Transcripts For CSPAN3 National League Of Cities Discussion On City Fiscal Conditions Report 20240713

Good afternoon, everyone. Good afternoon everyone, welcome to the National League both cities, its a pleasure to have you and what we call city hall away from your city, town or village in america. The National League of cities is an organization that represents 19,000 city, towns and for being here because were releasing the 34th annual city fiscal conditions report. Each person in this room is here for a reason. Youre interested in what is happening in cities all over america. Perhaps you enjoy digging into data and understanding the fiscal nature of the data on our communities. You really want to hear about the pressures city leaders face every day in balancing their budget, dealing with issues, the various policy issues and the federal impact on those issues. Or you just want to make sure that youre in the right place at the right time dealing with and learning about what america will be dealing with as it relates to the fiscal impact of our economy. For all of these reasons at its core, the city fiscal conditions is about the connection between the needs of communities and the ability of local government leaders to address those needs in the communities. Im often asked, why is this such an important report . It really is because if you think about what is happening in the city halls, the towns, the communities in america is city officials, town leaders, village leaders that are the ones that are dealing with the issues at first. So, this years city fiscal conditions report, were going to be able to see where all cities and communities are not the same across the nation. They may be facing different issues and different challenges. We want to be able to break that out and create some realities around some of the outcomes in this report. Some cities may be forced to choose between resurfacing main street or repairing an old fire truck. Others may have to decide between reforming their health care and Retirement Systems or shrinking Public Safety budgets. These are all choices that local leaders deal with every day. And, unfortunately, the realities of dealing with these issues is part of what governance is and is about what leadership is. My hope is all of us two support cities, towns and villages across a country contribute to sharing this information that youre going to learn today, but also what is your role in making our communities better as a person, as a leader in your professional or personal life. Today were going to do a deep dive into the report findings and hear from a panel of experts, moderated by kim hart, who is the managing editor at axios, focused on cities. But before we do that, wed like to be able to get a teeup of what is actually in the report and be able to understand the approach and how the report was developed. Im pleased to introduce the report authors. Christie mcfarland, the National League of Cities Research director. Come on up. Thank you again. And mike pagano, the dean of college of urban planning and Public Affairs at the university of illinois at chicago and director of the Government Finance research center. Thank you, clarence. Without further ado, again, welcome to the National League of cities and we look forward to learning about what is going on in our nation. Thank you very much, christie and mike. Thank you so much, clarence. Well, thank you for being here. Another year, 34th annual cityfiscal conditions. Its hard to believe. Mike and i need to pinch ourselves every time we say its may again. Now here we are at exciting times. How many of you have read the city fiscal conditions report this year or over the past couple of years . Awesome. Thats pretty much all of you. Thank you. I think the key point to city fiscal conditions, although i know some of you have heard headlines around recession and whatnot, well dig into that a little bit, but really city fiscal conditions and the trends we see with city Fiscal Health is that, you know, theyre a slowmoving ship. If we see big junctures and big changes in trends relating to city finances, we know that we need to go back to the drawing board. So, what were going to talk about today is the trends weve been seeing in city fiscal conditions, you know, again over the past 34 years and even more recently since the prior recession. And well talk about how what were seeing now aligns with those realities we saw in city fiscal conditions around the time of previous recessions. Before we get into some top line results, i want to talk about how this report is developed. We work with finance officers from around the country. We survey them, ask them about fiscal policy choices their communities are making, core budget factors, both positive and negative thats facing their communities. We also ask finance officers and budget directors to provide us with tangible fiscal data and information, whether its from their coffers or budget documents. Mike and his team, as well as colleagues at National League of cities, also supplement that data, particularly for the largest 200 cities by going to online documents and collecting that data by hand. So, so we are very proud of the report this year, proud of the partnership we have with uic and with that, i think well jump right in. So, some of the topline fiscal trends, as i mentioned, are beginning to align with some of the negative Economic Trends that weve seen in past downturns. Well go into this. General Fund Revenues are not only slowing. General Fund Revenues are not only slowing but budgeted to decline. Expenditures continue to outpace revenues and property tax receipts are showing signs of weakening, notably in the midwest. So im going to turn it over to mike whos going to go into a deep dive on our yearoveryear changes on revenue and expenditures. Thank you, christie. As you can see with this graphic, i want to make a few points about this. First of all, this is the underscore should be general fund. This is not all funds of municipalities. Its only the general fund. The composition of the general fund varies from city to city but for the most part its the discretionary of a municipality to support all sorts of things, police service, Public Safety, transportation and everything else. What it does not tend to include, although there are some exceptions, it does not tend to include in what would be part of the Capital Improvement fund and it wouldnt certain include the Enterprise Funds of municipalities. For the most part, the general fund does account for somewhere in the neighborhood of 55 of all municipalities. It is the general fund. Its most of what the cities spend and most of what is in the news media. This is where we have this is where city council has its biggest debates over the general fund. Second thing to note, these are yeartoyear changes in constant dollar terms. We use what the bureau of Economic Analysis refers to as their state and local implicit price deflator as a way of deflating or reducing the current dollars into something thats more comparable over time. You can see then on this graphic that this is showing yearoveryear changes in constant dollars, revenues, expenditures of the general fund. I think if you look to the right side of this, which is the last few years weve collected data in the general fund is that expenditures have been fairly robust on a constant dollar basis growing annually from 4 in 2015 to around 2 and 3 in the last several years. Revenues, on the other hand, have been declining since 2015 on a yearoveryear basis. It doesnt mean until 2019 the revenues were in decline but the yearoveryear growth has been less. A point that is not in the report but a point i wanted to make about the general fund is you can see in the years during the Great Recession, 2006,07,08,09 and10, for the cities the fiscal recession hits by a couple of years. So, the revenue line really plummets by 2010 to be somewhere around 5 less than the prior year. So, the i think an important point to make about the fiscal position of municipalities today is that if i add up the changes in the general fund over the last several years, we have not returned or maybe this could be the first year that we have returned to a position where the general funds size is roughly what it was prior to the Great Recession. So its taken a long time for municipalitiesfiscal position to return to what it was 12, 13, 14 years ago. This is to contrast that, the federal governments fiscal returned to previous levels of 2011. The fiscal connection between what municipalities have access to, their revenuegenerating mechanisms and the growth in those underlying economies is rather attenuated for municipalities in this statistic that weve only now begun to see that we are about where we were at the start of the Great Recession in 2006 and07. And just to unpack that a little bit, i think i had mentioned, clarence had mentioned, that because we had such a great Response Rate to the survey this year, we were able to break out the responses by population categories as well as regions. Looking more specifically, how are cities faring that are either in midwest, west, south and east, for example. In this chart youll notice the green dollar signs represent revenues and the goals represent expenditures. Similar to the previous chart. Youll notice that in all regions across the country, revenues have increased in fy20. However, the midwest is seeing some extreme decline at around 4. 