Sunday, May 11th, 2008
I don’t know who started this whole 100 day thing, but it is now de rigeur for everyone taking on a major executive position in government to have some sort of 100 day plan or results. In that light, newly installed Indianapolis Mayor Greg Ballard published his “100 Day Report” on April 9.
I personally think it’s unfair to judge someone based on 100 days in office. You can’t turn a battleship like the city of Indianapolis on a dime. What’s more, with the various checks and balances in place in government, even a strong mayor can’t just snap his fingers and have the troops change direction the way a corporate CEO can. Nevertheless, Mayor Ballard actually has produced three major accomplishments, and has taken action on a slew of fronts. The main results delivered are:
- Taking over IMPD to start putting his stamp on crime reduction efforts. (As an aside, somebody please hurry up and rename this department back to IPD – there’s nothing metropolitan about it).
- Getting the state legislature to take over the pre-1977 police and fire pensions. The benefit of this cannot be overstated as it removes a huge unfunded liability off the city’s books.
- Finding ways to save 15-20% on the $1.8 billion combined sewer overflow deep tunnel project. At the high end, that $360 million, assuming it can all really be delivered. I hadn’t heard anything about it before reading this document, but it is simply an incredible number.
The other thing this report is designed to do is to paint a picture of a city with a far bleaker financial and operational challenges than suspected. Of course, anyone taking over in a turnaround situation is always going to say that things are far worse than believed. Whatever the spin might be, we all knew the situation was bad, and this just puts some numbers behind it. Among other things, local government in Marion County has a structural deficit today of $151 million, and that will only go up. It will increase to $361 million by 2012.
I will talk through some of the details of this report, but before doing so, let’s take a step back and consider the big picture.
People like to talk about running government like a business. Mayor Ballard has a business and military background – he actually taught at Indiana Business College for a while, I believe – and this clearly appeals to him. However, what is generally meant by that is professionalizing operations and management to drive better financial controls, results, and efficiency.
But that’s only half of the equation. To me the more interesting part is to consider the strategic elements. What is your target market? What is your value proposition to the serve it? How does your value proposition compare to the competition? Can you serve that market given the competition while achieving acceptable growth and margins? These questions are almost never asked or pondered by any city leader anywhere. Instead, they jump straight into management of the operations.
All of the problems facing the city of Indianapolis are fundamentally strategic problems. Poor financials and operational challenges are merely the manifestations of a strategically untenable position. Even if the city’s budget were balanced, crime reduced to historical levels, streets paved, etc., there would not be a material change in the civic trendlines towards slow center city growth, suburban outmigration, and more or less average performance as a region versus the US as a whole.
As I’ve often said, while I’m all for low taxes, no matter how low the taxes in Marion County get, they will always be higher than the collar counties. Hamilton County, Hendricks County, etc. are always going to have lower taxes, newer infrastructure, more current homes and businesses, better schools, and lower crime rates. If you are selling an inferior product at a higher price, don’t be surprised if you don’t have many takers. (In fact, property values become a sort of equalization lever here – which is why we see declining assessed value in three of the largest townships). And that’s just city and collar counties as a whole. Will any of this give Central Indiana a more Sunbelt economic profile versus a Midwest one? I don’t think so.
Don’t get me wrong, the operational and financial challenges are real and absolutely need to be solved. No matter what else you do, if you have a crime problem and are considered an unsafe place to live and visit, you won’t succeed. Perhaps nothing was as key to the turnaround in New York City as Mayor Giuliani’s breaking the back of crime there. But that’s a necessary, not a sufficient condition. New York City had an absolutely fabulous value proposition to a large (and affluent) target market, and one where there are effectively no competitors other than one or two other global cities like London. Its operational problems had only masked this. Once the crime, the dirtiness, the financial black holes, etc. where swept away, this value proposition shined through. Assuming Indy does this same, what value proposition will we uncover, and who will it appeal to?
As we know, the traditional strategic positioning of the Midwest as an agricultural and industrial center is being destroyed by globalization. Most Midwest cities and states continue to experience an enormous brain drain problem, and indeed an overall population loss problem (net domestic outmigration). Indianapolis has performed much better than most, but is still struggling with the same forces. Continuing on the same, that is to say the default, strategy is unlikely to do more than allow the city to stay even with national averages, while continuing to lose ground to the Sunbelt and other New Economy Centers. The key challenge for Mayor Ballard is to define and articulate a strategy for the city and region that will adjust the strategic focus to put the city on a new trajectory.
