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To Prepare for the Post-ARPA World, Get Your Assets in Gear

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

By Andrew Kleine
April 22, 2022

For local governments, this is a time of plenty. Their revenues rebounded quickly from the pandemic recession and they’ve been showered with manna from the Federal government—billions of dollars from the American Rescue Plan Act (ARPA) that they can spend flexibly to shore up budgets, invest in infrastructure and economic development and test new programs that promote equity.

The second tranche of the ARPA’s State and Local Fiscal Relief Funds (SLFRF), arriving in city and county bank accounts, is available for spending until the end of 2026. But now is the time for local leaders to be asking themselves, “What happens when the money is gone?”

SLFRF disbursements will not fix structural budget problems that existed before COVID-19. In fact, the Treasury Department went out of its way to make sure of this by prohibiting the use of SLFRF for reserves, pension funds or debt payments. Other dangers lie ahead. One is the future of work. It is likely that we will see fewer commuters into cities, which will face a decline in parking and sales tax revenue and potentially lower commercial property values. Another is the so-called ARPA fiscal cliff, a reality that could befall local governments that rely too heavily on SLFRF to maintain current service levels or start new programs that residents want to see continued. Inflation, tighter money and worker shortages could make the budgetary gaps even larger.

I have written in this space about how to avoid the fiscal cliff. In this column and my next one, I will discuss how local governments can build a “fiscal wall” to protect them from economic and other threats, using assets they already have.

My experience as a city budget director, county administrator and consultant has shown me that many local governments don’t recognize what assets they have, what they’re worth and how to use them most effectively. With a better understanding of assets and how to unlock their value, cities and counties can become more fiscally resilient. In part one of this series, we will look around for assets that may be hidden in plain sight. In part two, we will look at strategies for managing and monetizing those assets.

To most people, even government finance officers, “assets” means money and property and that’s about it. These assets are often underutilized, which we’ll get to, but local government assets go well beyond the balance sheet. Here are a few examples:

From waste to wealth: In the search for hidden assets, the adage “one man’s trash is another man’s treasure” is a perfect place to start. Baltimore’s Department of Recreation and Parks, with a loan from the city’s innovation fund, transformed a tree waste site called Camp Small into a lumberyard that generates revenue and has provided flooring and paneling for new recreation centers. This is just one of many possibilities for turning low-value waste material into commercial products.

Ads infinitum: Some cities, including Philadelphia, sell advertising on public trash and recycling bins. Others, such as Moline, Illinois, put ads on homeowners’ garbage can lids. Whether due to lack of creativity or objections to commercializing public property, municipal advertising is a largely untapped revenue source. Within the bounds of tastefulness, there are abundant options for profiting from buildings, benches, billing inserts, buses and many other things that don’t start with the letter B.

Services as assets: The scale of large local governments allows for cost advantages, both on the ground and in the back office, when expanding services. This can open up mutually beneficial opportunities to sell services to other governments. In the April 2021 issue of Government Finance Review, Shayne Kavanagh and Chris Fabian write about government as a platform, the idea being, in part, that many government services are “shareable” across jurisdictional lines. Their research found that a majority of local governments consider animal control, emergency dispatch, data management and various maintenance functions to be shareable. The authors also highlight examples of more ambitious service sharing, such as Englewood, Colorado’s purchasing fire service from Denver and two Wisconsin counties’ merging their health departments. In Oregon, three counties partnered to share heavy equipment with each other, avoiding the cost of idle assets.

Revenue potential: Revenue leakage has many possible causes. Underassessed properties, tax evasion and overly generous tax incentives are a few examples. Similarly, the user fees that local governments charge for services, from permit inspections, to softball field rentals, often don’t recover full costs, even if they’re intended to. Fixing cracks in the revenue pipes is not easy, because nobody wants to pay more taxes or fees, but every dollar that escapes is a lost asset.

Finally, leaders in every sector like to say “our people are our greatest asset.” We don’t call them human capital for nothing, but are local governments making the most of the knowledge, skills and abilities of their employees, not to mention their residents?

I’ll leave you to ponder that question.

I hope I have spurred some searching under the seat cushions of local government. This column was just a peek. In my next installment, I will explore several ways to realize the value of assets and manage them sustainably.

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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