Last week the Youngstown, Ohio, fire department demoted three captains and six lieutenants and closed a fire company. Of the 9 demoted, 3 captains and 3 lieutenants were promoted last March. The demotions are to offset overtime expenditures anticipated for October to December since the department had exhausted its budgeted overtime for 2018.
A Slow March to Crisis
In March the City of Youngstown was struggling to close a $2,296,400 deficit in the calendar year 2018 budget. It accomplished this through a detailed review of expenditures and revenue sources. It modified the budget with no layoffs and a projected $12,000 surplus within a $182.8 million budget. It then brought in a specialist to develop a five-year financial plan
The specialist reported in May that the City of Youngstown was looking at a projected $16 million deficit over the next five years. This May 14, 2018, WKBN article by Stan Boney describes the situation:
Michael Abourserhal is a CPA with government experience hired to analyze Youngstown’s finances. He said the best way to eliminate the deficit would be to cut $2.5 to $3.2 million over the next two years.
Abourserhal had 18 ways to cut. Among them were furlough days, reducing pension pick up, eliminating already negotiated raises, increase from 10 to 20 percent the employees’ share of health care, merging the health department with the county and layoffs — specifically 20 in the fire department and 30 in the Clerk of Courts.
In July, Fire Chief Barry Finley started rotating fire station closures to control overtime costs. Eight of the 127 firefighters were off duty with injuries and a recent 10-day period incurred $22,000 in overtime expenditures. The fire department budgeted $108,000 for 2018 overtime through December. It had spent $105,854 by June 29th.
In 2017 the fire department spent $250,00 in overtime, it had budgeted for $130,000. This year the department asked for $133,000 in overtime, the city only budgeted $108,000. The fire chief has short-to-long-term plans to decrease expenditures: SAFER grant for 4 positions, grant funding for fire apparatus, permanently closing one of the 8 fire stations and adding fire department staffed ambulance service.
The New Budget Environment
Since 2000 the economic environment we work in has changed. The larger impacts include underfunded pensions, an economic recovery that took seven years, inconsistent federal and state budgets, increased health expenses and changing community demographics. Let’s look at the two larger issues.
Underfunded and Underperforming Pensions
Many fire departments are dealing with a crisis of underfunded pension liabilities. An October 1, 2018 commentary by Daniel DiSalvo from the Manhattan Institute described the issue:
In 2015, the Federal Reserve estimated that states’ and localities’ pension funds had accumulated $5.52 trillion in liabilities but had set aside only $3.7 trillion in assets. To ensure that public employees receive the benefits promised by their plans, state and local governments are spending more every year on their pension systems. According to census data, those governments contributed $40.1 billion to their pension systems in 2000; by 2016, that number had skyrocketed to $140.5 billion. In addition, pension funds are making riskier investments in an effort to catch up.
A September 2018 report by the Pew Charitable Trust notes the poor pension plan performance:
Meanwhile, pension plan performance has waned over the past decade. Among the 44 funds that the Pew report studied, the average rate of return during that period was 5.5 percent, and no plan’s average investment return met its target of 7.5 percent. (In general, plans tracked closer to their investment return goals when the years around the 2008 financial crisis are excluded.)
That means more of the annual budget is committed to meeting the pension liability. In some fire departments, this represents up to 17% of a fire department annual budget in states that are mandating full funding of pensions by 2033 (or 2040 or 2050). Today’s pensions (and budgets) are suffering from earlier administrations that “skipped” a payment or raided the pension fund to meet a budget shortfall.
The Great Recession
The recession of 2001 and the “Great Recession” of 2007-2009 were different than earlier recessions. The decline in tax revenue was steep in both periods and the recovery has been slower than any earlier recession. Local government got a double whammy as 32% of revenue comes through a transfer of funds from the state government. The state government was just as severely hit, resulting in a reduced or zero transfer of pre-programmed local funding. The Urban Institute pointed out that: “Even though 42 states had recovered their nominal 2008 tax revenue levels by 2013, only 24 experienced real revenue growth.”
Time to Educate Ourselves
While financing and budget job performance requirements start at Fire Officer II, we need to become financially literate at the fire station level. Teenagers working at Chick-fil-A as cashiers understand labor costs and how they contribute to that day’s store revenue. We need to know as much about how our department is financed as we know about first-alarm target hazards.