4 . And when we look at population, specifically general fund Revenue Growth in fy18 grew most in smaller cities. On the spending side, clearly large cities saw the steepest rise. A lot of that is attributed to the general factors putting budget pressures on other cities including pensions, health care, wages, and other sources, but as well for large cities thinking about human services, which i think well hear a little bit about in just a moment. Mike . Yeah. So, this is, i think, a really important chart to show for municipalities compare themselves with other municipalities. We have, and ive been associated with the fiscal Condition Survey for nlc since 1991. We always get the question about, well, can you compare this city to that city . And primarily the answer is, well, it really depends. Some cities dont have access to the same kinds of general taxing authority as other cities to do. For example, there are very few municipalities in the entire country who have access to all three, what we consider to be the broadbase general taxes on retail sales on income or wages and on real estate. Very few youll hear from one of those today when after we are finished. Its also the city of new york. It also is a city that has such a large general fund of, i think melanie told me, ddz 93 billion now, that we do not include it in the rest of in our analysis because it would just overwhelm all the other data for the municipalities. That said, i think what this demonstrates more than anything is the volatility of each of the general tax sources across time and how they react to changes in the underlying in the National Economy in this particular case. What you will see during the Great Recession is that sales, not surprisingly, sales tax and income tax drop pretty dramatically and pretty immediately as soon as the Great Recession hits. Property taxes lag for a few years. Around 201415 they begin to grow at a fairly robust level of around 5 and 6 per year for a couple of years. What we found in the last two years, 2018 and19, even though there is a positive growth rate, constant dollar positive growth rate in all three general tax sources, that all three of them have slowed rather considerably, so that by 2019, all the other data referred to what we pull from the annual comprehensive report, 2019 is what the cities have proposed. These are their approved budgets. They may not reflect what happens at the very end but theyre pretty close to what we think will be pretty close to audited amounts. I think the if you look at sales and income taxes hovering around a 1 growth and you think about the growth in the National Economy right now, or at least the way we measure gross domestic product, which is the measure of our National Economy, you would expect those numbers, i think most of us would expect the growth would be pretty strong, but in two of the cases, especially sales and income, its pretty meager. Even in property tax its not as large as we might have expected given the growth of the economy. Part of that is, i think, if youre and you all are because youre all here, consumers of what affects the fiscal condition of state and local governments is that the reports on housing are fairly all around the place. There are some markets that are really strong and some markets that are really weak. The growth hasnt been as robust in the postrecession years as it has in the prerecession years. And i think part of that is playing itself out in a very cautious market, or at least buying and selling of real estate. It also probably has much to do with the real estate or the property tax numbers have something to do with the fact there is manufacturing, at least manufacturing increases have not been as great as the losses were after the Great Recession so were losing a lot of that land and that plant to where it would have been taxed before maybe 15 years ago. And were just not seeing the growth in purchasing of new real estate. Again, thats sort of the average across the board. That varies by municipalities. Some cities are doing quite well and other cities are struggling. Even within be the same city, such as my city of chicago, were seeing both. Both areas of struggle and areas of growth. Thats what christie is going to pick up on. Yeah. And i think thats a really important point in terms of that variation. As mike had mentioned, particularly changes in manufacturing. Were also seeing Residential Property have some significant variation across the country. Thats obviously impacting property tax revenues. Particularly with a decline in property tax revenues for the midwest reported for fy18, although they are reporting Revenue Growth in fy19 in the midwest as well. And just a note, we dont have it here, but in your report figure 19 talks about the differences by population. Notably there and something well talk about a little later, the largest cities are the only group that anticipate Slower Growth going into 2019 in terms of property tax receipts. I think thats contributing to negative outlook by large cities for the for finances Going Forward. And then ability to meet needs. Mike, weve seen a lot of variation over the years, particularly looking at about threequarters of finance officers are reporting their communities are better able this year than last to meet the financial needs of their community. We talked a little bit about their prospects for next year as well. There were some interesting results there. Yes. Whats interesting about this, i appreciate it, is that the cfos of the municipalities are fairly optimistic about this years budget compared to the previous year. We asked them about the next year. What do you think of the next year . The numbers drop a bit. Only 61 of cfos thought that next year would be better than this year, which is, i think, from my perspective at least, fairly optimistic on their part. Well see what happens during the fiscal year. But these are fairly strong numbers, at least in the eyes of the cfos. We also asked a question around, when do you anticipate the next recession will occur . And were showing this information particularly by population size because i think thats really where its striking. Youll notice that around two and three large city finance officers, thats finance officers, budget directors from cities greater than 300,000 in population anticipate a recession in the next one to two years. And, again, i think the source of this information is really important. Again, its coming from folks who are day in and day out in their city budgets, thinking particularly around large cities who have access to forecasting and modeling tools, more resources potentially than other cities may have. But also this is not necessarily that theyre putting a recession into their forecast Going Forward. Its that the variables they use to inform their models are telling them that in the next one to two years theyll start to see revenue declines. For them thats a keen indication. And then youll see sort of fewer finance officers from cities of different offices reported, they anticipate a recession in the next one to two years. Yeah. This is an interesting this is an interesting question about what this is everybodys crystal ball, what does it look like . Eventually there will be a downturn, whether its a collapse as in 2007 or much more moderate than weve experienced in the dotcom bust and the recession of 1991 199091 or larger one in the late80s andearly90s during stagflation period. Its interesting that were getting this theyre at least forecasting something is going to be happening soon and how they prepare for it, of course, is the important takeaway for this. I think