Governments' financial woe spreads to more stable areas

Declining revenue and rising costs are pressing local governments.
By ROGER G. SMITH
VINDICATOR STAFF WRITER
THE FAMILIAR REFRAIN from taxpayers is, "Live within your means." Counties and larger cities in the Mahoning Valley already have faced the issue. They've laid off workers to cut costs and persuaded voters to approve new taxes that increase revenue.
A Vindicator analysis of general-fund spending and revenue the past five years shows that many other local governments -- especially suburbs considered financially healthy -- are next to feel the pain.
Suburban officials acknowledge that spending on capital projects, coupled with ever-escalating employee costs and declining revenues because of the general economic downturn, have sapped their once-fat reserves.
Those officials say they see the warning signs and are preparing to bring spending back in line with revenue.
"You start to look at areas and ways to cut back and cut costs," said Darlene St. George, Howland Township administrator.
The Vindicator analyzed general-fund spending and revenue statistics for 20 local governments.
General-fund purpose
General funds were used instead of total budgets for comparison purposes. Counties, townships and cities differ in how they handle their total budgets. All, however, have general funds. General funds are like a personal checking account, the place where most income is collected and bills are paid out.
Half the 20 Valley governments surveyed saw small general-fund revenue growth when comparing 1998 and 2002, below the 11.5 percent rate of inflation -- or none at all. Five of those lagging governments sustained revenue loss in the comparison.
Meanwhile, the numbers show 15 of the 20 governments saw double-digit increases in general-fund spending in the five-year comparison. Spending is up between 20 percent and 40 percent in most of those communities, and as high as 88 percent.
Auditors, administrators and mayors say employee wages and health benefits largely account for the dramatic spending growth in addition to money spent on capital items that drew on past surpluses.
"It's unbelievable," Campbell Mayor Jack Dill said of his city's recent 23 percent health-insurance cost increase.
Officials point to two main factors for slow or nonexistent revenue growth. One is the drop in tax collections because of lesser economic activity. The other is falling returns on investments because of the slumping economy's influence on the stock market.
"It's the whole economic issue," said Nancy Milliken, Columbiana County auditor.
Protecting health
Howland is among the communities that must rein in spending now because of stagnant revenue, before it's too late.
Like many local governments, the township has enjoyed stable budgets in recent years. Reserves let Howland spend on a myriad of capital items, from paving roads to buying fire trucks. The township paid cash for a new $1 million administration building. Howland has no debt.
Meanwhile, general-fund spending outpaced revenue in recent years. For example, spending is up 88 percent comparing 1998 to last year.
That cut into the cushion.
Howland remains financially healthy despite the spending, St. George said. The township continues maintaining a roughly $2 million annual carryover.
To keep it that way, capital spending will slow down considerably because revenue has fallen off and the excess largely is gone, she said. For example, the township may hold off on a proposed sidewalk project.
"There has to be a balance," St. George said.
She and other suburban-government officials say spending their large surpluses on tangible items such as streets, buildings and vehicles -- instead of adding workers -- will make scaling back manageable.
Cutting construction
Nonetheless, the revenue drops and continuously increasing costs combine to force local governments into retrenching, said Charles Tieche, Canfield city manager.
The city's general-fund spending rose five times faster than revenues when comparing 1998 and last year. Still, Canfield has surpluses exceeding $100,000 most years in the general fund alone.
The city used its surpluses as the local share for grants that paid for major construction projects, such as widening East Main Street, Tieche said.
General-fund revenue growth, however, dropped hard. Growth of 9 percent a year in 1998 and 1999 fell to 3 percent in 2000 and 2001. Last year, revenue was flat. Projections for this year are the same. A few businesses in the city struggled, like Pittsburgh Canfield Corp. (now called Canfield Metal Coating), or relocated, Tieche said.
Accordingly, the city is trimming its construction plans, he said.
"As we see this revenue drop off, we're going to need to take a look at the size of capital projects," he said. "Do we have to do this project now?"
