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Gaining Perspectives on the Economic Outlook

IAFC On Scene is in the process of a year-long, progressive survey to evaluate national trends in budget and community expectations. The purpose of the survey is capture some data surrounding the larger local environment in which fire departments exist and particularly economic factors that may affect both department operations and image.

While we continue to collect data to build a representative national sample, 60% of the initial respondents indicated that they expect their economic situation in 2012 to be similar to 2011. An equal spilt of the remaining respondents indicated that things were getting better or worse.

This is consistent with data presented from a survey conducted by the National League of Cities (NLC) in 2011, which reveals that financial officers predict that the negative impacts of the economy will continue to affect cities throughout 2012, but are not necessarily worsening.

Also consistent with member feedback, the oft-quoted term “new normal” is used in terms of financial officer’s expectations of meeting near-term financial needs.

Financial Officer Expectations

While examining the data and benchmarks of their departments and their communities’ expectations, chiefs must also be aware of and consider data surrounding the local economic conditions, such as the state of the housing market, the rate of unemployment and the pace of consumer spending.

Specifically, the NLC survey report identifies what factors have increased or decreased between 2010 and 2011 according to city finance directors and how those factors affect cities’ monetary policies and ultimately how they serve their residents.

According to the NLC survey, 57% of city financers say their communities saw a reduction in the ability to meet financial needs between 2010 and 2011. It’s important to note that how cities gather revenue impacts how able they are to meet financial necessities. Those cities that rely more on revenue from sales taxes or income taxes were better able to meet their fiscal needs.

However, those cities that rely more on property taxes as a source of revenue had more difficulty in meeting their fiscal needs; 73% were less able to meet financial need in 2011 over 2010. This is attributed to the fact that property-tax revenue often reflects the state of property values between 18 months to several years before, creating a lag in revenue production.

According to the survey, cities experienced a decrease in revenue in FY 2011 based on losses in state aid and the housing, sales and employment tax base, while facing ever-increasing health-care costs, local prices and public-employee-pension and infrastructure expenditures.

While health-care and pension costs topped the list of issues negatively impacting local budgets (82% and 80% respectively), 54% of survey respondents specifically called out the rising costs of public-safety service as a negative factor.

To address the issue, local governments have increased fees, adjusted tax rates and of course made significant changes to personnel. In similar NLC surveys in 2009 and 2010, data demonstrated that personnel-related cuts were more frequently focused on quick, short-term solutions, such as layoffs, furloughs and hiring freezes. The 2011 data demonstrated a definitive shift to systemic and sustainable changes, such as changes to health care (30%), union contracts (18%) and pension benefits (18%).

The survey touched upon a Center on Budget and Policy Priorities report indicating increasingly deeper cuts to state budgets in 2012 and proposed a “pro-cyclical nature of state-local fiscal actions.” While the most common findings—such as cuts in state aid—would not surprise fire chiefs, it’s important to note that 13% of local financial officers said that their states took action to reduce or limit local authority as part of their budget-balancing efforts.

The actions taken for fiscal year 2011 show a trend of the effects that the current economy has had on local government spending. It’s critical that fire service leaders continue to monitor data, trends and perspectives in their larger community. Doing so not only supports the fire department’s ability to adjust to changes, but also offers them the opportunity to take an active role in leading and defining community progress.

Stephany Ospino is an IAFC intern serving in the strategic services department. Ann Davison, CAE, is the strategic information manager.

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