another is that i think we probably are getting some differences in city size in that last graphic. Just based on the size of the staff that you have that can actually take the time and look through into the future to see, what does the future look like or rather than in a lot of cases where were just trying to get through the end of the month to make sure we make payroll. Do we have time to think through for another six months or 12 months or 24 months . Part of it may be just the capacity of the staffs to do that. Yeah. You know, so we dont know when the next downturn will hit. We see that there is variability across cities of different sizes, across different regions and even different taxing structures for that matter. In your experience, mike, what have you seen in terms of how cities, perhaps, prepared for can prepare for the recession based on the prior assessment . I think on what we used to publish i dont think its in this report but we used to track what we do for the municipalities is what the reserves are in the general fund and how those reserves have changed over time and its a nice way of looking at how cities maintain an expenditure level to Keep Services going, even when theres a decline in revenues. What we have what weve been able to track since the early 1980s is weve been able totrack that there has been a continuous growth in the percentage of in the reserves as a percentage of expenditures that indicates that cities theyre holding on theyre not spending all they have, which is smart, prudent. And its in anticipation of something. In some cases when we go out and talk with the cfos and citymayors and managers, they say the states arent letting them know, so we better hold on in case states hold back on us. Some cities do not want to go into the bond market, which in todays probably im not sure the wisdom of that, gwynn the borrowing rates, but at any rate, some only want to purchase through capital facilities with the cash they have on hand so reserves are large or can grow because of that. I think what weve seen, and this year the continuous growth in reserves as a percentage of expenditures in the general fund suggest that cities are well positioned to weather a short downturn in the in their underlying economy. And thats how theyre preparing for it. But it also gives them an opportunity because there is still some growth in revenues to address those pressing needs. We all i always take an opportunity to plug the need to maintain and repair our infrastructure rather than using it as a cash cow and pushing the cost off onto our grandchildren. It also requires us to continue to make annual contributions to our pension funds. I know im sitting here from chicago, there are lots of cities that are challenged no more than the city of chicago. But this is a time when you do have reserves of that magnitude to begin to transfer those over into your pension funds. Also we were talk just before this about the needs of many communities to address a growing Homeless Population and serving those that are without the necessary needs. So, now is the time to be thinking of what you can do and how you can sustain that over time. Great. Thanks, mike. Well, with that, that concludes the report overview portion of the event today. But we do want to open it up for a few questions from the audience. These questions should be specific to the report and the data from the report. Youll have an opportunity to have more conversation, dialogue and questions for the panelists as well. If there are any questions, please raise your hand. Just state your name and who youre with and well have a microphone coming around if you have any questions. We have one here theres a microphone. Hi. Allison with congressman dan shieldy from michigan. In terms of the breakout of the regional, i think we all saw midwest just straight down. How much did the tax revenue graph, how much of that was influenced by that very stark solo drop in the midwest . Like is there any correlation or is there any is there a thought of pulling out the midwest in particular in terms of the revenue aspect of this since it seemed to have a pretty different outcome than the other three regions . We we have a sizeable number of respondents from the midwest, so clearly that affected affected the results for overall, which is why then we thought it was important to show the regional breakouts. We didnt do the general trend line with the midwest not included, but we did show the regional breakouts, yeah. It surely would make a difference just mathematically, right . How much it would make im not sure because if you think of where the largest cities are located, they tend to be located more on the coasts so and theyre the ones there are fewer in the midwest than there are in the midwest census regions than other census regions. Just to underscore mikes point about larger cities. When we look at the whole of the municipal sector we ensure the largest cities are included in the data. Thats because were looking at aggregane numbers and larger cities would weigh more heavily on the results. I think we had one here. And then here. And natalie. Hi, marissa waxman, budget director for the city of philadelphia. In your questions asking about folks predicting the next recession and what they thought, do you have Historical Data from previous reports like this and how good were those finance officers in the past at predicting as to how much weight should we put in it now . Oh, i wish. This was the first year we asked the, this was the first year we asked the e question but i think it is telling the other question that we ask is around their able ability to meet financial needs and i think this one here. Yeah i think you can see pretty cheerily around post recession but xwen what mike was saying before babout property tax lag, you can see significant drops in the percentage that report theyre better able to meet financial needs this year over during the time when property tax receipts are declining as a result of the recession. So we would anticipate this this question would be a good bellwether as well. Sure. Sir. Im with the American Public transportation association. You made reference to the earlier recessions caused by the dot com burst and housing bubble but this one seems to be more based on general trends, nothing particular driving it. Is there anything of a fragile nature that you could maybe equate to those megatrends that caused earlier recessions . Thats a great question and i think this much more of a, is it tariffs, trade, and other sorts of globalization things that are making the cfos weary. Not sure if that affects what year they predict the recession, but youre right. There is not one singular event that has triggered, that would call for a downturn in the economy. Theres also within the longest expansion weve had. Got to stop somewhere or slow down. Yeah. I think probably sort of trade in terms of cause and uncertainty, but if were looking at these general trends here, a lot of the declines were seeing started in 2015. Again, thats Slower Growth, not no growth, but Slower Growth starting back in 2015. So it may be that sort of general economic conditions, slower moving trend, not as severe trends are sort of underway and affecting city budgets. I was a little surprised about the slowdown in sales tax collections. What happened to the Internet Sales tax surge . I think well hear a i think well hear a little bit about that on the panel. My sense is that it has not been the cash cow that cities were hoping for. But also i mean theres a reality, too, that not all cities collect sales taxes. A good chunk do, but not all do. So i think thats tbd. Hi. So one of the things that affected municipalities and State Government, state revenues most clearly in the couple of years were the changes in tax laws, tax cuts, deductibility, state and local taxes. Had a big impact on revenue, but also in planning at both the state and municipal level. Have you addressed this and one of the traditional responses to a recession is for congress to cut taxes yet again. Can you address both questions . In the previous survey, we asked about, we asked finance officers, budget directors, what do you feel is going to have the largest effect on the budget and advanced refunding was the top and continues to be a challenge and in termses of your second question. Cities and states have not responded as vigorously as i expected them to because its going to take a time or two to realize that whoa, im paying more. Im not getting whatever. Kotsay ingits costing