Bracing for Mid-Year Budget Cuts

Three ways cities can maximize their spending and investments
July 25, 2017
Earlier in 2017, Iowa made $12 million in cuts to its Grow Iowa Values Fund, which funds projects that create jobs in agriculture and entrepreneurship. David Kidd
Smartly Resourced

A long and contentious budget season is just behind us. We celebrated the nation’s birthday and many lawmakers have gone on vacation. The last thing on people’s minds is probably this: mid-year budget cuts.

Mississippi ordered four budget cuts in the last fiscal year. Mississippi was not the only state to face the pain of mid-year cuts. In fact, budget shortfalls seem to be a common and persistent problem for states. And problems for state budgets mean problems for cities and initiatives that boost innovation and economic development.

According to the National Association of State Budget Officers’ Spring 2017 fiscal survey of all 50 states, about half the states made almost $5 billion in mid-year cuts in fiscal 2017. With growing Medicaid costs and shortfalls in projected revenues, states are likely to face similar issues in 2018.

Public education is a common target -- reduced state aid to public universities and community colleges create tuition and fee hikes and a rollback in services and initiatives. Cuts to education aid for municipalities are also painful, and in some cases disproportionately affect underserved communities who rely more on these services.

Earlier in 2017, Iowa made $12 million in cuts to its Grow Iowa Values Fund, which funds projects that create jobs in agriculture and entrepreneurship. Massachusetts cut funds that promoted technology such as big data innovation, digital health and computer science.

All of these cuts can hinder cities’ innovation and growth efforts, and create more long-term social costs. They also impact the overall economy with reductions in the purchasing power of working families, revenue for local businesses and safety nets for the most vulnerable.

Often the quick fixes to these issues are to postpone nonessential maintenance and repairs; delay filling vacant positions; and reduce “soft” expenditures like training, equipment and communications. Sometimes services have to be reduced, reserves have to be dipped into and layoffs need to occur. So how do we deal with mid-year budget cuts that happen year after year?

Here are three areas to consider pursuing now:

  1. Switch to performance based budgeting. Understanding where investments maximize outcomes and contribute towards short- and long-term goals will help keep municipalities on track. A survey by Governing and Living Cities in 2017 showed that this tool is underused -- only 41 percent of survey respondents use performance date for evaluation and decision-making.
  2. Start sharing services. Sharing services through municipal aid agreements and shared service agreements can save money. There are often political hurdles, so look for other models and ways to communicate savings. In Massachusetts, regional districts can be created to forge regionalization efforts and in some years, incentive funds are provided to study and increase shared services.
  3. Negotiate health care savings. Health care savings can be achieved through negotiating contribution ratios, shopping around for plans, and adding incentives for increases in preventative care and reductions in unnecessary and costly services. Employees may be willing to consider new plans or make changes to prevent layoffs. Supporting state efforts to reform the insurance marketplace can also yield major dividends. The municipal health care perform law passed in 2011 in Massachusetts saved municipalities $178 million in its first year of implementation.