Fiscal Crisis: Taking Stock and Looking Forward

As the fiscal downturn began to affect local governments worldwide, ICMA and the Alliance for Innovation began a longitudinal study of its impact and the creative responses of cities and counties. This article summarizes their findings.


The fiscal crisis that has engulfed local governments in the United States has the potential to fundamentally reshape local governance. For a growing number of cities and counties, the shortfalls are substantially diminishing their resources and their capacity to deliver the range of services they provided previously.

In the middle of 2009, ICMA conducted a survey of 2,214 city and county administrators for local governments exceeding 2,500 in population. One question asked respondents about the effects of the fiscal crisis on their communities. The survey found that 82% experienced a moderate to severe impact from the fiscal crisis, with 30 percent reporting that it was “significant” and 7% saying it was “severe.”(1) 

Also in 2009, the Alliance for Innovation began monitoring how the budget crisis was affecting 11 local governments across the United States with populations ranging from 40,500 to 1.6 million and what approaches were being used to handle budget retrenchment.(2) Several observations emerged: 

  • In a fiscal crisis, an immediate reaction is often to stop spending wherever possible and impose across-the-board budget cuts. However, uniform cuts applied across an organization do not distinguish essential from less important activities or productive from unproductive operations.
  • In a period of retrenchment, change is unavoidable because the decline in resources means that the government cannot maintain the status quo. Many officials have asserted that “a crisis is a terrible thing to waste,” and it is common to hear brave calls to take advantage of trying times to make constructive changes.
  • Pressing need can unleash the creativity of participants in the local government to come up with innovative possibilities. In this sense, the experience of innovative local governments supports the aphorism that “necessity is the mother of invention.”
  • Often, those governments that handle cutbacks well are those that have made preparations in advance of the crisis or have strong organizational capacity for leadership, analysis, and decision making. 

Local governments have been challenged to make immediate responses to the fiscal crisis; however, the strain continues, underscoring the need to develop new approaches for the future.  When the Alliance for Innovation issued Navigating the Fiscal Crisis: Tested Strategies for Local Leaders, a white paper prepared for ICMA in 2009, it was not yet clear that the navigation challenge was not a quick plunge down icy rapids but rather a protracted effort to stay afloat and maintain a positive course through seas that will continue to be turbulent.(3) 

The governments followed by the Alliance vary in the severity of the financial difficulties they faced. Some governments experienced protracted fiscal strain because of a shrinking traditional industrial base (in Michigan and North Carolina, for example) and the state-imposed cuts in local taxes that preceded the fiscal crisis (in Florida). What these governments have in common, however, appears to be a general and long-term commitment to change. 

Management Capacity at the Start of the Crisis

Research on previous cutback periods shows that governments with strong management capacity are more likely to respond quickly and adopt proactive rather than reactive approaches.(4) All the local governments being monitored had generally established the policy and management preconditions that would enable them to anticipate a change in economic conditions and make adjustments based on strategic choices. Almost all of them had in place a set of strategies, goals, and priorities before the downturn began. When choices were made about what programs and services to continue or cut, these governments could be guided by goals that were already established rather than responding to crisis conditions. They were also able to identify changes in financial conditions before those changes were generally obvious. 

From conversations with individual managers and small focus groups, the Alliance was able to form some impressions about the contribution of managers. There was an almost paradoxical contrast between the depressing conditions that local governments face and the enthusiasm expressed by city and county managers regarding the challenge before them. “Getting us through this crisis,” one manager said, “is why I am a city manager.” There is the widely shared view that the most serious fiscal crisis in 80 years gives them the opportunity to demonstrate extraordinary leadership that draws on all their knowledge, values, and skills. Indeed, many managers seem to shine in situations requiring fundamental adjustments. 

Specific Actions by Monitored Cities and Counties

Beyond budget-balancing efforts, the communities the Alliance monitored have undertaken a range of actions to change the scope of their services and the way they provide them. Their actions have been divided into three broad categories: innovations and improvements in current practices, organizational redesign, and new partnerships (although many of the actions span several categories). 

