Mar-2011-Michigan-TMA-Newsletter

Mar-2011-Michigan-TMA-Newsletter.pdf (application/pdf Object)

TMA Michigan Newsletter Pages 5-8

Perspectives on Governmental Financial Crises and
Governor Snyder’s Budget Proposal for Fiscal Year 2012

By Fred P. Leeb
Fred Leeb & Associates and the Nonprofit Management Group

Forty-five states and the District of Columbia are projecting budget shortfalls (revenues less than the costs of services) totaling $125 billion for fiscal year 2012 (the year beginning July 1, 2011, FY12”). Michigan’s shortfall was estimated to be $1.8 billion of this total. On February 17, 2011, Governor Rick Snyder proposed a budget for FY12 incorporating what seems like many draconian measures to deal with this financial crisis. The purpose of this article is to provide perspective on the depth of the problem as compared to other states and to understand why a turnaround plan for Michigan is necessary now.

Summary
1. Michigan’s projected budget shortfall is large but less than that of many other states. Michigan, however, can no longer rely on Federal Recovery Act Funds to fill the gap and mask the underlying structural problems that it is facing.
2. The budget will continue to be squeezed by falling revenues and increasing needs for governmental services. It will get more difficult each year to develop additional solutions.
3. There is no rainy day fund to fall back upon.
4. Job losses have been severe and regaining lost ground will be very slow.
5. Unfunded pension and retiree health care benefits will be the “elephants in the room” for a long time to come.
6. Both state and local governments are in financial crises and the local governmental units will have tremendous difficulties in dealing with any additional fiscal burdens passed on to them by the state.
7. The Treasury Department’s measures of financial stress must be improved and made much more timely to provide a meaningful early warning system.
8. A new sense of urgency on the part of governmental officials is developing and new legislation to provide more authority to the Emergency Financial Manager should help significantly.

Guidance from the Wisdom of Others
In these challenging times where there are many opportunities for lasting change, we thought it might be a good idea to remember and learn from what others have said and done in similar circumstances.  We hope that you enjoy our selection of quotes.

1. Charles Dickens, A Tale of Two Cities (1859)
   It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period...."
2. Edith Lovejoy Pierce:
   We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year's Day.

3. Unknown Author:
   The sign on the door of opportunity reads PUSH.

4. Dale Carnegie:
   The successful man will profit from his mistakes and try again in a different way.

5. Brian Tracy:
   Your greatest resource is your time.

6. Margaret Mead:
   Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.

7. Josh Billings:
   Time is like money, the less we have of it to spare the further we make it go.

8. Nido Qubein:
   Nothing can add more power to your life than concentrating all your energies on a limited set of targets.

9. Harry Firestone:
   You get the best out of others when you give the best of yourself.

10. Sam Ewig:
    Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all.

11. Henry Ford:
    Paying attention to simple little things that most men neglect makes a few men rich.

12. Peter Drucker:
    There is nothing so useless as doing efficiently that which should not be done at all.

13. African Proverb:
    Smooth seas do not make skillful sailors.

14. Jimmy Johnson:
    Treat a person as he is, and he will remain as he is. Treat him as he could be, and he will become what he should be.

15. Jonathon Swift:
    Vision is the art of seeing things invisible to others.

16. Stephen R. Covey:
    Management works in the system; leadership works on the system.

17. Mary Case:
    No pressure, no diamonds.

18. Lord Macaulay:
    The highest proof of virtue is to possess boundless power without abusing it.

Being the Emergency Financial Manager in Pontiac for 15 months was a very challenging but highly successful experience.  Our team, including our Managing Director, Geni Giannotti, and the city's staff proved that, even in an extremely difficult political environment,  we could quickly generate two years of surplus after many years of deficits.  It consumed all of our time but it gave us an opportunity to make a major positive impact on a large community.  We clearly demonstrated that our proven turnaround techniques will work even though Pontiac, as is the case with many other cities and schools, has suffered through years of rapidly declining revenues, had already cut to the bone, and was demoralized.

For more information on Fred Leeb & Associates, LLC (click here).  Fred Leeb also won the Turnaround of the Year Award from the Turnaround Management Association in 2008. 

Fred Leeb will be discussing turnaround issues for the PNC Roundtable show with Ric DeVore, the Regional President, Detroit and Southeast Michigan of PNC Bank and Paul W. Smith on WJR radio (760 AM).  The show will  be available beginning on Tuesday, October 26th by going to the WJR website and clicking on PNC Roundtable in the podcast dropdown menu (or click here for the PNC Roundtable).  Please listen in.  

Highlights of the Pontiac Turnaround Success Pulling Yourself Up by the Bootstraps By Fred Leeb

While I was in Pontiac for 15 months, we teamed up with the city's staff to generate over $115 million in benefits to the city and thereby eliminated the need for mass layoffs during my tenure.     I believe that I am the only turnaround consultant in the state who can say that he has run a medium-sized city successfully, improving financial results from a long history of deficits to two years of surplus.  Though many problems remain, because there were too many to be rectified in such a short time period, we did succeed in beginning to get the city back on track.  This turnaround success was built on 20 years of turnaround experience in my own firm and in two of the best firms in the country, AlixPartners and PriceWaterhouseCoopers. We were able to achieve many tangible improvements, such as: 1) Negotiating lower cost union agreements (e.g., finalized new contracts with six city unions--including AFSCME, Teamsters, Police, Fire to obtain their contributions of 20% towards their health care costs and reduced the insurance cost even further for new hires) 2) Upgrading Pontiac's bond ratings from CCC to B and moving the financial outlook from "negative watch" to "stable". 3) Generating a surplus (e.g., achieved a surplus of $1.4 million in FY09 and $3.0 million in the nine months ended March 31, 2010) for the first time in many years in one of the State's most difficult financial environments; obtained a clean audit opinion in FY09. 4) Identifying and dealing with assets that have generated inadequate returns and stopping the bleeding (e.g., sold the Silverdome saving $2.4 million/year in maintenance cost and sold other assets where the deals had not progressed in many months or even years) 5) Hiring professional outside managers to be responsible for critical operations in order to reduce risk, eliminate future cash bleeding and improve service to the community (e.g., outsourced the management of the Pontiac wastewater and drinking water facilities, the golf course and the outdoor event venues) 6) Reopening major contracts with outside vendors to reduce ongoing costs (e.g., garbage collection and major equipment leases) 7) Collaborating with other organizations to share cost and operate more efficiently (e.g., obtaining interns to help in critical functions, working with the Michigan Prisoner Release Initiative to supply free labor to maintain parks and vacant lots) 8) Negotiating sophisticated new agreements to attract new business (e.g., successfully finalized a tax-free Renaissance Zone for the new Michigan Motion Picture studios) Please call us now at 248-514-3262 to begin discussions on how we may able to help your organization.

Discussion on WJR on the financial health of our local schools and governments

In late October 2010, Fred Leeb discussed the financial health of our local schools and governments for the PNC Monthly Roundtable show with Ric DeVore, the Regional President, Detroit and SE Michigan of PNC Bank and Paul W. Smith on WJR radio (760 AM) [http://www.wjr.com/Article.asp?id=2031621&spid=22810].