Fortunately, Indianapolis actually has a pretty good hand to play. It is well positioned to take advantage of the future if it wants to. I don’t have time to lay out my thoughts here today, but the answers to the strategic questions about the city and its future is something everyone locally should be thinking about. For additional background reading, I suggest reading a few older posts, especially “What Business Are You In?” (which is borderline required reading if you ask me). You might also find “The Importance of Aesthetics in Transportation Facilities” and the introduction to my series on Carmel of interest.
Obviously I bring this topic up because the 100 Day Report is almost completely lacking any strategy component. There was only one exception, namely the statement that the city needs to raise its international profile. “If Indianapolis is to remain competitive in an increasingly global economy, it must improve its international profile.” The introduction to the report actually says it all in once sentence: “Fixing existing problems is one step toward improving Indianapolis, but making our city competitive for generations to come requires a broader vision and a commitment to make Indianapolis a truly international city.” There is no indication of what this broader vision might be however, or any indication that the administration is actively working on it. Now back to our regularly scheduled programming.
The report cycles through the various city departments, talking about existing conditions, short term actions taken, and often some mention of future plans. But this was not intended to be a four year action blueprint by any means. I’m not going to go through each one, but rather highlight some of the more interesting items.
The first is a new management tool called IndyStat. Because, there are no measures of performance or outcomes today, and Ballard wants to implement some, with results managed in quarterly review meetings. Two sample charts were included, both from the Mayor’s Action Center. One was a graph of budgeted vs. actual expenditures. The other was a chart of the top ten call types. This is Operations Management 101. If the city wasn’t even creating basic measures like these, how in the heck did anyone ever manage anything? I feel sorry for Mayor Ballard. He seems to have landed in a maelstrom of problems without even the most basic tools to manage them. It is easy to see why there hasn’t been much traction on strategy if the city can’t even track budgeted vs. actual expenditures. It will be interesting to see what comes out of IndyStat, but I’d consider this a very important initiative.
The finances are truly scary. The mayor commissioned an accounting firm to produce a ten year projection of revenues and expenses for all government bodies in Marion County. Again, I’ve never seen anything like this, so from a data perspective we are already seeing major progress. In 2007, all governmental units together spent a bit less than $3 billion, or about $3400 per capita. That’s a big number, but actually it seems lower than what I would have expected, considering it is all inclusive. It does not appear on a prima facie basis to me that Marion County is over the top in spending versus other big cities. The budget of the City of Chicago alone is $5.6 billion, with the Chicago Public Schools adding another $5.8 billion on top of that. Those two items alone would imply $3.6 billion in spending in Marion County on a similar per capita basis, and that doesn’t include all of the other taxing districts like Cook County, the CTA, etc. The budget of New York City alone is a staggering $53 billion.
The big problem is that costs are going up, up, up. The city-county portion of the budget (excluding the Health and Hospital Corporation) increased from about $850 million in 2006 to $1.25 billion in 2008. That’s a CAGR of almost 10%, over three times the rate of inflation.
The real problem with government spending isn’t the taxes per se. It is that there does not seem to be any rational link between what is paid and what is delivered in services. Taxes and spending go up and up, but services never improve and in fact seem to degrade year on year. The travesty isn’t that Marion County spends $3 billion a year. The travesty is that it spends $3 billion per year and has a horrible crime rate, pothole ridden streets, way too many unimproved roads, a decrepit, rusting fleet of city vehicles, awful schools, etc. As the streets get worse every year, taxes keep going up. It’s no wonder people are so mad. How can the cost of government have gone up so much in the last two years with no improvement in services to show for it?
One more example. People complain about the poor public transit in Indianapolis. But looking at IndyGo’s budget, it went up from about $33 million in 2000 to $52 million in 2008. That’s a CAGR of about 6% – double the rate of inflation. (Admittedly, we’ve seen quite a fuel cost spike, so perhaps that accounts for things here).
The net result is that the city is facing a $26 million deficit this year. All taxing units combined are in deficit to the tune of $151 million. And things fall off a cliff from there, with the structural budget deficit growing to $361 million by 2012. This implies serious spending cuts and/or significant tax increases. With the state capping property taxes and no local option sales tax in Indiana, that probably leaves income taxes and fee increases as the revenue levers.
It is interesting to me that the city-county budget is 43% funded by property taxes. While reputedly cities have many more revenue levers than schools, libraries, etc. it is very clear that Indianapolis is very heavily dependent on property taxes to fund its operations. If you stripped out state grants and counted only locally raised revenue, the property tax dependency is even higher. Marion County governments as a whole only raise 3% of their money through income taxes by contrast.
