Flickr user Miran Rijavec (CC)
When facing tough fiscal choices, the Village of Hawthorn Woods found that spending a little (wisely) in the short term could save a lot in the long term.
By Josh Ellis and MPC Research Assistant Annie McDonough - August 11, 2015
Across the country, governments are investing in efficiency. Motivated by budget crunches, scarce resources, service duplication and the desire to spur economic development, public officials are exploring consolidation, collaboration and other means to better serve their constituents. In this series, the Metropolitan Planning Council (MPC) will highlight efforts to improve government efficiency. This installment highlights the innovative ways Hawthorn Woods has found to streamline its processes.
When faced with steep deficits and looming payment deadlines, the conventional approach of many cash-strapped municipalities is to immediately lay off employees and slash budgets. Seeking to avert a deeper economic mess, slimming down and eliminating expenses appear to offer the safest hopes for a quick turnaround. But forging a path toward long-term financial health often requires municipalities to cast off this narrow focus on immediate cost savings. As evidenced by last year’s winner of the Lake County Municipal League Innovation Award, increased upfront investments can unleash opportunities to achieve long-run financial stability.
In the depths of the recession in 2008, the Village of Hawthorn Woods had exploited almost all of its cash reserves and was dangerously close to defaulting on bond payments. After laying off 40 percent of its staff, the Village still operated at an 8 percent deficit and was severely constrained in raising revenues the traditional way through property taxes. Having already hit the tax cap, the Village needed to invest in identifying non-tax revenue streams and creative ways to save money if it wanted to avert bankruptcy and chart a course towards sustainable fiscal health.
Under the leadership of newly elected Mayor Joseph Mancino, newly hired Chief Operating Officer Pamela O. Newton and the management team that they assembled, the Village instituted a series of bold reforms to do just that.
After examining the ill effects of the severe lay-offs and finding many of the remaining employees were not prepared to take over former employees’ responsibilities, the Village began succession management trainings to equip employees with the skills they needed to productively assist in areas lacking capacity. While the cost of training was not insignificant, the investment quickly paid for itself by reducing overtime expenses. With the right skills, employees completed their new tasks and assisted overburdened colleagues without having to stay late.
Looking beyond its slimmed-down roster of remaining staff, the Village did not eliminate the possibility of hiring more employees even beyond the new team of higher-level managers—an option many municipalities in its position would have overlooked for fear of adding costs rather than reducing them. Instead, in 2010, the Village hired a code enforcement officer to inspect construction sites for code violations, collect lost revenue and streamline the permitting process to spur development. In the Parks and Recreation Department, the Village hired a coordinator to expand community events. In addition to adding programs at the aquatic center and parks, the coordinator identified an opportunity to partner with a private country club. Following the coordinator’s outreach, the club donated space for Village-sponsored summer concerts and monthly luncheons for seniors, waived cart and green fees for the Village’s annual golf outing, contributed auction items to Village fundraisers and allowed younger residents to participate in the club’s formerly members-only junior golf and tennis programs. Despite the cost of additional salaries and benefits, the new employees not only cultivated alternative, non-property tax revenue sources—recreational program fees, permits and licenses—to reduce the overall deficit, but also created opportunities for the Village to expand recreational amenities at a lower cost to residents.
In its dealings with private companies to provide public goods, the Village similarly implemented new protocols that seem more time-consuming initially, but allow for greater savings in the long-run. For example, a new policy requires employees to actively solicit three different quotes for all purchases and routinely compare fuel prices from various commercial vendors. While continuing the status quo— maintaining longstanding relationships with the same private contractors who often did not offer the lowest price—entailed less work for staff, these new measures spur competitive pricing and ensure the Village secures the best deal for taxpayers.
In many ways, these efforts to invest upfront with staff time and resources for long-term gain reflect a calculation more ubiquitous in business than in government: return on investment. But return on investment wasn’t the only tool brought over from the business world to accelerate Hawthorn Woods’ fiscal turnaround. Following the lead of more than 40 percent of U.S. companies but only 13 percent of local governments, Hawthorn Woods integrated all paid time off allocations (sick, vacation, bereavement, etc.) into a single pool of days off that employees could use for any purpose. On top of that, the Village gave employees more flexibility to schedule their days around family commitments and better plan for their peak work times. The changes increased productivity in the hours employees did spend in the office while reducing unscheduled absenteeism—caused by employees calling in sick to avoid taking vacation even though they had planned the time off—and the concomitant lost productivity from those absences.
To further lower the long-term cost of providing time off, the Village also ended the option for non-union employees to receive a cash payout for unused days off upon retirement, a policy that required municipalities to pay employees their higher, more senior salary for each unused day instead of the salary they were earning years earlier when they decided to forgo the days. Eliminating retirement payouts will continue to create significant savings in each annual budget.
Borrowing another best practice long heralded in the business world, the chief operating officer and her newly hired chief financial officer introduced the Village to a zero-based budgeting approach to financial planning. While most local governments provide explanations only for major changes in their budgets from the previous year and automatically increase many allocations by a fixed percentage, zero-based budgeting quite literally requires officials to start from zero, accompanying each line item with a narrative justification for the allocation.
The technique is laborious—immediately evident when one leafs through the 29-page budget from before it was implemented and the 200+ page budget the year after. The daunting work took several months and could have deterred many financially stressed governments. But in analyzing each line item, the Village was able to identify ways to eliminate unnecessary expenses and redeploy resources. More significantly, the approach facilitated a lasting cultural shift toward greater transparency and accountability for every dollar spent—one that has enabled Village officials to continue to uncover cost savings.
As a result of all of these reforms, the Village raised its fund balance from 5 percent of operating expenditures in 2009 to 45 percent in 2012—surpassing even its pre-recession goal of 33 percent. The subsequent bond rating upgrades paved the way for favorable borrowing opportunities to spur capital investment. Most notably, the Village expanded water and sewer infrastructure in order to annex new land and speed up the development of a commercial corridor. Village residents credit this resurgent economic activity as well as the expanded recreational amenities and events with fostering a renewed sense of community pride.
Whether a municipality is on the brink of bankruptcy like Hawthorn Woods or—in a slightly less precarious situation—looking to save money in anticipation of even tougher fiscal times ahead, the Village’s reforms provide highly relevant insight and can inform our ongoing exploration of local government efficiency. In Illinois, home of the second-highest property taxes in the country, one of the largest state deficits and imminent new rounds of local funding cuts, the need to identify alternative ways to raise revenues and save money is particularly acute. But if municipalities narrowly focus only on slimming to bare bones, they might miss opportunities like the ones Hawthorn Woods discovered to identify new revenue sources and adopt best practices from the private sector to cement sustainable, efficient governance long-term.
Curious about other initiatives around the Chicago region and beyond? Take a look at the rest of the Taking Action series.