The revenue trend disturbs Tieche. A continued slump would mean looking at cutting personnel costs, he said.
Hubbard Auditor Michael Villano agrees. The city realized nice revenue gains and spent the funds on capital items. The money stopped flowing abruptly in early 2001.
"The calendar flipped, and it was a whole new world, immediately," he said. "Next budget year will be real interesting."
Middle of crisis
There already is a budget crisis in Austintown.
As in other municipalities, reserves let the township do discretionary projects. For example, a $200,000 energy-efficiency improvement to all the lighting in township buildings eventually is supposed to pay for itself. The township had a $1.5 million overall carryover as recently as 2001.
Meanwhile, costs grew and revenue fell, cutting into surpluses. The township's general-fund spending increased 24 percent comparing 1998 to last year because of capital items and wage increases, said Michael Dockry, township administrator. He attributes falling revenue to the economic slowdown and light inheritance-tax collections.
Austintown would have made up the difference painlessly, by shedding jobs through attrition and other small cutbacks, Dockry said. In January, however, the township learned it must return $460,000 in tax revenue to the bankrupt Phar-Mor drugstore chain. That accelerated the problem by a year, Dockry said.
"That cushion is finally gone," he said. "The only way we can deal with increased costs now is layoffs."
The township has closed a fire station, laid off workers and won't pave any roads this year. A police and fire levy is expected to go on the November ballot. More cuts to workers and services are certain if the levy fails, Dockry said.
Coping with cuts
Youngstown, Warren and Girard know what it's like bringing revenue and spending back in line.
Each laid off workers within the past couple of years, including police and firefighters. Youngstown and Warren voters passed income-tax increases to return most of those workers. Approval took four tries in Warren. A levy failed in Girard.
Growth in Warren's general-fund revenues and expenditures are now even when comparing 1998 and 2002.
Collections didn't start until this year on Youngstown's new half-percent income tax, but the cuts helped the city survive a revenue decline and a small spending increase in the comparison years.
Girard remains in state fiscal emergency for many reasons. But Mayor James J. Melfi cut deeply to hold 2002 general-fund spending nearly even compared to 1998.
Meanwhile, revenue is 17 percent higher because of rebounding income-tax collections, he said.
Melfi's advice: "You have to look at costs, and you have to look quickly," he said. "You have to look at absolutely every possible way to do it."
Managing won't get easier once revenue declines finally rebound, Melfi said.
He doesn't expect to see the salad days of the 1990s again.
"The days of fat are really over. The reality of it all is, you can't provide the service you provided 10 years ago," he said.
"The costs associated with those are very high. You have to have a balance."
Different from '70s
Raymond Cox, chairman of the University of Akron's Department of Public Administration and Urban Studies, concurs.
Local governments struggled mightily in the early 1970s, too, but this is different, Cox said. The federal government created revenue sharing then to bail out communities, he said. Revenue sharing, in place from 1972 to 1986, was guaranteed federal funding for local governments to spend as they pleased.
"Local governments survived the '70s because of the federal government," he said. "You don't have that now. It's not going to go back to the way it was."
The wide expansion of suburbs since 1970 is compounding the problem, Cox said.
Providing for cities was hard enough.
Now, core cities and their old suburbs face the same struggles for cash to provide service.
Plus, new suburbs need cash to accommodate their growth, he said.
Tod Porter, chairman of the economics department at Youngstown State University, also calls today's circumstances exceptional.
Porter, whose studies include public finance, said the boom that produced big money for local governments and the revenue plunge that ended it each are unique moments in time.
"The 1990s are going to be seen, in historical terms, as an especially good period," he said.
The way local cities, and now suburbs, are handling their spending isn't surprising, Porter said.
He likened the situation to the difference between laid-off high- and low-wage workers.
Low-wage workers need to find new jobs or cut expenses right away because they have little to fall back on, much like cities.
Higher-wage workers, like better-off suburban cities and townships, have more flexibility.
"They can continue their spending ... for some period of time," Porter said.
The numbers, however, show that time has expired.
rgsmith@vindy.com