As I noted earlier, three large townships, Center, Warren, and Wayne, are experiencing assessed value declines. This is really contributing to the property tax squeeze and highlights the need for renewed growth in those townships.
There is a lot to digest and address here, but it looks like Ballard is starting to get a handle on the macro-level budget. I am very pleased to see that he is taking a comprehensive view, and not just limiting things to the city-county budget he directly controls. Again, the key is to understand why costs are going up so fast when service levels are actually going down. Fix that, and your problems are largely solved. And re-establishing the link between what you pay and what you get, as would be the case with any consumer product, is critical to re-establishing public trust.
One thing I would look at is unit cost pricing. What is the cost per unit of service delivered? Heck, just defining what your service units are would be an improvement over today. For example, what is the cost per call of the Mayor’s Action Center? How does the cost vary by channel (e.g., phone vs. internet form)? Can you drive traffic to lower cost channels like the internet? This also enables various service level discussions. “Well, if we have people on hold an average of five minute, it will cost $x per call, but if we staff up to eliminate queues that would cost $y per call”. This is how you tie spending to output.
One area the mayor plans to save money is through “value engineering” capital projects. The report says they’ve already identified $500 million in potential savings, which includes the sewer project savings I outlined before. I’m all in favor of efficiencies, but it is easy to engineer for “value” by cutting corners. You can save money on a road project by using thinner asphalt or not including sidewalks, for example. But that’s not really efficiency, that’s just saying you want a degraded, lower end product that costs less.
The other levers of savings going forward are consolidation and cross-departmental synergies. I don’t hold out any hope that consolidation will save any real money. Typically, larger bureaucracies cost more and are less efficient. For example, pay and benefits are likely to get rounded up to the high water mark when combining agencies to avoid angering staff with pay cuts. Cross-departmental synergies such as centralized purchasing and contracting for services probably makes a lot of sense. We’ll have to see what is found.
Other key items mentioned include crime, of course. This is Ballards “Job #1″ and rightly so. Public safety is the paramount function of government. Any government which fails in this role has forfeited its right to govern. Without public safety, significant future progress on any other point is more or less hopeless. To quote Julian Simon, “No food, one problem. Much food, many problems.” So it is here with public safety. I can’t say much on this topic since I don’t know a lot about it, but I’m glad to see the mayor taking personal accountability for it.
On the economic development front, the city is creating a new agency, Indianapolis Economic Development, Inc. (IEDI). I’m not sure why a new organization is needed or what it is intended to do. There is also a review of subsidies underway, which is a good idea.
Another big program of the mayor’s is the abandoned housing program. He’s appointed a liaison and is looking into various laws. I suspect this is going to be thorny problem. The report doesn’t even tell us how many abandoned homes there are in Indianapolis, but the number 10,000 has been thrown around a lot. In the old city, many home are simply obsolete and not worth renovating. They have no particular architectural or historic value, are too small and not laid out in line with modern lifestyles, and have major structural and/or infrastructure problems. I believe the ultimately a very large number of these need to be demolished. But this program would cost tens of millions to do. For the inner city, one of the great things the mayor could do to encourage redevelopment is to redo the city’s completely inappropriate zoning code, which effectively mandates suburban style development even in established urban area. An urban area zoning code that avoids all the crazy variances and the like you need to do anything inside the old city limits would be helpful.
Education is a big priority of the mayor. He doesn’t control the schools, and unlike mayors in some cities he hasn’t shown any appetite for trying to take them over. But leveraging the bully pulpit to put education on the agenda for the public is definitely the right thing to do. The jobs of the 21st century will require more education than ever, and there is a huge challenge ahead here.
Public works. The report notes that $1 billion is needed to bring the streets, bridges, curbs, and sidewalks up to good repair. But my belief is that if someone handed the city a check for a billion to do this, it would be mostly money wasted. The current streets are very poorly designed and conceptually obsolete. The entire concept of what a street is needs to be rethought before money is poured into concrete. Before spending too much on infrastructure repair, the strategic vision of the future of the city needs to be in place, so that you are building towards the future, not just doing the civic equivalent of installing brand new buggy manufacturing equipment in your factory.
Lastly, the one item that did seem to be strategically driven was the focus on raising the city’s international profile. The Latino Affairs Division has been renamed the International and Cultural Affairs Division. Obviously it is early days and not a lot has happened yet. But strategically this is definitely right on and a critically important piece of the puzzle for building the future of the city.
The full report itself is easy, breezy reading, so I recommend checking it out for yourself.