me more. Not sure thats happened yet. I think well take one more question. And then well need to wrap it up. All right. Excellent. Well thank you so much. Really appreciate your time and attention here today. Thank you, mike. Thank you, christie. With that, i would like to introduce our panel to the stage. We have kim hart who will be our moderator, mel, the budget director from new york city. Dan gilmore and juan garza. Welcome, thank you. All right. Thank you very much for going through that. As a nice primer to get us started and well just jump right in. I think when i read this report last week, the biggest take away to me was that question that this was the first time asking which was when do you expect to see recession on the horizon. And that stark dif rent between big cities and small cities but always also on the flip side, you see a counterintuitive finding, that cities seem optimistic that theyll meet to need and big cities, even though theyre more pessimistic, in theory, better prepared to weather a storm. I wanted to open the panel and get us talking about, we have a great panel. Set of panelists who come from various different situations and have seen different economic realities on the ground. Mel, starting with you, lucky you get to sit right next to me and your friend new york city, so therefore have a very different budgetary situation than our peers over here. But can you tell us about what youre seeing in new york city as being the biggest city in the country, but youve also weathered several, you were part of, you were working in the city during the recession last time. Youve within there for a couple of different administrations. Can you the tell us what youre seeing on the ground in new york . Sure. Really loud. Let me first clarify. Let me say my general funds budget was 93 billion. That is my total funds budget. If i had 93 billion, id be in a very good place. So my general funds budget is 63 billion. Looking at all of my colleagues here, the order of magnitude is very different. But i think generally speaking, what were seeing and i would love to budget director from philadelphia pointed out, who was whoever the economy is predicts recession, i think we are not predicting a recession in our Economic Forecast as we look to youp date our budget for november. But we are seeing an actual slowdown of revenues. So our growth, year over year, what we are forecasting is starting to slow. We are also coming off of a very unique year of 2018 with personal income tax, where we had a significant onetime increase in our. P. I. T. We are seeing a slowdown. We unlike others, have the ability to pull on a number of different tax revenues. We have sales tax. Its not slowing down. We are seeing an increase in that. We have property taxes that makes up about 45 of our revenue. I could go on and on, but it is very diverse which is unique. But the other thing weve been doing just as weve been planning for a slowdown and as mike says, it has to come and weve been doing this since the beginning of the de blasio administration, which is constantly asking the agencies for savings. So even in times where we have significant revenue coming in, even in 2018 when we had the personal income tax jump, we still asked the agencies to look at their budgets and see if there could be efficiencies in savings. So over the course of this last year, it was about 2. 3 billion and we took head count down. From agencies and asked them to do more with less. The other thing weve been doing in partnership with the city council really increases our general resevesrves. We are now close to 6 billion. 4. 5 billion is for the retirees. The balance is in our general funds and we increased that with the council. As we adopted our budget for this coming fiscal year by 250 million. Its about being conservative with our rev ewenews and increasinge inging our general revenues, reserve and asking for savings from the agencies. And even know youre asking for those, are you seeing expenditures increase. Like anyone will tell you whos a budget director, youve got your pension costs are in increasing. Your retiree, trust, your Health Care Costs for your retirees are increasing. Youre seeing labor, when came in, this administration came in, because of the Prior Administration and challenges around recession, they werent able to settle labor contracts, so many of our labor contracts were still outstanding. We are now at a point where weve settled about 65 of all of our labor contracts and were still going through that, but the, those are just gin increases. Debt service is another big factor during the Great Recession. Our capital plan over ten years is pretty significant. Its 110. So thats another area youll see in our debt service is catching up. So i think theres still Cost Increases and its important for us to continually ask for savings to off set that as well as setting aside our reserves. Juan, over to you, from the opposite side of the country and opposite end of the spectrum in terms of city size in california. Tell us what youre seeing in terms of what western states and smaller cities are seeing. I think for us, first of all, thank you for the the opportunity. Great to be here in washington with everyone. I think what were seeing in bellflower, california, were about 80,000 people. Were in los angeles region. With that, i represent and my board represents, over 11 million people. We have almost 600 elected officials who are a member of our organization including los angeles. So we have a really, really larng economic base that i represent that we represent. And so for a city of my scale, kind of like melanie said, were not predicting a recession, but we are absolutely tracking those indicators that show that theres something on the horizon. So we in bellflower, we expect it to happen within the next one to three years. So were bracing ourselves for that. Were trying to take measures to prepare for that and mitigate that when it comes, but what were doing in order to be able to address those issues is were being more entrepreneurial at the local level. In bellflower, which ever side of the philosophical spectrum you fall on, our city and electorate have decided to tax cannabis and ourty has allowed by the city of california through prop 64 so we are a city that has embraced that and we feel that weve placed enough control measures in place to tax cannabis and ourty has sure that this isnt something that afgtsoskts our general population. But in term of the revenue side, thats something that we as a city have embraced to be able to mitigate those negative Economic Indicators that were seeing. At the same time, were, you have that allowed by the city of inverted yield curve that hped this edhappened this year then you have the state Economic Indicators that were seeing. At the same time, were, you have that inverted yield curve that hped this edhappened this year then you have the state Fiscal Health index that weve been tracking in california, we started seeing that the negative downward trend early this summer and its been trending downward for the last five months, so california to be experiencing that were expect inging that its an indicator of not only what california is going to experience Going Forward, but also as well as as a country as well. So were very aware, very concerneded. On of. On top of that, we have Cost Increases. As every city will say, we have Public Safety costs that are increasing. Homelessness was mentioned earlier. Our city is suffering from that as well. At the local level where we are addressing that. But some innovative action, but at the same time, s associate wd that. Even a year ago, wasnt something we expected as a city. So were not shying away from it. Were confronting it, but we raeld we need to pay for it somehow so thats where we try to balance with not only cannabis, but other Revenue Opportunities that we have as a city as well. Were just trying to be more entrepreneurial. Not the traditional that the city would. At some point, were going to have to start reimagining what local city economics are and addressing it that way. One thing that the young lady before mentioned regard ing regarding thats a sale thats untapped. In the meantime, were waiting for those revenues to come in. We expect as that starts to come in, well see an inkeyscrease from that. We expect it will be something healthy, but if the recession hits, thats going to be affected. Hard to forecast at this point. But we think that as the online spectrum starts realizing more of the cells and the traditional mom