-on-one counseling.
- Health screenings.
- Physical fitness programs.
- Seminars on health-related issues.
LifeQuest operates 15 fitness centers within walking distance of every city facility and conducts health assessments and on-site screenings. To encourage employee participation, LifeQuest offers an incentive program that awards cash to employees and retirees who take part in program offerings. As a result, approximately 90 percent of the city’s 1,800 employees participate in LifeQuest. A study of Gainesville claims data between 1992 and 2006 shows that Gainesville’s insurance premiums are among the lowest in the nation.2
Community health in Hillsborough County, Florida. The Hillsborough County Health Care Plan (HCHCP), established in 1992, created a dedicated funding source to ensure access to health care services for low-income, uninsured county residents. Here is what the program is built on:
- Health education, prevention, early intervention, and disease and case management.
- Coordination among health and social service agencies.
- Empowering participants to take responsibility for their health.
- Information technologies to support effective management and service delivery.
And the results?
- Aggregate medical and drug cost per member increased only 2 percent between 2005 and 2008 thanks to pharmacy controls and improved coordination with other government programs.
- Pharmacy cost per covered member fell from $112 to $91 per month between 2005 and 2008 as a result of relying on generic drugs and using pharmaceutical manufacturers’ drug assistance programs.
- Records for medical claims, prescriptions, and specialty referrals were converted to an electronic format; records now provide immediate access to members’ health history and costs.
Chronic disease management in Asheville, North Carolina. The Asheville Project® relies on a collaborative approach among patients, pharmacist care managers, and physicians to improve care and reduce costs for employees and retirees with diabetes, asthma, cardiovascular disease, and depression. In this program:
- Local pharmacists are trained to provide patient counseling.
- Employees and retirees participate in one or more disease modules, learn about managing their diseases, and are assigned to a certified pharmacist care manager.
- Individuals meet monthly with pharmacist care managers, attend regular visits with physicians, and have laboratory tests done regularly.
- Patient co-payments for medications and supplies are waived as long as patients are in the program.
Here are the results that have been achieved over six years:3 4 5
Average medical expenses for diabetic patients dropped by 40 percent in the first year of the program, and they remain nearly 60 percent less than the national average.
- Number of sick days taken by diabetic patients dropped from more than 12 days to 6 days per year; sick days for asthma patients dropped from 11 days to 3 days per year.
- Cardiovascular events, related visits to the emergency room, and hospitalizations were reduced by half.
- Cardiovascular medication use increased almost threefold, while cardiovascular medical costs decreased by 46.5 percent.
- Average annual cardiovascular-related medical costs decreased from 30.6 percent to 19 percent of total health care costs.
- Asthma patients making emergency room visits decreased from 9.9 percent to 1.3 percent, and hospitalizations dropped from 4 percent to 1.9 percent.
These examples highlight just a few of the local governments leading the way in improving the health and well-being of employees, retirees, and citizens while reducing the financial burdens of health care costs. For more information about these and other innovative programs, visit the website of the Center for State & Local Government Excellence, http://www.slge.org.
By Danielle Miller Wagner, local government consultant, Washington, D.C. (email@example.com).
Addressing Retirement Security
The past two years have been unsettling, particularly for those of us who care about retirement security. Concerns about the sustainability of public sector pension plans and market volatility affecting retirement savings are shared by employees, employers, and the general public.
Local government employees have already made some choices that give us a glimpse of the future. Some employees nearing retirement age have put their retirement plans on hold so they can save more, even though they qualify for a pension. Over a third of public sector human resources directors recently surveyed by the Center for State & Local Government Excellence indicated that at least 25 percent of their retirement-eligible employees were delaying retirement.
Younger employees also are learning from this economic downturn and may become more disciplined about saving. There is growing awareness that people are living longer and will need multiple sources of income in retirement.
These life lessons and decisions may pay dividends for future retirement security and for our nation. If older workers postpone retirement, they will pay into pensions and Social Security systems longer, which will likely bolster those systems. In addition, policymakers are looking at a range of measures to get funding on track, none of which will be easy fixes.
In the meantime, employers can do a great deal to invest in their employees and their financial security:
Create more opportunities to save and make it easy for employees to get started. ICMA-RC is seeing positive enrollment results using its new, simple, and easy to understand “quick enrollment” form. It allows employees to designate a contribution rate and to opt into an age-appropriate target-date fund, as compared to the typical opting-out procedure common in auto enrollment.
In plans that have offered quick enrollment since the form’s launch in February 2009, it has accounted for 15 percent of enrollments. In some limited instances, ICMA-RC is seeing local governments consider an auto-enrollment feature as an option for their defined contribution plans to promote retirement savings for their employees.
Provide financial education to all employees tailored to their age. Encourage employees to attend workplace sponsored seminars on retirement savings and to seek advice from independent financial advisers for their retirement planning needs. ICMA-RC offers many such services to participants and employers.
Helping employees gain a better understanding of personal finances helps them make better financial decisions throughout their lives. And when they do retire, they will have confidence that they have the resources and knowledge to enjoy their retirement years.
By Joan McCallen, president and chief executive officer, ICMA Retirement Corporation, Washington, D.C.
1 “Prefunding Other Post Employment Benefits (OPEB) in State and Local Governments: Options and Early Evidence,” Center for State & Local Government Excellence, September 2009.
2 Wellness Council of America, Well Workplace Award, City of Gainesville, Platinum Award, September 2009.
3 Cranor et al., “The Asheville Project: Long-Term Clinical and Economic Outcomes of a Community Pharmacy Diabetes Care Program,” Journal of the American Pharmaceutical Association 43, no. 2 (March/April 2003).
4 Bunting and C. Cranor, “The Asheville Project: Long-Term Clinical, Humanistic, and Economic Outcomes of a Community-Based Medication Therapy Management Program for Asthma,” Journal of the American Pharmaceutical Association 46, no. 2 (March/April 2006).
5 Bunting et al., “The Asheville Project: Long-Term Clinical and Economic Outcomes of a Community-Based Medication Therapy Management Program for Hypertension and Dyslipidemia,” Journal of the American Pharmaceutical Association 48, no. 1 (January/February 2008).
By Bob Wallace, Principal and Vice President of Client Solutions, WIH Resource Group, Inc. (WIH) and Waste Savings, Inc. (WSI), former Boardmember SWANA ~ State of Arizona Chapter (Solid Waste Association of North America), APWA (American Public Works) ~ National Solid Waste Rate Setting Advisory Committee and Member of WASTEC (Waste Equipment Technology Association) NSWMA ~ Phoenix, Arizona USA. (firstname.lastname@example.org).
Source: ICMA & WIH Resource Group
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