Tackling a city budget gap with ideas from all angles

The EY-Parthenon team brought together subject-matter professionals with deep experience in relevant areas such as public sector finances and restructuring, policy analysis, taxation, pension strategy and data analysis, as well as subject-matter experience in real estate transactions, renewable energy, waste management and public health. Significantly, the team included members with valuable direct experience in municipal budget administration who brought perspectives and knowledge of leading practices in other cities facing similar crises.

Working closely with city officials, the team used a diagnostic approach (see Figure 1) to survey the 50 highest-cost services to identify potential savings or new revenue opportunities. The effort aimed to deliver recommendations in three broad areas: service improvement, financial planning and innovation infrastructure.

The team incorporated benchmarking as an important part of its approach, identifying a peer group of 12 US cities (Baltimore, Buffalo, Cincinnati, Cleveland, Columbus, Detroit, Kansas City, Memphis, Minneapolis, Pittsburgh, St. Louis and Tucson) with annual budgets over $1 billion and populations between 300,000 and 900,000.

The comparison with other cities and a methodical accounting of the cost-cutting initiatives the city government had already undertaken helped demonstrate to legislators, the business community, and the public that the politically difficult decision to raise taxes was likely unavoidable. “It was clear our problem was mostly a revenue problem not a spending problem,” Joel Brennan, GMC president, said.

With few obvious wastages or inefficiencies to target, the team sought to assist GMC with identifying potential options for the city’s consideration that could create significant value. Even small ideas, if there are enough of them, eventually can add up to big savings.

“One of the things we realized early on is the size of the opportunities,” said EY-Parthenon Managing Director Andrew Kleine, Ernst & Young LLP. “There are a lot of opportunities, but not a lot of big opportunities. The bulk of the city spending is on payroll, and if you’re trying to avoid layoffs or furloughs, finding new efficiency savings requires looking at services in innovative ways.”

Recognizing that the people who have the most insights into the city budget and its workings are those on the front lines of administering it, the EY team conducted interviews with several employees at different levels and in various departments of the city government. The process assisting GMC identified numerous potential options for the city’s consideration related to both cost savings and revenue enhancements including ways to produce income from city assets, reform pension and health benefit programs, generate new own-source revenue, and share or consolidate services with Milwaukee County and other jurisdictions.

Substantial savings through better-run services

In the area of service improvement, the project identified 41 streamlining steps with potential to generate an estimated $140 million in savings over a 10-year period, $88 million of which could be considered quick wins — changes that could feasibly be implemented within six months — and $52 million in longer-term improvements.

The recommendations covered improvements in services across city agencies — fire, health, police, public works, neighborhood services, library and others. Measures included sharing some services, such as greenhouses and tree nurseries, with the Milwaukee County government; outsourcing some services, such as leaf collection and street sweeping, to external vendors to improve efficiency; and creating new incentives to achieve fleet maintenance savings. The report suggested ways to use technology to streamline services from street maintenance to garbage collection.

Multiple ways to save through smart financial trade-offs

In addition to the ideas to improve service delivery efficiency, the project uncovered a variety of financial planning recommendations that could have an estimated total impact — from new savings and revenues, including income from fees, rents and other sources — of more than $450 million over 10 years. These include measures such as leveraging city buildings and other assets for one-time or ongoing revenue and making changes to pension and health programs to reduce costs.

The GMC report suggested different ways to use city-owned buildings and facilities, such as selling aging fleet and recycling facilities occupying a desirable riverfront location and building more modern ones elsewhere. The city could gain one-time revenue from the sale and, in the longer term, tax income from the new development while achieving cost savings from the more efficient facilities. It identified other city buildings for possible consolidation or sale.

The GMC report recommended consolidating maintenance and operational staff for 20 staffed drawbridges, adjusting the service model for health clinics to reduce costs and improve services, modifying overtime policy and implementing a 10% fee to recover costs for special events such as parades.

Citing examples from other medium and larger cities, the report recommended different ways to monetize city assets, such as selling advertising space on trash containers, benches or bus shelters, as well as other opportunities to leverage parking, waterworks and even streetlights for income.

It also identified three buildings in the heart of the city, currently used for government offices, that could likely be consolidated into two buildings. The third building could be converted to rent-earning housing or private office space, creating additional revenue for the city.

The report mapped 90 recommendations according to their potential financial performance and equity impact (higher vs. lower value), as well as the estimated feasibility of implementation, giving a higher ranking to items that could be implemented by the city alone compared to those that would require city council or even state Legislative approval. The result was a grid that identified quick wins —higher value, more feasible recommendations — alongside those that could be considered longer-term goals.

“The feasibility and impact grid was especially valuable,” said DeSiato. “It acknowledges that you have things that are more and less feasible. It put all the options on the table, from quick hits to more difficult wish-list items.”

Activating the changes through a better innovation infrastructure

An important part of the engagement with GMC was to help GMC bolster the government’s so-called innovation infrastructure — to provide not just a to-do list of recommendations, but also to help city employees adopt new skills and ways of working, empowered by better communication, better tools and a culture of continuous improvement. The EY team facilitated employee workshops to assist GMC in its focus on ways to improve the city’s performance in areas such as accountability, data analytics, employee-driven innovation and budgeting.

The process helped staff members adopt new ways of thinking about improving service delivery, DeSiato said. “One thing that came out of the study is a different kind of work process,” based on key performance indicators and quarterly departmental updates, he said. “We have a great cabinet and good people. It was important for our team to learn new ways to follow best practices by analyzing data”. 

Mayor Johnson took the concept a step further and created a new role — innovation director — whose principal mission will be to prioritize and implement the GMC report’s recommendations, DeSiato said. “We’re using the GMC report as a blueprint for that new position. It shows the city is taking it seriously and not just letting it be a report on a shelf.”

Chepenik, of EY-Parthenon, said one of the ultimate benefits of the project was to provide the city with insights into the structural deficit it was confronting by providing a realistic financial forecast and list of potential challenges, as well as opportunities.

“Besides the practical revenue and cost-reduction options, the project indicated where and what to prioritize, and provided an assessment of how much could be potentially saved and an estimated time frame over which the savings could be achieved,” Chepenik said. “It also gave them tools to be able to improve the delivery of services and to be innovative.”

GMC President Brennan agreed. “The project was a way to surgically and creatively help us get to a long-term sustainable future,” he said. “The process had a big effect on the way they’re doing this, finding ways to cut millions of dollars from operations and deliver services more effectively.”