Signs of a Financially Healthy City

I attended a conference in Central Oregon last week where I talked with a colleague from California about the increasing number of city bankruptcies in his state.  The number of employees in his city has fallen from more than 350 to less than 190 in the past three years, and there is no reason to believe conditions will improve in the months ahead.  My friend predicts there could be as many as 100 city bankruptcies in California in the near future.  He attributes his city’s problems to a state decision to take money from cities and a generally poor economy.

Oregon law has no provision allowing for municipal bankruptcies; and, consequently, no city has declared bankruptcy in the history of the state.  Cities with financial troubles are forced to either cut expenses, raise taxes, or both.  The City of Oakridge used a short-term loan from the County to deal with some recent problems, while also cutting their workforce by more than a third and raising utility rates.

I think cities (and individuals) get into trouble by assuming the future will look very much like the past.  Many of us have learned from experience that maintaining financial health requires active, thoughtful management, which recognizes changing conditions and adapts to new circumstances.  I learned this lesson early in my career when Oregon cities were forced to address tax limitations that suddenly changed the way public services were financed.

Financially healthy cities closely monitor fund balances and recognize when ongoing responsibilities (costs) begin to exceed the revenue necessary to support them.  Cities continually struggle with balancing expenses against income because there are so many legitimate demands for available resources.  No city will be able to maintain its core services without the ability to set priorities and say “no” to requests for funds that are beyond the capacity of the organization to provide.  I have written many times about the difficulty of conveying this message when so many city funds are designated for specific purposes.  People frequently do not understand why money is available for something they consider to be a low priority when what they see as an essential service is underfunded.

Public understanding is not necessarily increased by improving the transparency of city finances, but I believe it is an essential part of maintaining financial health.  If the city’s financial oversight is based on the knowledge that everything is open to public scrutiny, there is a very high motivation for policy makers and managers alike to get it right.  Getting it right also involves working to standards such as those set by the Government Finance Officers Association (GFOA) for financial statements and by insuring that annual audits are conducted by competent accountants.

The most important city asset is the trust of our citizens, and nothing will erode that trust more quickly than mismanagement of city funds.  Albany has a good history of financial management, and there does not appear to be any danger of default on obligations in the foreseeable future.  Resources will continue to be constrained, however, and that circumstance is unlikely to change anytime soon.