and pop cells start going away, thats incumbent upon us as policymakers to be able to initiate and implement policies to be able to tap into that revenue stream as soon as possible because if not, its going to be to our own detriment. And dan, our midwestern representative. Since we saw the pretty stark declines happening in the midwest especially in the large cities in the midwest, whats going on in michigan and the states surrounding you . I think my role on this panel is to be the human em bodment of economic decline. Not first time ive served this role, but i enjoy when i go outside the state and i get a chance to listen to other folks. Everyone wants to bracket the Great Recession, i feel like ive been living that my entire adult life because you talk about the contraction and globalization of our economy and weve sort of been in the midwest, ground zero for that coming off of all of our industrial years. So those dift times are wa someone has gotten used to. In a good way and bad way. On the other side, yes, theres an economic issue with this when you talk about declining revenue. Some of the things that mike and christie pointed out in the actual survey had to do with contracting economies or people worried about when a recession is coming, but a lot of it is decision making. State and federaldecision making particularly when it comes to sharing revenue, providing revenues for local dollars. So yes, weve had Economic Issues in the midwest, but i think without exception, perhaps illinois, im not sure, but everyone else, the way in which State Governments have decided to deal with this has been by using austerity as a budget goal and quite frankly as an Economic Development tool and asusterity is is not an Economic Development tool. So with decades of that, you wind up with Transportation Systems that are outdated, b potholes as big as midwestern cow, keep going with the theme here. And water issues and everything else. Housing issues all the way around. When we entered this economic change several decades ago, economies and industries were still local and largely regional and now theyre global. Wiee see people and jobs and entire industries going to places that are providing things in the way of amenities for people so if our State Governments and to some degree, our federal government, isnt going to join with local units and actually invest in these places, its not going to be a great outcome and weve got to figure out a better way to do that. Sfwl when you talk about investment, what are the areas that you think are the priorities of investment for where you are . Very simply, i know that the report has talked about three things as being money drivers in a negative way. Infrastructure. Public safety and legacies. And the legacy costs are basically for those individuals that used to do the infrastructure and Public Safety. So basically, infrastructure and Public Safety. Again, part of that is economic. We have a downturning economy. Theres not enough money out there necessarily, but much of this has been the states role in just quite frankly turning its backs in many cases. On local units of government. Not providing those funds. In michigan, were down to about 9 9 billion. Those numbers equate in the midwest in terms of the amount of money shared for these types of services. People dont know if theyre driving on a local road or fate federal highway. Theyre looking for those services. Again b, again, having that state and federal partner to work on this thing and provide those opportunities for locals to sort of dig themselves out of these economic holes, is something we havent done a very good job of in the midwest. I dont think we have in around country, but the midwest has been particularly difficult. I said this morning, in the midwest, our State Governments treat our cities worse than Major League Baseball umpires treat the nationals. Too soon . Had to get that one in. Mel and juan . What about you guys . Terms of where youre seeing the biggest head winds. 75 of that goes towards Infrastructure Improvements and there are many that need to be done. We see that as a way the drive Economic Development and create with the insenttive to come and do business in the city and in fact, weve seen that we are less reliant on wall street and got an upgrade so were at the highest level. Weve seen education where the economy has diverse if ied in health care. So i think the different situation than, this has been the theme. This week, we are so unique in what were able to do that its hard to make comparisons and i was a panel from michigan last week as well. Most cities in california are so reliant on sales tacks so i think anytime we have an opportunity to be able to invest as a city in a location in an effort that its going to create increase sales tacks is what were focusing on at this point, that doesnt mean we neglect the residential component. Obviously, were keeping up with services, but by and large because of the nature of the beast, we are focusing a will the on creating that tax space for us to increase that revenue base for us so we are in my city, were lucky enough that we are about to receive a light rail line. So weve learned from that other regions have done right and wrong so in our case, were really betting big on this rail line thats going to be coming to our city. So were embracing it. Putting all the blocks around where the station lains are going to be going so when this thing comes online, were able to tap into that space. So were doing a lot of mixed use where we satisfy the need for increased residential space in our city. But at the same time, to ensure it creates that sales tax as well. We dont realize it when just housing. Baufz because of the investment were doing and the fact were courting business to come into our city, were actually receiving a lot of interest now from developers, more so than cities around us and its pretty unique. Its exciteing for us. Something we havent experienced in a while. The stable tyility in government that we have in our city counsel, stability we have in the staff to ensure they quo out and have the right mez for the right audience to be able to track them to our city, were investing in big time. So at this point, we, the trend is showing that its starting to show off so were pex expecting that to continue to ins lawsuit ourselves from any kind of trepd that coming forward a. So much of the city and city economy story these days is about housing. And Housing Price is. Or in some places, Property Values really not showing the amount of o increase and not help inging the cities the way they are on the coast for the most part. Property tax increased everywhere expegt for the midwest according to the report, but the housing affordableility challenges also create whole new headaches for you where you sit. Then you have the homelessness factor that goes aloing lonk with that. Then you have a lot of other obligations with regard to that. I was interested in hearing about how you are as being on the outskirts of l. A. You are seeing a lot of these challenges collide at the same time and the president has taken notice and the governor. What are you, howie you trying to sort out those head winds . Since around 2012, a State Government has in california has invested less and less in Affordable Housing, so unfortunately, were starting to see that di cotchotomy, that split. Youre starting to have high scale, expensive real estate and at the same time, youre not having that middle class thats being addressed with housing. So youre starting to see displacement especially on the west side closer towards the beach. For us as policymakers, thats a really big concern since from a perspective, in eck wiquity, its not right to tis place somebody that from our cities is really the fabric of our community. When you have people that have been there r for years and decades then theyre being mispladced because they cant afford it. From the b fabric of our community to keep it in tact, thats a challenge for us because we live in a free country at the same time at the local level, were trying to address them as much possible to ensure we dont lose that base. At the same time, capture that increased value that those higher properties are bringing in as well so were trying to come up with a balance, but at the same time, trying to work with federal government and the State Government for them to do their part as well so they will invest in Affordable Housing so we can maintain a nice balance in our community. Homelessness is isan issue and in california, the veto eded a bill that would have gone a long way to investing in Affordable Housing, so from a city perspective, it have extremely disappointing. So were looking forward to working with him in the next session to make sure Affordable Housing getting a nice amount of vesting in the state. But at the same time, we cant wait for him. At the local level, we have to fix these problems. We cant wait. So we are trying. What are you seeing in new york . Really expensive place. Yes. I think we at the beginning of the administration announced our Affordable Housing plan then we doubled down the effort in the mayors second term. The its 13. 