As Sequestration Looms, Cities Create Their Own Economic Fate

Whether sequestration happens or not, some local finance leaders are preparing for leaner times ahead when it comes to federal aid.
by | February 13, 2013

When it comes to localities and federal funding, it may be time to cut the cord.

Some local finance leaders say that whether or not sequestration happens, they are preparing for leaner times ahead when it comes to federal aid. And, along with this growing independence, is an increasing effort by cities for greater accountability and efficiency.

“Even if sequestration were not to happen, our sense here is that on a long-term basis whatever the federal government does, it will have to reduce its scope and it will have an impact on the District,” Washington D.C.’s CFO Natwar Gandhi said Tuesday. With 60 percent of every $100 spent in the District coming from the federal government, “any cut at the federal level would have substantial impact,” he added.

Gandhi’s comments came during a panel discussion held at the Association of Government Accountants’ National Leadership Conference in Washington. Joining Gandhi on the panel were Harry Black, Baltimore’s director of finance, and Robert Tuccillo, CFO for the Federal Transit Administration.

With the new deadline of March 1 looming for sequestration’s automatic, across-the-board cuts of about 10 percent, much uncertainty still remains. As Tuccillo, noted, “it’s kind of like turning on The Weather Channel and knowing there’s a hurricane in the Atlantic [Ocean] but you don’t know which way it’s going to go.”

But this latest fiscal threat is not the first for state and local governments, which have been dealing with less aid from the federal government for years thanks to the recession. It has forced some municipalities to turn inward, identifying their own inefficiencies and making cuts where needed. Baltimore’s CityStat program, which tracks agencies’ ability to meet predetermined goals, and the city’s recent transition into outcome-based budgeting, has helped Baltimore shift from being a reactionary government to a proactive one, Black said.

“So that helps us to be nimble in terms of really focusing on results,” he said, adding that, “whatever might come down pike, we’re able to deal with it.”

The city’s next step in keeping its financial house in order is the launch of a 10-year financial plan, which Black said he expects to be released within a few weeks.

“The new normal is, for most other state and local governments … we’re going to be seeing budget shortfalls,” Black said. “That’s just a fact of life. The key is to accept that as the new normal and move on from finding ways to fill the shortfalls [to growing economically].”

The District has also launched a self-assessment system. Called Grade DC, agencies receive monthly grades based largely on customer service measurements and feedback from residents. Agency heads also report to the mayor and his staff for periodic performance reviews. Those assessments help city leaders find where they’re getting the most bang for their buck -- a vital statistic when the District is expecting roughly $126 million less in revenue in 2014 thanks to reduced federal spending, according to Gandhi.

Both financial chiefs cautioned, however, that planning for a conservative economic future doesn’t win any friends. Gandhi noted that the D.C. City Council “has accused him of being too conservative” and the mayor has also recently echoed the sentiment. It’s times like that, he said, that his office’s independent status helps him stay detached from the politics. Although the District of Columbia’s CFO is appointed by the mayor, he can only be removed for cause and only by approval from council and Congress.

“You can disagree with the mayor in the morning and still be sitting in your office in the afternoon,” said Gandhi, 72, who recently announced he would retire from his post in June after 13 years on the job. “Every other city you’d be sitting at home.”

Black added that any change that seeks to streamline a city’s structure and focuses on budgeting for results will take time. And there will “always” be resistance.

“What I’ve found that works is open communications, a lot of them. Over communicate,” he said. “You’ve got to have a certain level of stick-to-itiveness. … The first year you might see some success, the second and third year, maybe some lean times there, but once you’re in your fourth or fifth year, maybe you’ll see some more impact.”


More from Finance