The City of Grand Rapids, like all cities in Minnesota, has been faced with unique challenges in the past few years. The commitment by the State to offer local government aid and the homestead credit as property tax relief mechanisms has been dramatically reduced. Because of this, by the end of 2009 the City of Grand Rapids had lost over $1,000,000 in annual revenues since 2008.
The City could have taken three distinct courses of action in dealing with the budget crisis we were faced with. We could have made marginal cuts to the budget that would have been more temporary in nature and had no real impact on our long term operating budgets (for example, deferring capital purchases and making marginal changes to employee salaries). Conversely, we could have simply increased taxes to replace the lost revenue from the State.
To the City Council it was clear that a longer term approach was necessary. Our focus needed to be significant, long-term expenditure reductions. By retooling our departments with new technology we were able to reduce our total workforce by more than 10%. The result was a reduction to the base budget by more than $1,100,000. Let me reiterate, we are spending $1,100,000 less per year than we would have been if we had not changed how we do things. This was made possible by the extraordinary effort of the City Council and the City employees.
We have sustained this lower operating budget for two years and our preliminary 2012 budget continues to maintain this lower base. The preliminary levy mandated to set in September is higher than last year. This is typically done on purpose to allow for some unforeseen emergency during our budget planning process, and the levy is then lowered prior to final approval in December. This year’s proposed increase to the debt levy goes toward the street projects currently under construction and for capital equipment purchases. These capital equipment purchases are part of an ongoing plan to upgrade the technology we use so we can keep ongoing costs lower. In essence we use short term capital funds to drive down long term expenses. We are working on finalizing the operating budgets with the goal of offsetting the increase in the debt levy with further decreases in the operating levy.
One of most impressive stories to come out of this situation is in Public Works. The Public Works Department spent nearly $300,000 less this year than it did four years ago. In those four years some of the largest areas of the former Grand Rapids Township were annexed into the city. In inflation adjusted dollars, the Public Works Department is spending the same amount as in 2001. In this ten-year period the population increased by 40% and the geographic area of the City has increased by nearly 100%. Public Works Director Jeff Davies and the staff in the Public Works Department have managed to provide service to over 3000 more people and over 40 more miles of streets with less money and fewer employees.
Another example of doing more with less comes from our police department. This department has left two patrol officer positions and one administrative position vacant and yet they continue to find ways to provide police coverage to a city that is now larger and has more people.
The fire department has made changes to allow for a reduction in administrative costs. Our three core services Police, Fire and Public Works account for about 80% of our operating budget and Police Chief Jim Denny; Fire Chief Steve Flaherty; and Public Works Director Jeff Davies understand the unique times we are in and have stepped up to find ways to significantly reduce costs without a noticeable reduction in service.
The City received notice from our health insurance carrier a few weeks ago that our premiums will go down by 2.8% in 2012. Prior to the implementation of the high deductible plan and the employee wellness program, we were experiencing average annual premium increases of 11%. Because these premium adjustments are based on utilization, we attribute a large part of this reduced cost to a wellness program that helps our employees get healthy and stay healthy.
Between 2002 and 2011 the tax rate for the city of Grand Rapids has decreased by 18.98%. It is the goal of this City Council to keep the tax rate on a downward trend and decrease it by at least another 10% in five years. However, the recent Minnesota State budget passed by the Legislature in special session removed $260,000,000 of property tax relief from the statewide system by changing the Homestead Credit to the Homestead Exclusion. The result for Grand Rapids will be a 4.7% tax rate on top of whatever tax rate the City sets.
We are working with our neighboring communities for opportunities to collaborate and lower our overhead costs. We will continue to work toward more collaboration with other government organizations like the Public Utilities to reduce duplication and cost. The City Council has directed me to find any and all ways to reduce duplication and increase efficiency in all City departments, agencies and affiliated operations. This means that there are no sacred cows. We are wiping the slate clean and rethinking how we deliver service to the citizens of Grand Rapids. These are unprecedented economic times which call for unprecedented innovation from your local government. That is exactly what we are doing.
Wednesday, September 28, 2011
Monday, March 14, 2011
On December 15th, 2010 the City Council met to develop a strategic plan for the next two years. From this meeting the council and staff developed six strategic initiatives that they would like to accomplish or have made significant progress toward by the end of 2012.
A general theme emerged from these initiatives that the City of Grand Rapids will emphasize “partnering to deliver services at less cost”. As we move forward over the next two years the City will leverage its limited time, attention and resources on these six priority areas:
1. Realize the efficiencies of a GRPUC/City collaboration
2. Improve efficiency and administration of recreation opportunities
3. Address Central School inefficiencies related to occupancy, rent, and marketing issues
4. Continue progress on becoming self-supportive without LGA funding
5. Develop and implement an efficiency study for Public works
6. Pursue needed Capital Improvements, particularly road work completion between Ridgewood and 14th Streets
Realize the efficiencies of a GRPUC/City collaboration
Improve efficiency and administration of recreation opportunities
The council has directed staff to begin meeting with our neighboring communities to begin work on forming a regional coalition for recreation programs. We began with a meeting with the Grand Rapids Park and Rec Board to explain what we are trying to do and to begin to get the buy in of our own Park and Rec Department. This collaboration is at the beginning of the process and we must first identify the opportunities that are available to us and how we can reduce cost and improve service delivery. We envision a seamless recreation program delivery throughout the region such that the end user of the service would not have to worry about which jurisdictional boundary they reside in. This would allow us to better coordinate the use of our facilities and possibly allow for specialization of recreation facilities, i.e. a set of ball diamonds that are specific to little league, or softball, etc. This sort of collaboration can be a model for further collaboration amongst our neighbors, be it in Public Works, GIS, or other services.
Address Central School inefficiencies related to occupancy, rent, and marketing issues.
The city council has formed a task force to study the issues at Central School and devise a strategy to attract new tenants to the building. The task force is examining every possibility for the future of the building. The “All Options on the Table” approach has allowed us to wipe the slate clean and begin to reimaging the operation of Central School. One thing that the task force has heard is that this sort of process could lead to the demolition of the building. The task force has agreed that this option is not viable, because of the negative impact on the downtown area and character of the City and because of the cost of taking such action. The fact that the building is on the National Registry of Historic Places creates certain obstacles to demolition that are difficult to overcome. More than likely, for the city to get permission to take such an action the building would have to sustain damage that would make it structurally unsound. Additionally, the demolition of a building of this size and age is quite expensive. Mitigation of hazardous materials like lead paint and asbestos will have costs running into the hundreds of thousands of dollars.
Continue progress on becoming self-supportive without LGA funding
The over-arching theme of the strategic plan for the next two years is to make strategic expenditure reductions so we can move Local Government Aid out of our operating revenue. Once this is done, the LGA we do receive will be used to offset capital costs by buying down debt, creating sinking funds to make bond payments thus decreasing the tax levy, or by using the cash we receive to pay for projects. The fact of the matter is that there is a high probability that we may have our LGA taken away completely. This city council has directed me to develop a response to such a scenario that does not include property tax increases. In fact they would prefer that we find expenditure reductions to match the LGA loss and allow for decreases in the tax levy. This is no easy task. We began work on this over two years ago and have been able to make permanent reductions to our operating expenditures to match $1,100,000 reduction in revenue due to the decrease in LGA that has already occurred, the increase in our fiscal disparities contribution, and the loss of commercial/industrial tax base.