5 billion in Capital Funding to eerlt construct new or rent for 34,000 units. I think you know, its been a lot more new construction than the challenge. How much can you do in a city. You were having this conversation right before we were eating lunch. Of how much more you can do, but then weve done investments into rental subsidy programs, to help individuals, particularly those that are homeless to where weve seen a Significant Impact in terms of getting people housed. But the challenge is going to be like philly faces, too, how much stock do you have. And dan. I think housing is more a symptom of a bigger problem rather than the kaus of it and i think in most cases, people sometimes they do go out looking a specific type of house but more often than not, theyre looking at locations and figure out whether housing opportunities are within that. At the one end b, you have homelessness and getting people into appropriate facilities then looking into home ownership. Then Housing Affordability on this end. In the middle is a will the of workers housing. The missing middle where theres just not opportunity. A lot gets back to we were just talking about the fact that were not as in Different Levels investing in enough places to make them livable. To make people want b to be there. So were putting huge burdens on the places that are livable and driving ups and sort of leaving everybody else behind so until we figure out the larger scale economics around trying to support these places and in the midwest, you have a lot o older ageing communities, older infrastructure, that were largely turning our backs on at the state and federal level. Again, that austerity idea. Just cut your way into this. Cut your way out of this problem. Doesnt work. Weve got to create places that people want to be in. Thats a much larger problem. Housing as much as it seems like the problem, i think its a cause of something much larger. Shifting gears then ill open it up to your questions. As mentioned several times in the report and as mike mentioned at the tail end of his presentation is the impact of trade and trade changes. The tariffs at the federal level. How much is that becoming a challenge in your cities and is it something youre concerned about Going Forward . Its definitely a concern we have. In the bigger scheme of how much does it affect our revenue sources, not significantly. But its something were its big. The Los Angeles County region relies a lot on trade. Not only for the agricultural aspect, the export, but in terms of the jobs that are created with supporting the whole International Trade industry. You have truckers, people who work in the ports. Theyre a huge economic independenticator. Dwen not only for our region, but country as well. Anytime you have pressures that cause instability in trade, not only cause the stability with us in our jobs and revenue that comes into us, but in the psyche as well where you dont really know if youre going to have a job tomorrow especially when it comes down to the level, an hourly rate and its not protected so. For us, its trying to work with the federal government to sthoe the effects this has on the but its something were monitoring. I would echo juan. The instability is probably the biggest issue. Longterm manufacturing is still important in the midwest in detroit. Very important and not knowing whats around the corner is almost is almost just as bad as knowing something bad around the corner because setting those longterm goals, looking at prugt rollouts, Union Contracts we were talk inging about earlier and everything else, its very difficult to look five and ten and 15 years down the road when you have no idea what your trade policy is going to look like. I would say in speaking and hearing, talking about this. The one thing this that i do think is the volatility in the stock market as you get the latest tweet that happens for the day and how the stock market responds and that volatility i think for us is one of the reasons why were still conservative with our forecasts especially with whats happening wall street is because it is so volatile and responsive to the day of whats happening and the trade talks the latest conversations being had. That is one area of concern. And with that, i want to open it up to your questions. Raise your hand and well get a microphone to you, right over here. Hi, beth keller. When i was listening to the investment questions, some of the other questions, one of the issues i was wondering about is whether youre seeing a challenge in attracting and retaining the people you need to work in your cities. Whether its perhaps less generous benefits in the past or just general impression of what its like to work in local government. Talking about businesses in our the cities or the Government Agencies . Government agencies. The people who work for city government. That is an issue. No question. And i think we need to best and brightest there. We need to be able to have attractive places again. Some government leaders are looking for the same types of things that anyone in the private sector would be looking for when it comes to differentuation in housing and cultural opportunities. Goo good infrastructure. Trapps options. The things that are driving economies literally around the world right now are basically areas were all competing in. Whether were presenting the three areas were representing here or anyone else. Thats an issue. Were trying to do novel things in michigan to get more people involved in the local government world including a program to get more women involved in city management. Beth you guys know that only about 16 of city managers nationwide are female so we have programs nationwide to get more females involved in that profession as well. They are different ways to attack it and certainly where youve seen benefits going down, pay going down. Government itself probably getting less stable than it was. Weve got to look longer term on how we get the best and brightest in this profession because we need them. I think because of the market we have, i would say we dont have as much of a problem in attracting talent and retaining it. I think what some of the emerging issues like i mentioned cannabis before. The level of expertise at the local level isnt there really yet. So youre starting to have that pool of talent growing organically but i think overall, in southern california, we still live in an age where government jobs are seen as stable and reliable. I think because of that, theyre very desired at this point. I cant asay weve had a problem of attracting and retaining. I think theres just certain professions where its just challenging. I think i. T. Is one of them and getting the right people. We have in the past administrations had done a lot of outsourcing of those jobs and it was clear with we needed to in the long run to actually have cost savings. Recruit and insource those jobs. Weve been doing a lot of work which im sure you could go on and on about it. Changing titles and getting approval from the state. To be able to use the dimpblt levels. Were wild bilding and seeing it because its costing us more to outsource those jobs. Further down the run, ill take Police Officers as an example. When you talk about these larger legacy cities like detroit or flint. Theyre having trouble recruiting Police Officers. Theyre putting them through school, training them, hiring them in at low levels. And two, three years later when the officer gets experience, theyre dwoen to the suburbs to chase skate boardrders out of parking lots for about 15 grand a year more. So theyre going make those decisions because theyre the right decision to make but is job b of being a Police Officer in detroit is a completely different animal, but were not paying one the way we should because again of that austerity and because of the disinvestment from the state level in terms of whats going on there. So we see