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One City’s Comeback from the Fiscal Brink

The Kansas community of Junction City got itself into serious financial trouble. Now, without emergency managers or threats of bankruptcy, it’s getting itself out.

What happened in Junction City, Kan., looked like just another of the municipal financial nightmares popping up all around us these days. As in Stockton, Calif., Pontiac, Mich., and hundreds of other communities across America, in 2010 the citizens of Junction City found themselves in a deep and ugly financial hole.

In pursuit of growth and a desire to "put Junction City on the map," the leaders of this little city of roughly 23,000 people had annexed 1,400 acres and pledged the city's full faith and credit to bonds paying for infrastructure to support housing development on the property. But the expected development, anticipated in part due to the purported housing needs of soldiers returning from Germany to nearby Fort Riley, did not materialize. Between 2005 and 2010, the city's debt level increased by a factor of ten — from $13 million to $133 million — and debt service was projected to be 160 percent of general-fund revenues.

A "Fiscal Transformation Plan" put together by the city last May lays out the details and acknowledges that "mistakes were made." Indeed. A former mayor, Mike Wunder, went to prison for taking bribes from a developer, and a previous city manager was investigated and cited for unethical behavior. They had set up a nonprofit whose purpose was to avoid disclosing the details of some of the economic-development transactions being conducted on behalf of the city. Those included not only the land deals but also an investment of $300,000 in a biosciences company that is now worth pennies on the dollar.

I talked to Gerry Vernon, the current city manager who was appointed in 2010, to find out what has happened in the year since Junction City began its recovery effort. The story Vernon tells is amazing.

The city set about fixing its own problems. Through community roundtables, city-manager coffee meetings, a new website and lots of transparency, the city's new leaders gained buy-in from the community. "I can't take credit," says Vernon. "This is a community that wanted to fix itself. We've got a bunch of old retired Army guys who strapped on their boots and began fixing their community."

The city commission put on the ballot, and the citizens passed by a margin of more than 70 percent, a 1-cent sales-tax increase dedicated to paying down the debt. The city also raised property taxes and fees, cut costs everywhere imaginable, consolidated debt, and adopted rigorous financial policies and financial planning. In short, Junction City is righting its own ship. Vernon thinks the city should be more or less back to normal in 2013.

It turns out that what happened in Junction City is nothing at all like events in Stockton, Pontiac and many other cities in fiscal distress. There was no emergency manager, no threatened bankruptcy and no state intervention. Instead, a self-governing people acknowledged problems and mistakes and developed a sound plan, involving significant shared sacrifice, to clean up their mess. It's called democracy, and in Junction City it worked.

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