To move us further toward this goal we have begun working toward more collaboration and to continue to find ways to reduce our costs. We need to identify approximately $950,000 in expenditure reductions to completely eliminate our reliance on LGA. Once this process is complete we will have reduced operating expenditures by over 25% as compared to three years ago. We are also pursuing the local option sales tax authority that would allow us to place a referendum on the ballot asking for a local sales tax of up to 1%. If successful we would be able to lower our property tax levy and replace LGA. This would mean that residential property tax payers would save approximately $100 to $200 for every $100,000 of Estimated Market Value on their property tax bill.
Develop and implement an efficiency study for Public works
A Public Works Best Practices Review Task Force has been formed to examine the operations of the Public Works department. The mission of this task force is to examine the operations of the Public Works Department to determine if any improvements can be made to the efficiency and effectiveness of service delivery. This group will send a report to the city council by July 25th, 2011 with its findings in regards to the following questions:
1) Are we doing anything that could be done more cost effectively from an outside agency?
2) Are there opportunities to share services/equipment with outside groups government/private agencies?
3) Are we utilizing our staff as well as possible?
4) Do we have an effective/comprehensive facility plan in place?
5) Is our procurement procedure as good as can be, are we using the most effective/lowest cost equipment and materials for all application, what methods do we use to determine?
6) Is our management structure as efficient as possible, within the entire city operation - are there tasks and departments that should be under the PW umbrella that should be or shouldn't be there?
7) Are the financial controls used the best available?
8) Are there other groups/tasks that we can incorporate to increase revenues?
9) Can we design benchmarks to determine our effectiveness?
The task force will present its report to the City Council at the July 25th, Council Work Session
Pursue needed Capital Improvements, particularly road work completion between Ridgewood and 14th Streets
There has been considerable debate and energetic discussion about a possible road realignment from Ridgewood Road around the Fairgrounds to 14th Street. Two serious issues are at the center of this debate. One is the environmental degradation of Crystal Lake due to storm water run off from the fairgrounds. This run off is having a visible impact on the lake and needs to be addressed. The road project would do just that. With the completion of the road there will be stromwater runoff mitigation put in place, such as rain gardens and the like, to keep the stromwater from running untreated into the lake. The second issue is the safety of pedestrians and motorists in the area around the fairgrounds. The current road alignment is not safe and needs to be realigned to accommodate the increase in traffic due to the Middle School. The Middle School now houses the fifth grade and District 318 has constructed a bus garage in the same area which will mean an increase in bus traffic in the area. The fairgrounds itself can be improved as part of this project and the road can be closed during events such as the County Fair, the Car Show, and Blues Fest.
Wednesday, March 3, 2010
In the fall of 2009 the Grand Rapids City Council directed the City Administrator to seek any and all ways to reduce duplication and increase efficiency in delivery of services in all departments and affiliated agencies. To this end the City Administrator requested information from the GRPUC for the purpose of analyzing the feasibility of consolidating service delivery of the two entities. This report analyzes the concept of reducing the duplication of services between the City of Grand Rapids and the Grand Rapids Public Utilities Commission (GRPUC). By reviewing the infrastructure staffing of the City of Grand Rapids/GRPUC compared to other cities of comparable size and service, reveals that the City of Grand Rapids/GRPUC has 57 FTE while the average of the comparables of 33.86. These figures do not include electrical workers for GRPUC or the comparable cities.
By merging the labor forces of the City and GRPUC and eliminating, through attrition over a five year time frame, seventeen FTE’s within the Administration, Finance, and Water/Wastewater departments the City and GRPUC will recognize an annual savings of approximately $700,700 in the first year of the agreement to $1,110,069 per year by the fifth year of the contract. If that savings were translated to a reduction of the City tax levy, this would result in a reduction of the City tax rate by just over 15.58%. This equates to an annual savings in property tax of $311.54 on a single family residence with an estimate taxable market value of $200,000.
By consolidating the employees into one organization the city can achieve synergies and economies of scale that will allow for the same amount of work to be done by fewer people. The consolidation of the employees into one organization will also produce synergies that cannot be quantified in advance. Work process and administrative tasks can be simplified and streamlined to allow for higher quality and more timely service delivery. These synergies are achieved through the cross utilization of employees and equipment. As with any service delivery organization there are ebbs and flows to the workload. By coordinating the efforts of the work crews the organizations resources can be directed at those work tasks that are the most critical at any given time. With the two sets of work crews operating independently these coordination efforts are cumbersome at best. The duplication of administration, human resources, and finance departments is unnecessary to continue delivering service at the same level. Duplication of this nature is also unnecessary to maintain the autonomy of the Commission in its oversight of the utility assets, rate structure, capital planning and the like. In other words the positive aspects of having an autonomous utility board can be maintained regardless of the management structure of the organization.
The GRPUC has a large number of employees who have already reached retirement eligibility or who will reach retirement eligibility in 2010. In order to execute the contracting of labor services between the GRPUC and the City and eliminate seventeen FTE’s it is recommended that City and GRPUC employees be offered an Early Retirement Incentive Package (ERIP) which provides $10,000 annually for medical expenses for five years. The cost of health care in retirement is a major deterrent for someone to retire. These dollars would be deposited into a post employment health savings account. The City offered this benefit in 2009 and found it to be successful with a reduction of six FTE’s generating a net savings of approximately $350,000 annually.
When the merging of labor forces moves forward, the City should consider restructuring where departments are located. It is recommended that Community Development and Engineering departments be relocated to the GRPUC/PW Facility which is located off-site from City Hall. This will provide contractors and home owners a “one-stop shop” concept where they can get their building, and storm water permits, along with establishing their utility accounts. The finance department should remain at City Hall and the GRPUC meetings should be in the City Hall Council Chambers to provide for the use of the Legistar agenda system, which has been found to be a labor saving tool. This would also allow for the conversion of all or part of the GRPUC/PW building conference room to be converted to office space if necessary.
There are two basic approaches to achieving the cross utilization objective and ultimately the cost savings. The first approach is a full merger of the employees. In this scenario all employees of the GRPUC would become employees of the city. This approach is desirable because it would facilitate a clear transition of the lines of authority. However this approach brings with it several legal issues that would have to be dealt with. The issue of unit clarification for the unions would have to be settled and the inherent difficulties in operating with two separate unions in the same departments. A second approach is that of a hybrid employee merger. If the AFSCME or the 49er Unions wished to oppose the merger beyond the legal lengths that the GRPUC or the City Council are willing to go, then this hybrid model could be utilized. The hybrid merger model would leave all of the AFSCME employees as employees of the GRPUC. The exempt employees of the GRPUC would become employees of the City. The GRPUC would then contract with the City to manage the departments. This approach assumes the two entities would agree to allow for cross utilization of equipment and employees. Additionally, the agreement should stipulate that the AFSCME employees of the GRPUC be in the City health care pool. The current costs per employee for the City are approximately $2,000 less per year for health insurance than the current cost per employee for the GRPUC.
