This Is What a Fiscal Meltdown Looks Like, II

Looks like you'll have to repair it yourself, boys.

Looks like you’ll have to repair it yourself, boys.

by James A. Bacon

The fiscal chickens are coming home to roost in Petersburg, which has racked up some $19 million in unpaid bills and is on track to run a $12 million deficit this year. The city is learning what happens when vendors are scared of not getting paid.

Yesterday, we heard that Central Virginia’s regional waste management authority was threatening to suspend the city’s garbage pickup and recycling services due to $632,000 in unpaid bills. Today we read that one vendor has repossessed $390,000 worth of new firefighter breathing apparatuses, while another, owed about $1 million, has terminated a contract to service police cars, fire trucks and other city vehicles.

First Vehicle Services Inc., a national vendor, claims to be owed $1.1 million, according to the Richmond Times-Dispatch. The city asserts that it owes only $844,000. The contract was terminated in April at the city’s request, city officials say, to move all repairs in-house as a budget efficiency.

Meanwhile, Richmond-based Fire Protection Equipment Co. repossessed 53 new breathing apparatuses purchased through a Federal Emergency Management Agency grant. Under the grant, FEMA would pay 90% of the $568,000 tab while the city paid 10%.

According to Deputy Fire Chief Brian Sturdivant, the FEMA funds arrived in two payments, but he doesn’t know what happened to the money:  “That’s a question for the city manager. We have followed the requirements of the grant, but once the paperwork leaves the fire department, it heads straight to City Hall.”

The new breathing apparatus replaced older equipment that was suffering wear and tear. Last month, older equipment failed for two firefighters, one of whom had to be treated for smoke inhalation.

Meanwhile, the fire department has suspended annual physicals for its firefighters due to an unpaid balance with its contracted physician.

Bacon’s bottom line: Now that vendors understand Petersburg’s perilous fiscal condition, they’re stampeding toward the exits. As they try to limit their exposure, one piece of bad news feeds the next. It’s ugly, and it’s terrifying, and it’s putting Petersburg citizens and employees at risk. But this is what happens when a local government experiences a financial meltdown.

Hopefully, Petersburg will serve as a sobering example for others. Virginians need to move beyond the gawking-at-the-fiscal-car-wreck phase and start asking serious questions. Is Petersburg a one-off situation, or is it suffering from systemic challenges that potentially threaten other Virginia localities? If other localities are in earlier stages of financial collapse, is their predicament due to managerial ineptitude, flawed policies, or structural issues beyond their ability to control? What can be done to ensure that similar meltdowns don’t happen to anyone else?

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10 responses to “This Is What a Fiscal Meltdown Looks Like, II

  1. I think this series of articles on Petersburg – has exposed a major issue in the CAFR as well as the State’s own required locality Audits if they do not address these outstanding debt issues – so that local voters can know that their govt is not being responsible with finances.

    But as I pointed out in another thread – it’s not like the voters in Petersburg did not know that things were not right – way back in 2012 when Davenport warned them.

    so even with increased levels of disclosure of finances – I’m wondering if voters would actually hold them accountable?

    It seems that even now that citizens have focused on one guy in what seems to be more of a personal animus than on the City Council and City Manager.

    Finally – in places like Henrico which is relatively prosperous and growing – keeping tight control of finances is going to be easier than in places that are older, perhaps decaying and have a shrinking tax base , older infrastructure, etc. Maintaining fiscal discipline in those circumstances is going to be much much difficult and may well require draconian measures that won’t be tolerated by voters if self-imposed – and the issue gets forced – as now – the vendors are imposing those measures.

    What is the State’s role beyond requiring full audits for the taxpayers to know the finances of their own government?

    Serious question.

    Should Virginia and the General Assembly do what Michigan is doing with Detroit and Flint?

    Maybe a good debate. You want the GA involved in running localities? um….. maybe they could send the Tobacco Commission folks to help? 😉

    so.. we know the problem… and we should recognize that this is about irresponsible people operating govt – as opposed to govt itself, all variants , being fundamentally flawed.

    there are good, bad and ugly in the govt spectrum, in the past and now and I’m sure in the future. It’s a human condition.