that happening all the time in the places that cant afford for that to happen. Direct result of this program we find ourselves in. Your e question. Really really . All right. Ill keep going. Go ahead. I am very nervous about the next session so im wondering about what folks are doing differently than they have in the past or what theyre anticipating even if theyre not taking down growth projections. What do you anticipate doing even just in terms of stress testing your budgets to make sure youre ready . I would be more concerned if we were suddenly just thinking about it right at this moment and saying the economy is slowing. I think the fact weve been doing it since the beginning of the administration which is asking the agtssys for savings and building up our reserves. Being committed and continually investing. Those verves are not part of the general fund so in terms of legacy for this administration which is having a real down payment on Retiree Health benefits is a significant achievement, but i think moving forward and if this was my worst criticism, ill take it. We continue to be extremely cautious about the revenue forecast. Which is just that. The a constant criticism i get. So it could i tell you that over the could you rephrase of the fiscal year, we have additional revenue come in . Should i anticipate that and start allowing spending . Absolutely not. We have to see that revenue come in. One area where we continue to be extremely cautious. Unlike my cities, were on gap accounting. And because of the fiscal crisis of the70s and written into state law, we update our budget quarterly. So it gives up the opportunity to really real time see where we are and course correct and we experience that that year, it was just such a year with personal income tax. It went up then down because of the december market. The timing was very good though, saying we have to be very cautious b about spening. We dont know where p. I. T. Is going to go for and any budget director who can say their revenue forecast in this time with the trump tax cuts are predictable its really challenging to do so. And so we wound up being cautious about our forecast leading up to our next budget update in april. So i think that the other dynamic that we set off that is forward thinking was with the city council and leadership which was going into the adopted budget process in june given how volatile personal income taxes were over the course of a year. As we adopt the budget and are going to increase spending based on priorities, that we actually look at savings with the council. That was very unique. So we adopted a budget that had savings included. I think next year, well do the same. Well have increased reserves. I anticipate and hopefully we will. And well have savings that we jointly adopt a budget with the council. My forward thinking. I think for us, in order to save any type of ongoing cost were doing in terms of head count if its truly necessary and obviously well keep them. Were saving some costs through attrition. Got a report we have not actually let go of anybody because of any bad reason, just really been more organically through attrition so were trying to save some costs from that perspective. At the same tame, were trying to be selfsustained. Again, i mentioned the cannabis before. We have increased cost pressures coming up with the homeless issue with us. So were trying come up with Revenue Streams that arent necessarily as reliant on this state, but its more Revenue Streams that we can be in control of ourselves. Also investing what weatherve done because of our pension obligations, or city happens to be around 76 funding of our pension and we want to blend that even more so because we have a surveyplus in our city right now, were investing into that. Weve committed into investing additional payments on to that. To be able to insulate ourselves as much as be possible. There are things being done proactively to be as safe as possible. The recession is something were keeping an eye on. I think when the number of Police Officers at the local level laid off in michigan hit 3 or 4, 000, i stopped counting. I think its much higher than that now. Firefighters are similar away. I believe our roads are ranked 49 or 50th now. Youve all seen michigan. Come visit. Again the cutting happens and happens and happens and until it gets to a point where our state level, the government is able to make decisions around budgeting for the good of the communities and states, were going to be in trouble. Weve started a campaign called lets save michigan thats really focusing on getting a True Partnership between the local and state level to help us out with these things. Its not a raising tax issue. There are so many Different Things happening in government on how you collect taxes to how were able to expend dollars to how you can work with communities around your region. You name it. Which could really do a lot of things to go a long way when it comes to budgets because otherwise, were going to continue to run into these problems. The water issue. Transportation issues, housing and the rest of it. So we have to figure out a way to get beyond some of the politics that allows us to make practical ziss because when you see states and the federal governments, they usually figured out how to take care of their own budgets but the money they have to share with us doesnt make its way into there. And were a decade, two decades, sometimes three into some of those things when it comes to transportation funding and Public Safety funding and the rest b and thats where you start seeing things sort of fall off the table. Weve got to do a better job with that. Got to be a multitiered effect. Are you concerned that as people get more and more nervous about recession that states will constrict further then youll be in a tougher spot . It seems that way. Been the go to for a while now. Cutting your way to success might work in a place like malaysia. To attract Light Industrial or something along those lines. But in our economies and the u. S. Economy, and certainly in those larger regional economies, its about attracting talent. Providing a lifestyle. About schools. Universities, everything we all look for when we think about the places we want to be. Thats the place, those are the types of places we have to offer people and if we dont, the economics, tax structure everything we talk about raising or creating jobs or improvinging the economy can go by the wayside. No longer good for the business or the people. Its the same thing. I think in california, we saw in a legislative session, we saw the what the bill, the Affordable Housing bill, we saw the governor in that case veto it because he wanted to insulate the state from the possible recession coming up. Right now, our state happens to have a nice, healthy 22 million surplus from its budget and depending on where youre at, you could invest on housing or not. Its a is a very demonstrable very demonstrable way where he insulated the state from any type of future expenses by not investing in that. So were seeing that. We saw it last year as well with the transportation bill that happened in our state. Its creating a lot of jobs and Economic Opportunity which is great but at the same time, considering the state had healthy reserves, that tax was placed upon the voters, us, to tax ourselves into investing into that. But again, its another example of a state that could have stepped up and invested itself. But didnt. The trade off. I would also just say with the economy slowing, there are things we can think about to get down and how efficient we are in our own operations around government that gives you a context to do that differently. So that in times when i think we were, the revenues were coming in, coming in, its hard to get agencies to move and think differently about how they actually operate that i think as you start to think about an plan for, ive just been giving out that message to its not about you know, scaring anyone with layoffs because thats not where were at, but how can you think about what youre doing differently and how can we do more with less which i think easier said than done. But i think when were in good times, we dont think about the efficiency side of it. I started to walk out to get back to a meeting, but then i thought infrastructure. I see it has come up here, but there has been talk about a federal infrastructure bill. And it seems from the discussion today that it would be particularly timely. But i raise that and say you know, looking at something that