It must be emphasized that under either scenario the GRPUC will remain intact with the same statutory responsibilities and authority that it currently has. Additionally, all assets of the GRPUC will remain assets of the GRPUC. The only change that will likely occur is that the equipment will be leased to the city for use under both scenarios described above. This is necessary to relieve the GRPUC of liability if there were ever a legal claim against the City concerning the use of GRPUC equipment by City employees or GRPUC employees working under the direction of City employees. The added benefit of this arrangement to the GRPUC is that it acts as a failsafe if either the City or GRPUC would want to exercise their right to terminate the contract. Service provision could continue to be provided without a large capital outlay by the GRPUC.
Ultimately, both entities need to change the way public services are delivered to their owners. This will require right sizing and the altering of duties and responsibilities of the existing employee base. The focus of both the GRPUC and City needs to be on reducing the cost of government to the owners of the utility which is the residents along with the other property tax payers in the community. To that end it is recommended that all savings identified at the beginning of the agreement be translated to tax rate or utility rate decreases or combination of both.
COMPARABLE CITIES
To begin the process of analysis of a potential merger of the operations of the City and the GRPUC we must look at how the service delivery in Grand Rapids compares to that of cities of like size and service levels in Minnesota. Eight cities were selected based on population and types of service delivered. These cities were then contacted with a request for data on number of personnel performing services in the areas of administration, finance/HR, right-of-way (ROW) Because electrical utility service is not provided by many municipalities the employees associated with the electric distribution services were excluded from this analysis.
The results of this research are shown in Table 1. We combined the employees of the City and the GRPUC in each department listed above and compared that data to the number of employees providing the same services in the Comparable Cities. As you can see the number of employees providing these services in Grand Rapids is significantly higher than the comparables. This is due in the most part to the duplication of administration and support staff in Grand Rapids. By creating two separate operations the number of employees necessary to provide service is increased.
Table 1 GRPUC/City and Comparable Cities Comparison Data
Figure 1: Finance Department Employee Number Comparison
In Figure 1 the duplication in Grand Rapids is clearly demonstrated. For this comparison the finance departments include the general accounting staff for the municipal operations and the utility operations. It also includes the personnel involved in the utility billing processes. This comparison deals only with the differences in personnel. There is a myriad of peripheral costs associated with having two separate departments. The most obvious is the cost of maintaining two separate accounting software systems.
Figure 2: Admin/HR Employee Number Comparison
In Figure 2 the differences in personnel levels in the administration and human resource functions is shown. Again, Grand Rapids is significantly higher than the comparable cities. This is a clear indication of the effects of unnecessary duplication in our service delivery.
Figure 3 demonstrates the differences between Grand Rapids and the comparable cities when it comes to the level of personnel in the right-of-way (ROW) crews. The ROW crews are those front line personnel that work in the areas of fleet maintenance, road, maintenance, water, water treatment, sewer, and wastewater treatment. How these tasks are distributed between departments and how the work is assign to the work crews will vary from city to city. The point is this; there is no one best way to accomplish these tasks. But according to our data the same level of service can be delivered with fewer people. Recall that these data do not include the electrical department crews for GRPUC or the comparable cities.
Another interesting thing to note is the magnitude of the difference in the number of ROW employees in Grand Rapids and the comparable cities. It is clear from the data that the magnitude of the difference is greater in the Admin/HR and Finance departments. This is a clear indication of the unnecessary duplication of service in Grand Rapids is concentrated in these departments rather than the front line ROW crews. This is intuitive because there is a basic level of support needed to provide service to one customer. As the number of customers increases the level of support necessary does not grow proportionally. In other words it takes a similar number of support personnel, i.e. finance, admin and human resources, to supply service to one customer as it does to 100 customers and so on. With the advances in computer technology this is increasingly true.
Figure 4: Total Employee Number Comparison 
If we examine the total number of employees in Grand Rapids and compare it to the total number of employees in the comparable cities we see that Grand Rapids is significantly higher than the majority of comparable cities. The City of Hibbing falls in at a close second; however we must note two important facts about Hibbing that explains this. Hibbing is one of the comparable cities that do have a separate PUC. Additionally, Hibbing has a significantly higher number of utility customer, road miles and population. Another city of note is Fairmont. Fairmont also has a separate public utility not unlike Grand Rapids. They also have a greater number of utility customers than Grand Rapids .
By comparing the ratio of employees to the number of service units we can glean additional information about the level of duplication in Grand Rapids. Table 2 shows the comparison of various service unit ratios of Grand Rapids and the comparable cities. A significant difference can be seen between the number of employees per service unit in Grand Rapids and the comparable cities. This is further evidence that the duplication in Grand Rapids is unnecessary.
Table 2: GRPUC/City vs. Average Comparable Employee Ratio Comparison
Figure 5: Employee per Park Acreage Ratio Comparison
The employee to park acre ratio is telling. Grand Rapids has more than twice the average number of employees per park acre. A couple of things need to be noted here. First, the park acreage data from Hibbing was omitted from the comparison because the total park acreage was in the thousands. This included some acreage that was not maintained as “parks” thus did not require personnel. The second thing to note is that we did include “park maintenance” personnel in this comparison. Some cities, like Grand Rapids, use public works personnel to maintain the parks. Other cities have separate park maintenance personnel. The numbers were adjusted to include parks maintenance personnel.
Figure 6: Employees per Utility Customer Ratio Comparison
The ratio of employees to customers is a key indicator of where Grand Rapids stands relative to the comparable cities. As shown in Figure 6, Grand Rapids has nearly three times the average number of employees per customer. This is a glaring red flag that tells us we need to reconsider how we deliver service in Grand Rapids.
The next factor we need to consider is the variance in the workload in each community. Cities are all different in size and geographic distribution. This means that to deliver the same service in one community may take more miles of water mains, sewers, streets, and the like. To compare the ratios of the average employees per mile of water mains, sewer, storm sewer, and road miles is compared to Grand Rapids.
Figure 7, Figure 8, Figure 9 and Figure 10 show the comparison of the average employees per water main, sanitary sewer, storm sewer, and road miles; with Grand Rapids. The ratios are significantly higher in Grand Rapids than in the comparable cities.
Figure 7: Employees per Water Main Mile Ratio Comparison
Figure 8: Employees per Storm Sewer Mile Ratio Comparison
Figure 10: Employees per Road Mile Ratio Comparison
The story is the same when we look at the ratio of employee per capita. Grand Rapids has twice as many employees per capita performing delivering the same level of service as the comparable cities. Regardless of how we examine the differences between Grand Rapids and comparable cities, Grand Rapids has more employees than necessary to deliver this level of service. As noted above this excess employee number is due to the unnecessary duplication of service at the GRPUC and the City.
The cost savings listed in Table 3 are indicate how much lower the total cost would be due to the merger as compared to the 2010 expenditure level. It is demonstrated graphically in Figure 12. When the natural cost increases are brought into the equation the total savings would be much more significant.
Table 4 lists the annual savings relative to the total costs of the GRPUC with average increases factored in. These costs savings assume that each employee that is eligible to retire will accept the ERIP. It is assumed that health insurance costs will grow at a rate of 10% per year and that wages will increase at a rate of 2% per year. The current collective bargaining agreement (CBA) between the GRPUC and the AFSCME union contains a 2% increase for each year of the three year agreement. The city changed to a high deductable HSA health care plan in 2008. In 2009 the health care premiums for the city increased by 9% and in 2010 they decreased by 20%. It is likely that the increases will be below 10%. If the future CBA with the AFSCME union contains increases greater than 2%, say 3%, the savings will be impacted, but only marginally. The true reduction in cost is derived from the reduced number of personnel.