    For every Petersburg, there are multiple others that are just fine and even many on the level of Henrico which – if you believe their records – have impeccable financial habits.. yes.. a govt just like Petersburg but in a place like Henrico can have a AAA rating.

    so we KNOW that GOOD govt IS certainly not only a possibility – it’s a reality – Virginia has at least 7 different cities and counties with a AAA rating and many others with ratings just below AAA – as well as a few like Petersburg.

    Maybe some time – in the middle of all the blog posts that Jim does – regaling us with the failures of govt – he could write one that talks about all the things done right – by a govt like Henrico, eh?

    😉

  2. So – I had a couple of ideas – about what to do about places like Petersburg.

    It involves the State and the General Assembly but not direct intervention with State personnel to take over.

    Instead – set up a system of Financial benchmarks – with thresholds to include payment of debt to vendors.

    And when a locality’s finances breach those thresholds – it automatically kicks off a recall election or expires all terms and requires a new election.

    Even the clueless in the citizenry would be wondering “what’s going on”? eh?

    But, instead of the State doing what Michigan did – you put this back on the local voters and make them responsible for their own affairs. If they want to vote back in the same guys – and not replace them – then that’s their prerogative and they will suffer at their own hands.

    The second idea –

    The State is who collects the sales – and other taxes beyond the property tax .

    For localities that are not paying their bills – the companies could petition the State and the state would pay and deduct it from the localities sales tax collections.

    Sort of like a govt version of garnishment….

    Finally -the State could maintain benchmark standards for what govt services SHOULD cost by collecting data from all localities and providing a report showing how those services compare.

    So if, for instance, a locality had much higher administrative costs – it would be shown in those reports –

    fire service… fleet maintenance, how many police employees, trash collection per capita costs, etc.. citizens could then rate their govt on efficiency and know if they had an efficient govt or not.

    • Creating financial and performance benchmarks is a good idea — let local government officials know when costs in a particular area are getting out of line.

      The idea of failing a series of benchmarks triggering local elections is interesting, worth discussing.

  3. you could do that with Universities too !!!

    😉

  4. Several years after I moved to NYC the city was in financial meltdown The causes we too much short term borrowing to finance the very liberal social policies of Republican Mayor John Lindsay as well as a host of accounting gimmicks to make the balance sheet look better than it was. The city never was technically bankrupt because all parties were afraid of a potential crisis in the muni market if NYC filed. To prevent this the state legislature established the Municipal Finance Corporation. Its bonds were guaranteed by the state. The proceeds were used to pay down the city’s debt. In return the NYC government,in effect, ceded its fiscal authority to the state’s creation. Over time the plan worked. Obviously Petersburg is not NYC,but the idea of ceding fiscal authority to a state run authority in return for funding to get the problem solved might be at least part of a solution.
    This should be accompanied by some type of economic growth plan. Petersburg has been on downward spiral since B and W closed their tobacco plant there many years ago.

  5. The responses to Jim’s posts are fascinating:
    1. Our liberals are the very first to respond, with various ideas to bail out Petersburg.

    2. Larry G springs instantly to the defense of governments generally:
    >>so.. we know the problem… and we should recognize that this is about irresponsible people operating govt – as opposed to govt itself, all variants , being fundamentally flawed.>>

    Larry again fails to miss the point, of course, pointing to the human condition, some are good and some are bad, etc. etc. He fails (more likely refuses, since he has a narrative stake in more government) to understand Peter Drucker’s basic tenet of management, recognized and indeed canonized by the Japanese: A bad structure will absolutely require the best people in order to function; a good structure can easily be run by mediocre or even some bad people.
    Government is fundamentally a bad structure. The incentives are entirely wrong. There are extremely limited ways to flush out the bad people. By the time you do, an extraordinary amount of damage can be done. In Petersburg, no amount of recalls or elections will correct the problem. You will get the same level of personnel.

    >>If they want to vote back in the same guys – and not replace them – then that’s their prerogative and they will suffer at their own hands. >>
    I already answer half of this. The second half simply is not true; we all will suffer from the fallout of Petersburg.

    Detroit was put under receivership.

    >>In return the NYC government,in effect, ceded its fiscal authority to the state’s creation.