It is worth noting the lessons learned from communities that have long been engaged in budget balancing. Both Washtenaw County, Michigan, and Hickory, North Carolina, mentioned a sort of “budget-cutting fatigue.” Having been at the reduction game for nearly a decade, they both noted that employees, elected officials, and the community are tired of the relentless budget tightening. Hickory said that as they looked to create more shared services, some community members were asserting that they didn’t want to do with less anymore! Some examples of new approaches from the monitored cities and counties as well as from other governments are highlighted in the sections that follow. 

Innovation and Improvement

Innovation can be defined as the creation of a new process, approach, or program that achieves better results than what had been in place previously. Innovation was taking place in local governments prior to the budget crisis; however, the depth of the new fiscal realities allowed local governments to redefine policies and standard operating procedures in ways that might not have been politically possible before. Furthermore, despite budget limitations, local governments continue to innovate in other areas, as evidenced by case studies submitted to the Alliance. Some examples of these innovations are as follows. 

  • Jefferson County, Colorado; Polk County, Florida; and Prince William County, Virginia, as well as Downers Grove, Illinois, developed new budgeting systems that place greater focus on prioritization, outcome measurement, and long-term perspective.
  • Phoenix included $10 million worth of savings in its fiscal year 2011 operating budget that would come from innovations and efficiencies identified during the course of the year. A team consisting of city staff and citizens came up with more than $10 million in general fund savings and more than $25 million in savings to all funds by eliminating positions, consolidating departments and functions, revising some transit services, rebidding some contracts, and realizing nearly $800,000 in “givebacks” from 100 private-sector business partners who agreed to reduce contract fees. 

Organizational Design and Process

Many communities have responded to the crisis by rethinking their general or strategic plan. Others have looked internally to how they could redesign fundamental processes to improve performance. An important feature in these efforts has been the involvement of a diverse set of actors.

  • Polk County uses a “managing for results” approach that focuses on the delivery of seven classifications of services, from basic needs to recreation and cultural arts.(5) The county establishes what citizens’ expectations for service delivery are and then measures on a quarterly basis how it is doing in meeting those expectations.
  • “Durham First” in Durham, North Carolina, brought a new focus to its staff through an emphasis on a “culture of service.” The program highlights the benefits of being a public servant and the rewards of providing service to the community and to the organization.
  • Philadelphia, Pennsylvania, established public service areas in its most vulnerable neighborhoods. Working with local residents who set the agenda for change and have a say in service delivery, the city is changing the way it interacts with its neighborhoods and citizens.
  • Jefferson County and Las Vegas have reduced the number of facilities and departments through consolidation.
  • Rancho Cordova, California, quickly responded to the downturn by eliminating nonessential services and reducing contract staff in areas where requests for services had dropped. 


Developing new partnerships includes engaging diverse stakeholders to join in efforts that create synergy, cost savings, and a new approach to providing local services. 

  • Phoenix and Polk County both embraced the opportunity to work with citizens through robust volunteer programs.
  • San Antonio developed a partnership with Goodwill, a nonprofit organization, to provide preventive health education at existing Goodwill facilities and job training to the unemployed and underemployed.(6)
  • Alachua County, Florida, converted its conservationist principles into a dozen partnerships that leverage financial and human resources for comprehensive open space and land stewardship. 

Looking to the Future

The fiscal crisis is producing change and rethinking, but substantial innovation is only beginning. The sustained crisis is forcing local governments to go beyond immediate actions that produce savings in one budget year but cannot be repeated or sustained. During final interviews with the 11 monitored communities, officials were asked to look to the future and describe what they expect the “new normal” will look like. Here are insights from their comments. 

There will be much greater focus on and discipline related to core priorities.

Most plan to continue a focus on core services—those that reflect the revised priorities of citizens and officials. They are also looking to build capacity through reserves and financial modeling systems to ensure that they are better able to weather any future crisis without having to cut into core services or the resources needed to provide them.