Table 3 Total Cost Savings Relative to GRPUC 2010 Costs
Figure 13 Cost Savings Over Time Relative to GRPUC Average Increased Costs
Impacts of Potential Savings
The impacts to the tax and utility rate payers as a result of merging the GRPU into the City are substantial. We can assume at this point that an appropriate share of the savings will be split between a tax reduction and utility rate reductions. This arrangement will be negotiated between the GRPUC and the City when crafting the final contract. However, identifying a reduction in utility rates would be very labor intensive and is not included in this report. Logically the average savings per household would be the same regardless of structure of the reduction, therefore, for the sake of simplicity in our discussion it is assumed that one hundred percent of the savings will be translated into a City tax levy reduction. For a baseline the following table identifies the payable 2010 Tax Capacity, Certified Levy, and tax rate without the reduction in savings for the City of Grand Rapids.
Table 5: 2010 Grand Rapids Tax Rate
The tax rate utilized in calculating property taxes, payable in 2010 was 64.970%. As an example, a person who owns a home with a taxable market value of $200,000 would pay ($200,000*0.01*0.6497) or $1,299.40 for the city portion of their property tax.
Reducing the certified levy by $700,000 would result in a reduction of the tax rate to 55.148% as identified in Table 6. That same person who owns the $200,000 home would see a city tax of ($200,000*.01*0.55148) or $1,102.96. This is a savings of $196.44 annually.
Table 6: Potential Tax Rate with $700k Savings
By year five of the agreement the total savings, net of retirement payouts and pay equity adjustments, will grow to approximately $1,110,069. When this reduction is applied to the same tax rate calculation as the Year 1 savings, all else being equal, the tax rate drops to 49.393%. (See Table 7) This generates a tax on the same $200,000 home of $987.86 a savings of $311.54. By looking at the trend of the City tax rate over the last ten years it is clear that the probability is high that the tax rate will be on a natural decline regardless of the merger. The savings calculated here represent the differential between what the tax rate would be under the current structure vs. what to could be under a merged structure. As stated earlier we use the tax rate in this demonstration to make the calculations of potential tax burden reduction less cumbersome. The actual structure of tax rate/utility rate reduction would be a matter of negotiation between the GRPUC and the city.
Table 7 Potential Tax Rate with $1,110,069 Savings
Organizational Structure
To achieve these savings there it would not be necessary to make significant changes to the City organizational structure. The city currently has the management capacity to handle the expanded operational scope. The GRPUC management staff would be folded into our current management structure. Department heads managing utility functions and support functions such as HR and Finance in the merger scenario would be responsible to the GRPUC for those operational components, with ultimate oversight responsibility ending with the City Administrator.
Figure 14: General Organization Structure Post Merger
To get an idea of what a combined workforce structure would look like, the general concept is presented in Figure 14. The GRPUC as an entity would remain intact. It would maintain ownership of all assets currently owned by the GRPUC and would make final decisions on the capital investment upon those assets. All equipment would remain under GRPUC ownership, but would be leased to the city in some fashion to eliminate liability exposure for the GRPUC. The Public Works Director and the City Engineer would answer to the GRPUC for all utility functions.
Additionally, the accounting and billing software, including work order and purchase order systems would need to be merged. This is a major undertaking but should not be an obstacle to achieving the cost savings. There are significant sunk costs associated with these systems but not enough to justify higher operational costs. Dual accounting systems would need to be run for at least six months to guarantee that the system merger is complete.
In summary, the City and the GRPUC can achieve an annual expenditure reduction of just over $1,100,000 by the fifth year of merged workforce agreement. I recommend that the City move forward with a formal proposal to the GRPUC without delay. A goal of completion of the merger by January 1, 2011 is not unreasonable. The cost reductions associated with a merger of the employees of the City and the GRPUC are too large to ignore. The timing is ideal due to the large number of employees eligible to retire during the proposed five year timeframe, allowing the cost savings to be recognized without reduction in force measures. The current management structure within the city can absorb the increase scope of service relatively easily and economic impact of the reduced tax burden could not come at a better time for the City of Grand Rapids.
By merging the labor forces of the City and GRPUC and eliminating, through attrition over a five year time frame, seventeen FTE’s within the Administration, Finance, and Water/Wastewater departments the City and GRPUC will recognize an annual savings of approximately $700,700 in the first year of the agreement to $1,110,069 per year by the fifth year of the contract. If that savings were translated to a reduction of the City tax levy, this would result in a reduction of the City tax rate by just over 15.58%. This equates to an annual savings in property tax of $311.54 on a single family residence with an estimate taxable market value of $200,000.
By consolidating the employees into one organization the city can achieve synergies and economies of scale that will allow for the same amount of work to be done by fewer people. The consolidation of the employees into one organization will also produce synergies that cannot be quantified in advance. Work process and administrative tasks can be simplified and streamlined to allow for higher quality and more timely service delivery. These synergies are achieved through the cross utilization of employees and equipment. As with any service delivery organization there are ebbs and flows to the workload. By coordinating the efforts of the work crews the organizations resources can be directed at those work tasks that are the most critical at any given time. With the two sets of work crews operating independently these coordination efforts are cumbersome at best. The duplication of administration, human resources, and finance departments is unnecessary to continue delivering service at the same level. Duplication of this nature is also unnecessary to maintain the autonomy of the Commission in its oversight of the utility assets, rate structure, capital planning and the like. In other words the positive aspects of having an autonomous utility board can be maintained regardless of the management structure of the organization.
The GRPUC has a large number of employees who have already reached retirement eligibility or who will reach retirement eligibility in 2010. In order to execute the contracting of labor services between the GRPUC and the City and eliminate seventeen FTE’s it is recommended that City and GRPUC employees be offered an Early Retirement Incentive Package (ERIP) which provides $10,000 annually for medical expenses for five years. The cost of health care in retirement is a major deterrent for someone to retire. These dollars would be deposited into a post employment health savings account. The City offered this benefit in 2009 and found it to be successful with a reduction of six FTE’s generating a net savings of approximately $350,000 annually.
When the merging of labor forces moves forward, the City should consider restructuring where departments are located. It is recommended that Community Development and Engineering departments be relocated to the GRPUC/PW Facility which is located off-site from City Hall. This will provide contractors and home owners a “one-stop shop” concept where they can get their building, and storm water permits, along with establishing their utility accounts. The finance department should remain at City Hall and the GRPUC meetings should be in the City Hall Council Chambers to provide for the use of the Legistar agenda system, which has been found to be a labor saving tool. This would also allow for the conversion of all or part of the GRPUC/PW building conference room to be converted to office space if necessary.
There are two basic approaches to achieving the cross utilization objective and ultimately the cost savings. The first approach is a full merger of the employees. In this scenario all employees of the GRPUC would become employees of the city. This approach is desirable because it would facilitate a clear transition of the lines of authority. However this approach brings with it several legal issues that would have to be dealt with. The issue of unit clarification for the unions would have to be settled and the inherent difficulties in operating with two separate unions in the same departments. A second approach is that of a hybrid employee merger. If the AFSCME or the 49er Unions wished to oppose the merger beyond the legal lengths that the GRPUC or the City Council are willing to go, then this hybrid model could be utilized. The hybrid merger model would leave all of the AFSCME employees as employees of the GRPUC. The exempt employees of the GRPUC would become employees of the City. The GRPUC would then contract with the City to manage the departments. This approach assumes the two entities would agree to allow for cross utilization of equipment and employees. Additionally, the agreement should stipulate that the AFSCME employees of the GRPUC be in the City health care pool. The current costs per employee for the City are approximately $2,000 less per year for health insurance than the current cost per employee for the GRPUC.
