What Happened?
Atlantic City is facing a liquidity crisis and must implement a series of operational reforms to avoid bankruptcy and rebuild financial stability.
The Problem
The Atlantic City Emergency Manager recently reported the city is facing a $10.1 million budget deficit in 2015, coupled with a $47.1 million deficit in the local school system. The city’s liquidity crisis can be attributed to several economic challenges including a 64 percent devaluation in the property tax base and the closure of several key casinos. If Atlantic City does not reform many of its operations, the report expects the city’s deficit to reach $393 million over the next five years.
To help the city adjust to reduced revenue streams, the emergency manager plans to:
- Downsize the municipal workforce
- Eliminate operational inefficiencies
- Explore outsourcing and consolidation opportunities
- Reduce costs through regionalization
- Maximize all existing assets
The Model
The Reason Foundation compared Atlantic City’s current predicament to the situation Pontiac, Michigan, was in a few years ago. Both cities have had an emergency manager appointed to handle high debt and budget cuts while sustaining key public services to residents. Pontiac implemented some drastic changes to government operations that resulted in:
- 96 percent cut in non-court city workers
- Reduction of city debt from $115 million to $28 million
- Lowering general fund expenditures to $30 million – almost a 50 percent cut
Pontiac was able to achieve these turnarounds while improving the quality and delivery of services to residents. Some of the city’s key policy changes included:
- Contracting 20 city functions to the private sector
- Entering into intergovernmental agreements with Oakland County and other public agencies to take over:
- Police and fire services
- 911 dispatch
- Water and wastewater operations
- Animal control services
- Selling several city assets
- Consolidating over 80 retiree healthcare plans to one
Pontiac was able to restructure government operations to establish long-term fiscal stability and economic growth.
Trends in Privatization
One of the key components to the Pontiac recovery was the outsourcing of 20 city functions to private sector providers. Pontiac, and many other municipalities nationwide, were able to address budget challenges by cutting overall spending while ensuring certain services remain intact through outsourcing contracts.
According to the Reason Foundation’s Annual Privatization Report, many cities are experimenting with the privatization of both city functions as well as city assets in an effort to generate revenue and eliminate unnecessary costs. Cities can rely on attrition and buyouts when privatizing services to minimize potential employee layoffs while protecting the integrity of services delivered.
The emergency manager of Pontiac added that while many fiscally-distressed municipalities may see outsourcing contracts to be a temporary fix in a bind, many of these strategies will stay in place indefinitely. As long as citizens are happy with the services, and the contracts offer cost-efficiency benefits to local governments, there is rarely a need to revert back to public agencies managing all city functions.
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