could help stabilize turn around, there we go. What do you think . History has shown every time we invest in infrastructure, the effect, the positive effect it has on economy, on jobs and just all around, its always a great investment. I think its a win win from the Jobs Creation and stabilizing our infrastructure and making us want to track for investment in our communities and it just has that nice trickle down effect on everything. Its been proven. Were ready for that. Its almost like were talk ing about something new here. The federal government has always talked about infrastructure. Whether the railroads or highway system on a massive scale where the feds havent played a leadership role. Knot necessarily stepping up to the plate, its staying and moving forward on this stuff. A good time. Good time. In line with this e question on infrastructure and not being something new, what about cities . Even though it does affect infrastructure, jobs, technology, connected economy et cetera, a lot of cities are working on becoming more intelligent and how they move traffic and how to pay for Different Things. Is this something that could help or diminish or be put aside . How do you see that . I think considering the trend right in terms of our fri and the the way becoming more technology based, i think its, it should be expected that for us to vest in that, not only from an economic per speck etive, but an Equity Perspective where youre starting to really have large segment of the population that dont have access and are being left behind and the ones that have it are showing indicators that theyre able to have that resilience to adapt and be successful. Its crucial for us to invest in our technology and instruction. Infrastructure not only for cities, but r for every segment of the population. From the perspective of having a stable, peaceful society, i think absolutely crucial. I dont think he could say it any better than that. So, one more. So in trying to create Economic Development, many cities and states offer economic incentives. How does that affect your budgetary position . Thanks for coming, everyone. We as a city dont offer economic incentives directly. It comes from the state and theres been everybody knew where i was going with that. We do. Its because our city is somewhat aged in terms of renovation, we assist our Business Owners with grants to be able to update their facade to make the aesthetics of the city to be more pleasing. Not only for the community, but for other developers and other investors that come into our city. So its not an aged facade that we have. So weve seen it have payback dividends already so we are continuing to invest in that. If things start taking a downturn, that would be one of the things we start reducing our investment on, but at this point in time, we feel confident enough and we see the dividends and were continuing that. I think that everybodys gotten into that game over the last several decades. Its not a productive one. A one off situation, can help you land a company, but in most cases, youre not able to bring in enough revenue to actually pay for some of that stuff that comes behind it. And i again, i get back to the fact that if we, the number one thing people are looking for is a great community. That should be at the top of everyones list. Anything you take away from that, whether its a state or federal condition, anything you to do to take away from that is putting you at a disadvantage. I fear that in place of a longer term infrastructure system, in place of a system that thoughtfully invests in communities around the country, we wind up sort of trying to be the cheapest again. Ill give you 5 million here, 10 million there, 20 million there. You know and not to bring up sore subjects about our friends and seconds headquarters, they could have saved us all a lot of work and just gone there in the first place. And if youre not as a corporation, if youre not adding to that bottom line, its a net loss over time. Sure is there a bit of a chicken and egg issue there though where as a state word where there arent a lot of big headquartered companies, too, is it worth it in the beginning to offer something to get kind of a fly wheel effect going to attract some people, maybe more companies, more people . Virtual cycle . Certainly. That has been the fight for years. It is a chicken and egg issue and im not smart enough to figure out the answer to that question. But again over time, it just, it wont pay for itself and work itself out. And theres nothing you can do now as a city, as a region, as a state to be better equipped, better equipped economically than to have great places to live and work. So that should be an ultimate bottom line on this thing. Those are the places those companies are choosing. Amazon didnt look at the cheapest places in the country to do business. They wouldnt have chosen d. C. And new york. Keep walking into that one. They would have gone, we know the rural places that have next to no taxes. They were never in competition for that. They with respect werent ever going to those place. Theyre looking for amenity, housing, everything that goes along with it. That stuff unfortunately is not free. It costs money. We have time for a quick question. Earlier, i asked about the tax policy and tax laws and recessions and austerity. I think for you know, if you look at the membership of the nlc, most cities are under 100,000. Most are less than 50,000. My city is similar to bellflower in terms of population. We cant do anything in terms of incentives or without a partnership at the state and county level. As austerity rears its head, our ability to do that and to mount something o attract and use incentives to attract business eventually theres a rebound in the companies that decide now its time for us. Weve been there for years. So i think theres limitations. The point of my question earlier was the transferring of the burden of responding to economic changes is a burden that is felt most directly and perhaps communities of our size. It falls to us and we have less ability to respond quickly to it. We have cut our staff to the the bare bones and increased efficiency and at some point the services your taxpayers and businesses have come to expect has become limited, so add some point you cant continue to do that so that is where it becomes a local and political decision. We cant forget that part of the equation here. I know that mr. Gilmartin understands representing michigan. I havent really heard any of that discussion in this report, and thats okay. That happens all the time but its something all of the member cities need to consider as we talk about the top 200 cities that drive the economy and the states but we still have a lot of cities theyre not in the same position. I dont know if you want to comment on that or just to say i agree. Its interesting we are having a discussion before we were eating lunch [inaudible] that was a decision that was made and i shared. As policymakers it is on us to continue implementing. But you have a limitation of revenues that can be realized in the same time the electorate expects them to continue and so i think that at some point in time they have to come to grips on whether they are willing to accept the services that they expect from us because it will be the point in time that we can continue to create a revenue stream. Its going to be for us to either figure out or if we dont figure it out to impose something and for us to implement it in whatever way we can but i would like to call the tip of the spear. I know it is almost 2 00 so people end here thank you everyone for coming and we will see you next time. [applause] thank you all for being here today to mike for making the trip and being a great partner and thanks to the staff and also to the budget officers and finance directors from across the country that participated in this years survey. Be sure to pick up a copy. I was surprised to see most of you reading the report independently when i came down here today so that was awesome but if you havent gotten your copy or you know someone else that would like a copy please be sure to pick one up on the layout. Continue the conversation we had a lot going out already. If you really love city finances and your passionate or want to mingle with the best and brightest please come see us in san antonio this year. We will be a publicly san antonio and we would love to see you at our conference. With that, have a great day, thank you for being here and we will see you soon. [applause]. Th