It must be emphasized that under either scenario the GRPUC will remain intact with the same statutory responsibilities and authority that it currently has. Additionally, all assets of the GRPUC will remain assets of the GRPUC. The only change that will likely occur is that the equipment will be leased to the city for use under both scenarios described above. This is necessary to relieve the GRPUC of liability if there were ever a legal claim against the City concerning the use of GRPUC equipment by City employees or GRPUC employees working under the direction of City employees. The added benefit of this arrangement to the GRPUC is that it acts as a failsafe if either the City or GRPUC would want to exercise their right to terminate the contract. Service provision could continue to be provided without a large capital outlay by the GRPUC.
Ultimately, both entities need to change the way public services are delivered to their owners. This will require right sizing and the altering of duties and responsibilities of the existing employee base. The focus of both the GRPUC and City needs to be on reducing the cost of government to the owners of the utility which is the residents along with the other property tax payers in the community. To that end it is recommended that all savings identified at the beginning of the agreement be translated to tax rate or utility rate decreases or combination of both.
COMPARABLE CITIES
To begin the process of analysis of a potential merger of the operations of the City and the GRPUC we must look at how the service delivery in Grand Rapids compares to that of cities of like size and service levels in Minnesota. Eight cities were selected based on population and types of service delivered. These cities were then contacted with a request for data on number of personnel performing services in the areas of administration, finance/HR, right-of-way (ROW) Because electrical utility service is not provided by many municipalities the employees associated with the electric distribution services were excluded from this analysis.
The results of this research are shown in Table 1. We combined the employees of the City and the GRPUC in each department listed above and compared that data to the number of employees providing the same services in the Comparable Cities. As you can see the number of employees providing these services in Grand Rapids is significantly higher than the comparables. This is due in the most part to the duplication of administration and support staff in Grand Rapids. By creating two separate operations the number of employees necessary to provide service is increased.
Table 1 GRPUC/City and Comparable Cities Comparison Data
Figure 1: Finance Department Employee Number Comparison
In Figure 1 the duplication in Grand Rapids is clearly demonstrated. For this comparison the finance departments include the general accounting staff for the municipal operations and the utility operations. It also includes the personnel involved in the utility billing processes. This comparison deals only with the differences in personnel. There is a myriad of peripheral costs associated with having two separate departments. The most obvious is the cost of maintaining two separate accounting software systems.Figure 2: Admin/HR Employee Number Comparison
In Figure 2 the differences in personnel levels in the administration and human resource functions is shown. Again, Grand Rapids is significantly higher than the comparable cities. This is a clear indication of the effects of unnecessary duplication in our service delivery. Figure 3: ROW Employee Number Comparison
Figure 3 demonstrates the differences between Grand Rapids and the comparable cities when it comes to the level of personnel in the right-of-way (ROW) crews. The ROW crews are those front line personnel that work in the areas of fleet maintenance, road, maintenance, water, water treatment, sewer, and wastewater treatment. How these tasks are distributed between departments and how the work is assign to the work crews will vary from city to city. The point is this; there is no one best way to accomplish these tasks. But according to our data the same level of service can be delivered with fewer people. Recall that these data do not include the electrical department crews for GRPUC or the comparable cities.Another interesting thing to note is the magnitude of the difference in the number of ROW employees in Grand Rapids and the comparable cities. It is clear from the data that the magnitude of the difference is greater in the Admin/HR and Finance departments. This is a clear indication of the unnecessary duplication of service in Grand Rapids is concentrated in these departments rather than the front line ROW crews. This is intuitive because there is a basic level of support needed to provide service to one customer. As the number of customers increases the level of support necessary does not grow proportionally. In other words it takes a similar number of support personnel, i.e. finance, admin and human resources, to supply service to one customer as it does to 100 customers and so on. With the advances in computer technology this is increasingly true.
Figure 4: Total Employee Number Comparison
If we examine the total number of employees in Grand Rapids and compare it to the total number of employees in the comparable cities we see that Grand Rapids is significantly higher than the majority of comparable cities. The City of Hibbing falls in at a close second; however we must note two important facts about Hibbing that explains this. Hibbing is one of the comparable cities that do have a separate PUC. Additionally, Hibbing has a significantly higher number of utility customer, road miles and population. Another city of note is Fairmont. Fairmont also has a separate public utility not unlike Grand Rapids. They also have a greater number of utility customers than Grand Rapids .By comparing the ratio of employees to the number of service units we can glean additional information about the level of duplication in Grand Rapids. Table 2 shows the comparison of various service unit ratios of Grand Rapids and the comparable cities. A significant difference can be seen between the number of employees per service unit in Grand Rapids and the comparable cities. This is further evidence that the duplication in Grand Rapids is unnecessary.
Table 2: GRPUC/City vs. Average Comparable Employee Ratio Comparison
Figure 5: Employee per Park Acreage Ratio Comparison
The employee to park acre ratio is telling. Grand Rapids has more than twice the average number of employees per park acre. A couple of things need to be noted here. First, the park acreage data from Hibbing was omitted from the comparison because the total park acreage was in the thousands. This included some acreage that was not maintained as “parks” thus did not require personnel. The second thing to note is that we did include “park maintenance” personnel in this comparison. Some cities, like Grand Rapids, use public works personnel to maintain the parks. Other cities have separate park maintenance personnel. The numbers were adjusted to include parks maintenance personnel.Figure 6: Employees per Utility Customer Ratio Comparison
The ratio of employees to customers is a key indicator of where Grand Rapids stands relative to the comparable cities. As shown in Figure 6, Grand Rapids has nearly three times the average number of employees per customer. This is a glaring red flag that tells us we need to reconsider how we deliver service in Grand Rapids.The next factor we need to consider is the variance in the workload in each community. Cities are all different in size and geographic distribution. This means that to deliver the same service in one community may take more miles of water mains, sewers, streets, and the like. To compare the ratios of the average employees per mile of water mains, sewer, storm sewer, and road miles is compared to Grand Rapids.
Figure 7, Figure 8, Figure 9 and Figure 10 show the comparison of the average employees per water main, sanitary sewer, storm sewer, and road miles; with Grand Rapids. The ratios are significantly higher in Grand Rapids than in the comparable cities.
Figure 7: Employees per Water Main Mile Ratio Comparison
Figure 8: Employees per Storm Sewer Mile Ratio Comparison
Figure 9: Employees per Sanitary Sewer Mile Ratio Comparison
Figure 10: Employees per Road Mile Ratio Comparison
Figure 11 Employees per Capita Ratio Comparison
The story is the same when we look at the ratio of employee per capita. Grand Rapids has twice as many employees per capita performing delivering the same level of service as the comparable cities. Regardless of how we examine the differences between Grand Rapids and comparable cities, Grand Rapids has more employees than necessary to deliver this level of service. As noted above this excess employee number is due to the unnecessary duplication of service at the GRPUC and the City.The cost savings listed in Table 3 are indicate how much lower the total cost would be due to the merger as compared to the 2010 expenditure level. It is demonstrated graphically in Figure 12. When the natural cost increases are brought into the equation the total savings would be much more significant.
