Recession: Impact to Local Economy

1. Recession: Impact to Local Economy Joe Casey, Hanover County VA VLGAA Williamsburg VA May 2009 Hanover County Vision: Where a family of communities inspired by its people, traditions, spirit and history, is the foundation for its future

2. Background • Hanover revenues have declined 4% in FY09 • Property and sales taxes primary revenue shortfalls • Current year deficit overcome through capital reductions, frozen positions and reduced operating targets • FY10 revenues are projected to be flat • Continued strategies from FY09 mid-year actions • Contingent strategies in place if declines arise • Balanced 5 Year Plan projects FY11 to also be flat w/ recovery in FY12 • Reinstatement of positions and deferred capital replacement not complete until Year 5

3. Primary Local Economic Indicator

4. Scaling Back of Resources • Short-term: Lower, constrained budgets = cost efficiencies • Becoming more efficient is not correlated to effectiveness • Service standards impacted • Cause and effect of lower resources and less services should arise in LT • Challenge is that cause and effect not as apparent in short-term • Senior management must be aware of long-term ramifications

5. Business Model – Short-term “Wins” • LT sustainability is dependent upon models with ST “wins” • Defer, defer, defer today’s cost to tomorrow and/or lower cost • Find low/no cost employee morale boosts – manage anxiety/stress • “Low hanging fruit” - important and relevant; not high profile, necessity • “Cut the fat” – managing perceptions of others through reality of already lean organization

6. Short-term Cost Savings • Challenge: ST fiscal balancing strategies consume all resources and attention • One-time tools in the “toolbox” • Capital/technology deferment • Training reductions • Vacant positions • Overall operating expense reductions – “discretionary” • “Across the Board” cuts • Assumes (or ignorant): Each dept has equal ability to cut budget

7. Service Delivery Impacts • Longer time to respond, higher error rate • “Beg for forgiveness, instead of ask for permission” • Inability to have new initiatives • Survive #1 goal, #2 – see #1 • Customer service challenged with employee morale and stress • Workforce not as current on technical or evolving issues without access to training

8. Long-term Sustainability • Challenge: LT focus is not a priority • Need to operate w/ ST mentality, but for LT sustainability • Dependence upon an economic recovery implied to overcome future consequences of first year actions • Set Clear-Understandable Goals • Recognize “coach class” that support services may be to “first class” ego of other depts • But, still on the same “plane”

9. Weathering Recession Strategies • Conservatively assume recession will endure a two year budget cycle (Be wary of “expert” economists) • Keep current on all relevant economic indicators • Employee morale, employee morale, employee morale • Implement efficient practices; previously not accepted • Eliminate pay stubs, higher approval thresholds for procurement • Reduced custodial contracts, no “trickle down” computer installs • Get customer “buy-in” of reduced service scope • Lowered expectations yields reasonable management discussions • Negotiate contracted services, projects for lower $$ • Identify projects for quick starts to access very low bids

10. If Recession is > 2 Years….. • Revenue support in year 2 s/b limited to estimates with high confidence of attaining • Balancing to flat or declining year 2 revenues will ensure difficult decisions made today, benefit tomorrow • If not, more painful awakening or over-correction needed • Year 3 recovery assumptions may have limited conservative one-time “catch-up” assumptions (pent-up demand) • If Year 2 recovery indicators are not present, then budget for lower Year 3 Year 1 Year 2

11. Five Year Capital Replacement • Previously accepted replacement programs have deferrals putting pressure on replacement program • Greater chance for capital to break, higher repairs, downtime • Overcome deferrals, by getting “back on track” • Provide comfort that any reductions in year 1-2 of previous plan in capital replacement will be corrected in years 3-5 • Service and utilization strategies in the interim • Re-assignment of under-utilized capital assets to maximize useful life and productivity of capital asset • Budget a replacement reserve to provide inventory for those that may break, end of useful life (computers, vehicles, equipment)

12. Vehicle Deployment/Assignment

13. Debt Management Plans • Business model: Cash low, finance capital, fund operations • Model dependent on future revenues being high enough to overcome debt service (including interest expense) • Multi-year plans need to provide financial comfort • Capital funded w/ debt illustrates that debt service and related operating costs can reasonably be funded via operating budget • Debt policy constraints should be followed • Debt per capita, debt as % of expenses, etc. • If debt is > policy or multi-year plan can’t provide comfort, then debt should not be solution to budget problem • Mitigate principal deferrals, capitalized interest, premiums

14. Fund Balance Plans • “Carryover” funds also incorporated as part of topic • Managing through the “use it or lose it” mentality • Planned use of available unreserved fund balance > policy threshold may be prudent • For one-time expenses (capital), with multi-year plans showing pathway to replacement • If Year 1 has exhausted all fund balance capacities for operational needs, Year 2 will be a significant challenge • More dependent upon future recovery or significant expense reductions • Even more of a challenge in Year 1 if revenues fall short of budget with Year 1 deficit arising

15. Primary Indicators • Developing primary economic and service indicators helps management assess impacts to operations • Key indicators: Best gauge of resource deployment • Timely “dashboard” - captures positive or negative trends – service, financial, economic, employee, customer

16. Vacant Positions • Process to identify what positions to freeze, eliminate • How long, coverage issues • Reduction in force (RIF) policies - challenges • Budgeting strategy • Maintain frozen positions in departmental budget but have it offset with “credit” in another part of budget to reflect full compliment of authorized positions • Approvals to reinstate may then be less needed, noticeable • $ and % change in department salaries would not be impacted by reinstatement of position • Illustrates “vote of confidence” to department’s FTE count • Manage the “credit” becomes focus as new vacant positions may supplant other previously frozen positions w/ greater demands

17. Employee Morale • No salary increases, net pay impact • Creative practices of “win (no $) – win (employee likes)” • Flexible schedules, LWOP • Continue career ladders, certification maintenance, low cost training options – on-site options • Employee assistance program for employee, their family • Create low cost fun environment • Reward later those employees who’ve weathered the storm w/ you

18. Redeployment Matrixes • Best allocate existing resources from one department w/ capacity to another department in need of resource • Resource need: frozen/cut positions, higher demands, seasonal • Resources supplied from lower demands, better coverage abilities • Distinguish amongst redeployments those that may be permanently assigned • Hire w/in organization for vacancies not frozen vs. temporary where employees return to department after “tour of duty” • Opportunity to give some “apple” employees in “orange” department, opportunity to succeed with “apple” department • Simple goal: Redeployment saves jobs • Quicker employees understand that, quicker the team is formed

19. Redeployment Byproduct • Morale boosted - job protection goal better achieved • Employee statement: “I’m saving someone’s job” • Unparalleled cross-training (always “preached”) • Vested TEAM employees for benefit of entire organization • Practical exercise for certain business continuity action plans requiring interdepartmental assistance • Proactively positions organization for retirees of positions that will be frozen to cross-train prior to departure • Best management practices for the vacancy “credit”

20. Don’t Settle for Mediocrity

21. When in Doubt, Stimulus – It’s all in the Formula