Cost Accounting in Local Government

There are no more rabbits

As a child I remember a number of instances of being with my Dad and watching magicians pull rabbits out their hat.  I generally found it entertaining, but after a few times began to wonder why my Dad always watched so intently, as I would have thought he understood the trick by now.  Later in life I asked him why he always seemed to enjoy it every time.  He told me that it wasn’t the act of watching rabbits being pulled out of a hat.  He said it was only an illusion; simply a hat filled with rabbits and anyone can learn to do that.  But as a result, they all are going to eventually run out of rabbits, because they simply, by the laws of physics, will have to.  He said it was a matter of style and that he was more interested in what they did when they ran out of their finite number of rabbits. He said the good magicians don’t leave you disappointed when they run out of rabbits.

I use an analogy of magicians, but please don’t take this badly as it’s a time-honored and respected skill. Just think of it as marketing.  Now don’t take that badly either, as many of you still have PIO’s!  Well, since the passage of Proposition 13 and the follow-up Proposition 4, many of you, like magicians, have had to annually pull rabbits out of hats.  You have had to create the illusion of a balanced budget where no one’s services have been affected or one that is somehow exactly what the community needs.  Except now there are fewer rabbits, they seem to be smaller, and no one is willing to refill your magician’s hat. To generate a balanced budget suitable for Council adoption over the roughly 35 years since the passage of Propositions 13 and 4, you (department heads, finance and administrative types, and other rabbit pulling magicians) have probably had to do the following things (and this is a very partial list):

  • Close your libraries to maybe 50% of what they had once been open.  We won’t even mention the book budget.
  • Contract out many services you never thought you would, like park mowing and maintenance, sometimes with good results and sometimes not.
  • Increase the number of hours you expect out of your public safety vehicles before replacing them, or simply reduce the number of vehicles you have.
  • Increase all of the fees for your fee-based services to the “cost reasonably borne” standard of Article XIIIB of the California Constitution.
  • Institute hiring freezes on the replacement of public safety personnel, which drops the level of service even if the approved number of officers has not changed.
  • Decrease the amount of financial reserves to lower percentages than you are comfortable with.
  • Eliminate replacement reserves and maintenance of public facilities to absolute minimums, or sadly, less than the minimum and watching them deteriorate faster than normal.
  • Pass on grants because they would build a facility you cannot staff or maintain.
  • Reduce maintenance of streets and storm drainage systems to the point where any dysfunction can cause other more costly events, like lawsuits.  Utility systems with the more lenient rate-setting capabilities still cannot seem to get the support for revenue increases needed to properly replace continually aging systems.

You can see where this is going. [WARNING: you are beginning to run out of rabbits or already have an empty hat].  The illusion of budget reduction without some sort of corresponding significant service reduction cannot continue. Actual service reductions with actual consequences are going to have to happen.  I expect we will start seeing some actual municipal bankruptcies within a year or two.  There have been some agencies close to this drastic action in the past.

So, the audience comes to the act expecting to see rabbits pulled out of a hat (we knew you could!).  How can you not leave the public disappointed when you have to admit there are no more rabbits and we have to start making service reductions that are significant and noticeable to all residents and business owners? Well if other agencies continue to pull rabbits out of their hats (or out of yours, but that’s a different story) it will be hard to end the magic act with crowd applause.  A few suggestions come to mind, and they all relate to information.  Start planning for this end of the rabbit-from-the-hat-pulling act.  Generate data and compile a list of services that were once available in the mid-70’s that no longer exists.  Also, identify the major cost saving processes that have been instituted during that time.   The lack of revenue is NOT your fault. You have stretched it as far as it can go.  It is time to say that out loud and then make suggestions as to what reductions in service can or need to be undertaken.  You have to be your advocate, and the Council’s advocate, on what has been done.  Act as if it was your money.  What would you do?  Over the last 35 years I have seen government change in so many positive ways.  Don’t keep what you have done a secret.

For questions or comments respond here or contact Scott Thorpe at scott@revenuecost.com.

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