Table 4 lists the annual savings relative to the total costs of the GRPUC with average increases factored in. These costs savings assume that each employee that is eligible to retire will accept the ERIP. It is assumed that health insurance costs will grow at a rate of 10% per year and that wages will increase at a rate of 2% per year. The current collective bargaining agreement (CBA) between the GRPUC and the AFSCME union contains a 2% increase for each year of the three year agreement. The city changed to a high deductable HSA health care plan in 2008. In 2009 the health care premiums for the city increased by 9% and in 2010 they decreased by 20%. It is likely that the increases will be below 10%. If the future CBA with the AFSCME union contains increases greater than 2%, say 3%, the savings will be impacted, but only marginally. The true reduction in cost is derived from the reduced number of personnel.
Table 3 Total Cost Savings Relative to GRPUC 2010 Costs
Figure 13 Cost Savings Over Time Relative to GRPUC Average Increased Costs
Table 4: Total Annual Savings Relative to GRPUC Average Increased Costs
Figure 13 Cost Savings Over Time Relative to GRPUC Average Increased Costs
Impacts of Potential Savings
The impacts to the tax and utility rate payers as a result of merging the GRPU into the City are substantial. We can assume at this point that an appropriate share of the savings will be split between a tax reduction and utility rate reductions. This arrangement will be negotiated between the GRPUC and the City when crafting the final contract. However, identifying a reduction in utility rates would be very labor intensive and is not included in this report. Logically the average savings per household would be the same regardless of structure of the reduction, therefore, for the sake of simplicity in our discussion it is assumed that one hundred percent of the savings will be translated into a City tax levy reduction. For a baseline the following table identifies the payable 2010 Tax Capacity, Certified Levy, and tax rate without the reduction in savings for the City of Grand Rapids.
Table 5: 2010 Grand Rapids Tax Rate
The tax rate utilized in calculating property taxes, payable in 2010 was 64.970%. As an example, a person who owns a home with a taxable market value of $200,000 would pay ($200,000*0.01*0.6497) or $1,299.40 for the city portion of their property tax.Reducing the certified levy by $700,000 would result in a reduction of the tax rate to 55.148% as identified in Table 6. That same person who owns the $200,000 home would see a city tax of ($200,000*.01*0.55148) or $1,102.96. This is a savings of $196.44 annually.
Table 6: Potential Tax Rate with $700k Savings
By year five of the agreement the total savings, net of retirement payouts and pay equity adjustments, will grow to approximately $1,110,069. When this reduction is applied to the same tax rate calculation as the Year 1 savings, all else being equal, the tax rate drops to 49.393%. (See Table 7) This generates a tax on the same $200,000 home of $987.86 a savings of $311.54. By looking at the trend of the City tax rate over the last ten years it is clear that the probability is high that the tax rate will be on a natural decline regardless of the merger. The savings calculated here represent the differential between what the tax rate would be under the current structure vs. what to could be under a merged structure. As stated earlier we use the tax rate in this demonstration to make the calculations of potential tax burden reduction less cumbersome. The actual structure of tax rate/utility rate reduction would be a matter of negotiation between the GRPUC and the city. Table 7 Potential Tax Rate with $1,110,069 Savings
Organizational StructureTo achieve these savings there it would not be necessary to make significant changes to the City organizational structure. The city currently has the management capacity to handle the expanded operational scope. The GRPUC management staff would be folded into our current management structure. Department heads managing utility functions and support functions such as HR and Finance in the merger scenario would be responsible to the GRPUC for those operational components, with ultimate oversight responsibility ending with the City Administrator.
Figure 14: General Organization Structure Post Merger
To get an idea of what a combined workforce structure would look like, the general concept is presented in Figure 14. The GRPUC as an entity would remain intact. It would maintain ownership of all assets currently owned by the GRPUC and would make final decisions on the capital investment upon those assets. All equipment would remain under GRPUC ownership, but would be leased to the city in some fashion to eliminate liability exposure for the GRPUC. The Public Works Director and the City Engineer would answer to the GRPUC for all utility functions.The oversight of the utility operations would be divided as outlined in Figure 14.
Some logistical issues that can be dealt with along a simultaneous timeline as the legal issues are computer software merger, office space issues and office location issues. It would be logical to have a one stop shop for all permitting, utility hookup, and the like. Therefore under either merger scenario the Community Development and Engineering departments of the City would move to the PW/PUC building. Additionally, the finance and human resource personnel would move to City Hall. Bill payment and process could still be at the PW/PUC building but some combination of personnel in City Hall and the PW/PUC building would be designed by the Finance Director and the City Administrator. It is assumed that this would be done to the satisfaction of the GRPUC.
Some logistical issues that can be dealt with along a simultaneous timeline as the legal issues are computer software merger, office space issues and office location issues. It would be logical to have a one stop shop for all permitting, utility hookup, and the like. Therefore under either merger scenario the Community Development and Engineering departments of the City would move to the PW/PUC building. Additionally, the finance and human resource personnel would move to City Hall. Bill payment and process could still be at the PW/PUC building but some combination of personnel in City Hall and the PW/PUC building would be designed by the Finance Director and the City Administrator. It is assumed that this would be done to the satisfaction of the GRPUC.
Additionally, the accounting and billing software, including work order and purchase order systems would need to be merged. This is a major undertaking but should not be an obstacle to achieving the cost savings. There are significant sunk costs associated with these systems but not enough to justify higher operational costs. Dual accounting systems would need to be run for at least six months to guarantee that the system merger is complete.
In summary, the City and the GRPUC can achieve an annual expenditure reduction of just over $1,100,000 by the fifth year of merged workforce agreement. I recommend that the City move forward with a formal proposal to the GRPUC without delay. A goal of completion of the merger by January 1, 2011 is not unreasonable. The cost reductions associated with a merger of the employees of the City and the GRPUC are too large to ignore. The timing is ideal due to the large number of employees eligible to retire during the proposed five year timeframe, allowing the cost savings to be recognized without reduction in force measures. The current management structure within the city can absorb the increase scope of service relatively easily and economic impact of the reduced tax burden could not come at a better time for the City of Grand Rapids.
Monday, December 7, 2009
December 5, 2009 Herald Review Editorial
Local government finances are under stress today. The City of Grand Rapids is not immune to the pressures every municipal government in Minnesota faces. Thanks to some foresight by previous Councils and staff management teams, the City is in reasonable shape, even as the City grows through annexation.
In the fall of 2007 the City Council voted to implement what is called a “revenue stabilization policy” to deal with anticipated large fluctuations in our revenue streams. We did this because we feared that a recession was looming. History has shown professional city managers that local units of government can expect to lose 10% of their revenues the year after a recession. The revenue stabilization policy allowed us to borrow from our fund balance (up to 10% of our total revenue) with a fixed payback period of eight years. This policy would buy us time to react strategically to a revenue crisis created by a national recession. Our concern was a recession would hit and rather than be a temporary or cyclical decrease in our revenues, it would be a permanent or structural change to our revenues.
