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Get Your Assets in Gear: Part 2

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Andrew Kleine
August 12, 2022

In my last column, I encouraged local government leaders to start thinking beyond the American Rescue Plan Act (ARPA), when the federal bounty will be gone and the combination of COVID-19-driven changes in human behavior and an inflation-driven economic slowdown may have bent revenue forecasts in the wrong direction at the same time ARPA-funded projects and programs have created new community expectations. 

Specifically, I pointed out that most cities and counties possess undervalued and untapped assets that, if used strategically, can form a wall of resiliency against financial threats.  Some of these assets are obvious, such as cash and real estate. Others are less so, like ad space, unrealized revenue, scalable services, the ingenuity of employees and residents and even waste.

This column is about how to realize the value of assets and manage them sustainably. With the approximately 700 words I have left in my allotment, I will introduce five strategies from my experience as Baltimore’s budget director to help local governments make the most of what they have: an innovation fund, data analytics, asset management, gainsharing and activity-based costing.

Innovation fund

In 2011, when Baltimore was making painful budget cuts to deal with the fallout from the Great Recession, then-Mayor Stephanie Rawlings-Blake made the bold (some said crazy) decision to allocate $2 million for a new revolving loan fund inside of city government. The fund’s purpose was to provide seed money for innovative projects that would improve service and reduce cost or generate new revenue. After the loan was repaid, agencies could keep a portion of future savings or revenue, with the rest going to the General Fund. The projects—including ones to generate new revenue from surface parking lots and tree waste—were so successful that the fund grew to nearly $10 million over five years.  Near the end of my tenure in Baltimore, I was having discussions about engaging private investors—think “Shark Tank for government.”

Data analytics

In the category of “you don’t know what you’re missing” is uncollected revenue, sometimes surprisingly large amounts. This revenue can be found with data. The most basic data analysis is looking for outliers.  In Baltimore, a review of parking tax revenue per space found unusual variability across garages and lots. An audit of parking management companies yielded millions in unpaid taxes. Open data is another effective strategy. After we shared detailed property tax records online, a resident vigilante ratted out dozens of neighbors who were illegally claiming tax credits for multiple properties. Ultimately, the state tightened eligibility requirements, recovering more millions for local governments.

Asset management

At one of the first CitiStat meetings I attended in Baltimore, I learned that the Department of General Services didn’t know how many buildings the city owned, much less their locations, square footage, condition, etc. When I left a decade later, a project to inventory city-owned buildings was still underway.  Progress had been made, but much remained to be done. At the time, I was envious of Washington, D.C., which had used a software tool to store detailed data on all of its assets, down to the maintenance, repair, rehabilitation and replacement cycles of everything from HVAC systems to streetlights to roadways. The system enables the city to build capital budgets that minimize long-term costs and avoid costly infrastructure failures.

Gainsharing

To tap into the ingenuity of its employees, Baltimore’s Fleet Division did something rare in the public sector: shared productivity savings with employees. The “gainsharing” plan was a labor-management partnership to reduce cost and improve performance. Under the terms of the plan, if the division was successful in reducing the number of jobs farmed out to expensive vendors and maintained a high vehicle availability rate—without additional staff—employees would receive bonus pay equal to one-third of the savings, with the rest split between investments in process automation and a return to the General Fund. In its first year, the gainsharing plan saved Baltimore $1.15 million, with each employee receiving $3,000 in bonus pay. Fleet employees worked 1,300 additional hours and took 6% less leave time to generate the savings.

Activity-based costing (ABC)

When it comes to understanding how much it costs to deliver a service, government budgets tell only part of the story. When I arrived in Baltimore, many costs of service delivery—overhead, space usage, worker’s comp, pensions, vehicle maintenance and more—were either budgeted centrally or improperly allocated. ABC not only helped us get a handle on the full costs of our services, but it also gave us a window into how costs were generated. We first used ABC to adjust more than 300 user fees that did not accurately reflect service costs (most up, but some down), capturing millions in unrealized revenue.  ABC also revealed how we could significantly reduce the costs of street resurfacing and trash collection.  The Tragedy of the Commons parable tells us that when an asset is “free,” it will be overused and ultimately ruined. We learned that when departments can see costs, they can control them.

Whether to guard against an economic slowdown, hold down tax rates or pursue community goals, local governments should be looking to leverage their assets in new ways.

The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.


Author: Andrew Kleine is Senior Director—Government & Public Sector at EY-Parthenon, Ernst & Young LLP. He is the author of City on the Line: How Baltimore Transformed Its Budget to Beat the Great Recession and Deliver Outcomes (Rowman & Littlefield, 2018) and has served as Baltimore’s budget director. Email [email protected], and connect on LinkedIn at www.linkedin.com/in/andrew-kleine-1370 and Twitter @awkleine.

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