Growth for our community or region will probably not be same again—maybe ever.

A number of local managers noted that as the community grew in good times, their organizations grew dramatically as well and were able to add increments to program funding with little annual review. These governments also expanded their infrastructure to attract new growth. But changing economic conditions and demographics are expected to mean a decline in growth, and any new growth is more likely to be accommodated through in-fill development. New investments are not expected soon, but the most frequently mentioned areas for new investments are sustainability, economic development, and technology.

Community expectations will need to shift.

For decades local governments have used tax revenues to subsidize services that might not be considered public goods. Now, however, citizens should expect to pay closer to the full cost for specialized services that benefit an individual (e.g., recreation facilities, parking meters) rather than the whole community (e.g., streets, public safety). Moreover, citizens can no longer look to government to solve their problems, nor should government view citizens as passive consumers of services. Increasingly, service needs and community problems must be addressed through a partnership between government, community organizations, and citizens.

Service production and delivery will need to change.

As a consequence of these changed expectations, service delivery will continue to change. Some governments are stressing a “right-sourcing” approach, critically reexamining the mix of services delivered internally and through outsourcing. Many local governments are exploring how to better involve citizens in the delivery of public services. A shift from a government-centered model to coproduction with citizens is anticipated. The approaches include increasing opportunities for volunteerism; encouraging neighborhoods to raise funds to support nearby parks and other amenities; and generally including residents in decision-making roles in areas that affect their quality of life. In general, this trend could greatly affect how local governments operate in the future. 

It appears that the overall response to the fiscal crisis has been more proactive and strategic than it was in earlier retrenchment periods. Local governments are making both general cuts and targeted reductions. In many of the monitored communities that made budget adjustments guided by existing priorities, the next step is to reexamine the priorities themselves and fundamentally rethink how the local government functions. 

The crisis has prompted deep reflection on what the role of local government will be in the future. It has not been a temporary downturn followed by a return to previous conditions. The duration and severity of the crisis have raised questions about how government is financed, what services it provides, and how it interacts with citizens and other organizations in addressing community needs. The new reality has set the stage for true discourse among officials and citizens on the future of communities and the local governments that serve them.


1. ICMA survey: State of the Profession 2009.

2. The monitored governments (shown with their estimated 2009 populations) all have been members of the Alliance. They were Hickory, North Carolina (40,469); Jefferson County, Colorado (536,922); Las Vegas, Nevada (567,641); Overland Park, Kansas (174,907); Phoenix, Arizona (1,601,587); Polk County, Florida (583,403); Prince William County, Virginia (379,166); Rancho Cordova, California (62,939); Rockville, Maryland (62,105); San Antonio, Texas (1,373,668); and Washtenaw County, Michigan (347,563).

3. Gerald J. Miller and James H. Svara, eds., Navigating the Fiscal Crisis: Tested Strategies for Local Leaders (white paper prepared for ICMA, Arizona State University, January 2009), (accessed December 2, 2010).

4. Robert J. O’Neill Jr., “Excelling in Times of Fiscal Distress,” Governing (October 1, 2008), (accessed December 2, 2010); James H. Svara, “Innovation and Constructive Change in Cutback Management: A Compendium of Research and Commentary by Local Government Leaders” (background paper for Navigating the Fiscal Crisis, see note 3).

5. For more information on this program, see Karen Thoreson and James H. Svara, “Award-Winning Local Government Innovations, 2009,” in The Municipal Year Book 2010 (Washington, D.C.: ICMA, 2010), 43.

6. For more information on this program, see Thoreson and Svara, “Award-Winning Local Government Innovations, 2009,” 39.

Excerpted and adapted from Karen Thoreson and James H. Svara, “How Local Governments Are Navigating the Fiscal Crisis: Taking Stock and Looking Forward,” in The Municipal Year Book 2011 (Washington, D.C.: International City/County Management Association, 2011), 75-82.

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