Our fears became reality when in December 2007 the nation slipped into a recession. The State of Minnesota reacted to the crisis by un-allotting, or cutting, funds that we refer to as Local Government Aid (LGA). The checks are paid to the City twice per year, in August and December. The governor cut the December 2008 payment just two weeks before we expected to receive it at the end of the fiscal year. The City then utilized the revenue stabilization fund to make up the difference and began work to make permanent, structural changes to our operating expenditures to ensure that the “new normal” of revenues could meet or exceed our future expenditures.
In the coming weeks, February 2009, we got the news that by fiscal year 2010 our LGA allotment would be nearly $600,000 lower than had been originally allocated. Coupled with declines in other revenue sources, like investment income and building permit fees, we were looking at an approximate reduction in total revenues of 10%. It is funny how history repeats itself. But unlike recessions and un-allotments of the past, this one looks like it will be a permanent shift in our revenue base.
The City had two distinct options to deal with the budget crisis. We could have made a number of cuts, deferring capital budgets and making marginal cuts to employee salaries, which would have been more temporary in nature and had no long-term impact on operating budgets. Instead, the City Council and staff managers took a longer term approach. We chose to focus on the base budget, not the margin. We agreed to make fundamental changes to how we operate to meet this challenge. In order to make lasting reductions to the base budget, we realized we needed to reduce the total number of City employees. We implemented an early retirement incentive program to encourage those who were eligible to retire to take that step. We could choose to fill or leave those positions vacant. Twelve employees were eligible for the plan; 10 employees chose to retire. Of those 10 positions we will be filling only four in fiscal year 2010. We have since had one more vacancy occur that will not be filled making a total of seven positions, a nearly 10% reduction in our total full time workforce.
To make these reductions and keep the impact on service levels to a minimum, we made investments in technology that will allow us to streamline our work processes and enable us to do more with less.
· We began with updating our HVAC systems citywide and linking these systems to a centralized computer control system that can be monitored and optimized by our staff 24/7.
· We implemented the Legistar system to eliminate the use of paper meeting packets at the council meetings. The reduction in paper and the use of computers by the council during meetings is only the tip of the iceberg when it comes to what this system has allowed us to do. The system has significantly reduced staff time in the preparation and delivery of meeting information.
· In FY 2010 we will be implementing a new automated payroll system that will reduce staff time in completing payroll.
· We purchased a new snowplow/dump-truck for the public works department. The technology onboard this new truck will reduce our salt use by at least 33%. The cost savings in salt alone will pay for this new truck in five years, not to mention the reduced environmental impact on the lakes and the river.
These are only a few of the investments we have made in 2009, all of which are designed to fulfill one simple goal: reduce ongoing, permanent operating costs.
Another factor we had to contend with in 2009 was the $2,500,000 grant received from the American Recovery and Reinvestment Act that allowed us to complete the Southeast Seventh Avenue road improvement project. This project was not slated for completion until 2011 but got bumped up on our priority list when we received the federal funding. This project added several hundred thousand dollars to our debt levy making it even more difficult to keep the tax rate down. Still, with all these factors in play our general fund operating tax levy for fiscal year 2010 will be $181,558 lower than the fiscal year 2009 levy and $301,544 lower than the 2008 levy. It is important to restate: our overall levy for 2010 is lower than the 2009 levy.
Like most people, when I received my proposed tax statement I was disheartened to say the least to see how my tax bill had gone up. When the Council voted on the initial tax levy in September it was our intent to reduce the levy before giving it final approval in December. Since then we were informed by the County that our tax base had decreased over the last year. Commercial and industrial properties lost approximately $15,500,000 in value from 2008 to 2009. This meant that the tax rate jumped to a level that this City Council finds unacceptable. We have made further reductions to the budget to bring the tax rate down to a level below the 2008 rate. The Council will meet twice in December, and they intend to adjust the budget so the amount City residents actually pay in 2010 will be lower than the amount shown on the proposed tax statement.
Over the past 10 years the tax rate for the City of Grand Rapids has decreased by 26%. It is the goal of this City Council to keep the tax rate on a downward trend and decrease it by at least another 10% over the next five years. To that end, we have reduced the City’s base operating budget by $1,100,000 and we are continuing to find new ways to do more with less. The City Council has directed me to find any and all ways to reduce duplication and increase efficiency in all City departments, agencies and affiliate operations. This means that we will wipe the slate clean and rethink how we deliver service to the citizens of Grand Rapids. These are unprecedented economic times which call for unprecedented innovation from your local government. This City Council, department heads and city staff will meet this challenge head on.
In the fall of 2007 the City Council voted to implement what is called a “revenue stabilization policy” to deal with anticipated large fluctuations in our revenue streams. We did this because we feared that a recession was looming. History has shown professional city managers that local units of government can expect to lose 10% of their revenues the year after a recession. The revenue stabilization policy allowed us to borrow from our fund balance (up to 10% of our total revenue) with a fixed payback period of eight years. This policy would buy us time to react strategically to a revenue crisis created by a national recession. Our concern was a recession would hit and rather than be a temporary or cyclical decrease in our revenues, it would be a permanent or structural change to our revenues.
Our fears became reality when in December 2007 the nation slipped into a recession. The State of Minnesota reacted to the crisis by un-allotting, or cutting, funds that we refer to as Local Government Aid (LGA). The checks are paid to the City twice per year, in August and December. The governor cut the December 2008 payment just two weeks before we expected to receive it at the end of the fiscal year. The City then utilized the revenue stabilization fund to make up the difference and began work to make permanent, structural changes to our operating expenditures to ensure that the “new normal” of revenues could meet or exceed our future expenditures.
In the coming weeks, February 2009, we got the news that by fiscal year 2010 our LGA allotment would be nearly $600,000 lower than had been originally allocated. Coupled with declines in other revenue sources, like investment income and building permit fees, we were looking at an approximate reduction in total revenues of 10%. It is funny how history repeats itself. But unlike recessions and un-allotments of the past, this one looks like it will be a permanent shift in our revenue base.
The City had two distinct options to deal with the budget crisis. We could have made a number of cuts, deferring capital budgets and making marginal cuts to employee salaries, which would have been more temporary in nature and had no long-term impact on operating budgets. Instead, the City Council and staff managers took a longer term approach. We chose to focus on the base budget, not the margin. We agreed to make fundamental changes to how we operate to meet this challenge. In order to make lasting reductions to the base budget, we realized we needed to reduce the total number of City employees. We implemented an early retirement incentive program to encourage those who were eligible to retire to take that step. We could choose to fill or leave those positions vacant. Twelve employees were eligible for the plan; 10 employees chose to retire. Of those 10 positions we will be filling only four in fiscal year 2010. We have since had one more vacancy occur that will not be filled making a total of seven positions, a nearly 10% reduction in our total full time workforce.
To make these reductions and keep the impact on service levels to a minimum, we made investments in technology that will allow us to streamline our work processes and enable us to do more with less.
· We began with updating our HVAC systems citywide and linking these systems to a centralized computer control system that can be monitored and optimized by our staff 24/7.
· We implemented the Legistar system to eliminate the use of paper meeting packets at the council meetings. The reduction in paper and the use of computers by the council during meetings is only the tip of the iceberg when it comes to what this system has allowed us to do. The system has significantly reduced staff time in the preparation and delivery of meeting information.
· In FY 2010 we will be implementing a new automated payroll system that will reduce staff time in completing payroll.