    Les has this part right. Petersburg needs to be taken out of the hands of the idiots (read, thieves) who run it and placed under another entity. Chapter IX comes to mind. The rest of the suggestions here so far are just plain twaddle, moving deck chairs.

    • well , lets see Crazy – there are over 500 governing board that have budgets and handle money in Va.

      Can you tell me how many of them have Petersburg’s problem?

      and I think it’ hilarious that your “solution” to Detroit is what? to put another govt in charge ? what makes you so confident that another govt – all of which you say are flawed – will fix Detroit?

      Or maybe I should ask – has the new govt fixed Detroit – maybe like they fixed Flint?

      So you want to turn Petersburg over to who ? McAuliffe or perhaps the Clown Show ? Just who would you put in charge of Petersburg? I’d love to hear. Seriously.

      problem here.. Crazy knows the word ‘twaddle” but he fails to recognize when it strikes him personally! oh well!!!

    • Crazy – I thought you were a Conservative? Everything I hear from Conservatives is their visceral hatred of unelected appointed bureaucrats and here you are advocating an appointed govt by edict….

      geeze guy… how did you get so wrapped around the axle?

  6. This performance benchmark concept – probably not the correct name – is not a radical concept at all.

    The FDIC uses it for banks. Banks use it for loans. The Fed require drinking water providers to provide test results to consumers. Even NCLB provides for benchmarks and consequences and it’s probably one of the more obvious ways to “report” to citizens…

    Virginia does require localities to provide CAFR.

    but all you get is the audit – and even then places like Petersburg play games with providing then in a timely manner and metrics like vendor debt and other indicators are not reported and that”s why more “canary in the mine” metrics are needed. It’s was past too late with Petersburg. The problems were years in the making – Davenport warned at least 4 years ago – and apparently citizens were not aroused enough to do anything until now.

    so perhaps – like the water report – each citizen should get a Local Govt Financial report when the benchmarks are not being met – and – when that happens – the opportunity to initiate a recall.

    You have to be careful how you set it up – you don’t want a bunch of partisan zealots using it as an excuse to essentially make trouble and vandalize.

    Places like Henrico would never come without a gazillion miles of those thresholds – at least right now – but you never know – downstream.

    But that kind of thing could help folks – like in Richmond where despite a decent credit rating – there seem to be some troubling indicators..

    of course there is no guarantee that a new set of faces would necessarily do any better – elected city councils are often ordinary citizens with little training in budget and finance and are reliant on staff – and if staff are under the control of irresponsible management – they’re not going to spill the beans – they’re going to paper it over and the elected none the wise – ergo the citizens even more clueless.

    that’s why having mandatory set of metrics that are reported to citizens – will tell them – if the new faces are having any better luck turning things around and maybe it’s time to change staff also.

    I have to say – in the Fredericksburg Area – one unamed school board was clueless for years that staff was co-mingling money for purposes not in the budget – and no school board and no BOS knew and if you believe it – County Staff and School Staff claim ignorance also – that’s a bridge too far for me… dead giveaway when they don’t come back each year with carryover money… only a moron or someone complicit would believe there was none – year after year.

  7. further thinking –

    For localities that get into Petersburg situation -what to do.

    1. – the state would interdict the taxes that get collected and go to the state.

    2. – the state would send in a forensic audit team to do a proper autopsy so that all the skeletons are exposed and everyone has an accurate picture of the status.

    3. – if the audit identifies personnel who broke laws or regulations or fiduciary duties – action should be taken- people held to account and removed – and a record of their actions developed so that others who might consider employing them – know their behaviors.

    4. – The sequestered funds withheld will be parceled out to creditors on a basis similar to a liquidation of failed companies.

    5. – the state will pick up the remainder but put in place an external budget and audit team that will be in control until the city’s finances return to acceptable norms.

    6. – Voters will be given the opportunity to a recall election as well as recursion/reversion with all administrative positions abolished or assigned to the receiving jurisdiction for determination.

    7. The city services will be converted to service districts on a self-funded basis or dissolved.

    I have a hard time believing this has never happened in the history of Virginia.. and if it has happened prior what was done?

    I’d be curious if Bosun has a view.

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