· We purchased a new snowplow/dump-truck for the public works department. The technology onboard this new truck will reduce our salt use by at least 33%. The cost savings in salt alone will pay for this new truck in five years, not to mention the reduced environmental impact on the lakes and the river.
These are only a few of the investments we have made in 2009, all of which are designed to fulfill one simple goal: reduce ongoing, permanent operating costs.
Another factor we had to contend with in 2009 was the $2,500,000 grant received from the American Recovery and Reinvestment Act that allowed us to complete the Southeast Seventh Avenue road improvement project. This project was not slated for completion until 2011 but got bumped up on our priority list when we received the federal funding. This project added several hundred thousand dollars to our debt levy making it even more difficult to keep the tax rate down. Still, with all these factors in play our general fund operating tax levy for fiscal year 2010 will be $181,558 lower than the fiscal year 2009 levy and $301,544 lower than the 2008 levy. It is important to restate: our overall levy for 2010 is lower than the 2009 levy.
Like most people, when I received my proposed tax statement I was disheartened to say the least to see how my tax bill had gone up. When the Council voted on the initial tax levy in September it was our intent to reduce the levy before giving it final approval in December. Since then we were informed by the County that our tax base had decreased over the last year. Commercial and industrial properties lost approximately $15,500,000 in value from 2008 to 2009. This meant that the tax rate jumped to a level that this City Council finds unacceptable. We have made further reductions to the budget to bring the tax rate down to a level below the 2008 rate. The Council will meet twice in December, and they intend to adjust the budget so the amount City residents actually pay in 2010 will be lower than the amount shown on the proposed tax statement.
Over the past 10 years the tax rate for the City of Grand Rapids has decreased by 26%. It is the goal of this City Council to keep the tax rate on a downward trend and decrease it by at least another 10% over the next five years. To that end, we have reduced the City’s base operating budget by $1,100,000 and we are continuing to find new ways to do more with less. The City Council has directed me to find any and all ways to reduce duplication and increase efficiency in all City departments, agencies and affiliate operations. This means that we will wipe the slate clean and rethink how we deliver service to the citizens of Grand Rapids. These are unprecedented economic times which call for unprecedented innovation from your local government. This City Council, department heads and city staff will meet this challenge head on.
Sunday, December 16, 2007
Stategic Planning
On Wednesday November 28th the City Council, department heads, city staff members and I met to begin our strategic planning process for 2008. This was the first phase of a process that will develop a link between our strategy and our budget. In the second phase I will be working with the department heads and their staff to develop department plans that will focus the department resources toward our desired outcomes. In the third phase the department heads will link the performance appraisal process to the departmental plan. We accomplish this by creating a direct relationship between the performance evaluations and the employee's job description. The employees then are evaluated on what they are actually doing on a day to day basis. Instead of some ambiguous rating system like satisfactory, or above average, we will create objective and subjective measurements that fit their particular job. All of this takes time because we must involve the staff and we must make sure that our metrics are measuring what we want them to measure.
This is one thing that I like about our strategic planning process, from the very beginning everyone from council members to front line staff members are involved in the process. Everyone at all levels of city government have to own this strategy or it will not work. In my experience "strategic plans" tend to be documents that sit on a shelf and never get used. Strategic planning processes tend to be met with a "here we go again" response from city councils and staff. The approach I am taking is intended to avoid these pitfalls.
The point at which most city strategic plans fall apart is when it comes to the budget. Regardless of the level of rationality we bring to the budgetary process, the final decision is made by elected officials which means that the budget is an inherently political document. This is not a bad thing mind you. In fact it is in the political process that citizens have the most influence on how the resources of their city are distributed. So, this is the paradox, how do we bring the desired level of rationality to the budget process without limiting the influence the citizens have on resource allocation? Or I can ask the question another way, "How then do we link our strategy to the budget in this complex, political and diffuse system?"
The answer is not complicated in theory, but it is extremely complicated in application. The first step is to establish priority areas of focus for our budget implementation. We did this at our meeting on the 28th of November. We established relatively broad statements that articulate what the council believes are the things we need to maintain and improve on to make Grand Rapids a better place to live and work. These statements also give the departments guidance in the implementation of their departmental budgets. These "Strategic Implementation Areas" allow the departments to develop departmental goals and measurements that will improve on these implementation areas and thus improving the City as a whole.
This is one thing that I like about our strategic planning process, from the very beginning everyone from council members to front line staff members are involved in the process. Everyone at all levels of city government have to own this strategy or it will not work. In my experience "strategic plans" tend to be documents that sit on a shelf and never get used. Strategic planning processes tend to be met with a "here we go again" response from city councils and staff. The approach I am taking is intended to avoid these pitfalls.
The point at which most city strategic plans fall apart is when it comes to the budget. Regardless of the level of rationality we bring to the budgetary process, the final decision is made by elected officials which means that the budget is an inherently political document. This is not a bad thing mind you. In fact it is in the political process that citizens have the most influence on how the resources of their city are distributed. So, this is the paradox, how do we bring the desired level of rationality to the budget process without limiting the influence the citizens have on resource allocation? Or I can ask the question another way, "How then do we link our strategy to the budget in this complex, political and diffuse system?"
The answer is not complicated in theory, but it is extremely complicated in application. The first step is to establish priority areas of focus for our budget implementation. We did this at our meeting on the 28th of November. We established relatively broad statements that articulate what the council believes are the things we need to maintain and improve on to make Grand Rapids a better place to live and work. These statements also give the departments guidance in the implementation of their departmental budgets. These "Strategic Implementation Areas" allow the departments to develop departmental goals and measurements that will improve on these implementation areas and thus improving the City as a whole.
The next phase is to develop departmental strategic plans that focus the resources of that department on the implementation areas. We then create metrics to measure the progress of each department from four different perspectives:
1. Citizen Satisfaction
2. Operational Processes
3. Financial Efficiency
4. Learning and Growth
By creating a multi-perspective measurement system we avoid the problem of generating efficiency by negatively impacting effectiveness. Let's say for example that we are going to measure government efficiency by the per person cost of service delivery. With this measure we can run the city in a very efficient manner. We simply cut the budgets of all departments. However, at some point effectiveness of service deliver will be impacted. So, we measure ourselves based on more than financial efficiency. We first concern ourselves with how well we are serving our tax payers. We can do this via citizens surveys either by direct mail or online. We also must have continuous improvement in our internal process. Each department will develop process improvement plans within their departmental plans. Each year we will focus on processes that can either be eliminated, modified or created that will enhance service delivery and efficiency. Finally, we must give our employees the tools they need to succeed. Part of that is to make sure they are getting the training they need to not only identify and create innovative process to improve service delivery, but also to refocus on the fundamentals of their job.
Finally, we will begin to link the day to day activities of our staff to these strategies. By creating a direct link between the job descriptions and performance evaluations and the departmental plan we will begin to see alterations to the strategic implementation areas reflected in the day to day activities of our employees. This is the the critical link between the strategy and the budget.
Thursday, December 13, 2007
Introduction
This is the first of what I hope is an ongoing communication with the citizens of Grand Rapids. My name is Shawn Gillen and I am the new City Administrator for Grand Rapids. One goal I set when I took the job was to utilize technology to bridge the communication gap between the tax payers and their city government. Each week I will post an update on what your city government has been up to. I will attempt to outline my approach to public administration and do my best to bring clarity to some very complex issues that the city is facing.
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