Fire Service Redesign: Minnesota

In the twin cities area, as well as other parts of the country, local government budgets are under pressure to cut costs. And expenditure many cities are turning to for cuts are fire departments.  As budgets are slashed and departments are expected to do more with less, new challenges are arising.

The inelasticity of demand for public safety, including fire services, means that budgets will never be without some level of expenditures on fire services, which then requires cities to rethink how they want to address the conflict between service delivery and budgetary constraints. A solution to the shortfalls has been presented as being fire service redesign. There have been two types of redesign mainly used for fire service; service sharing and consolidation across jurisdictions.    

Service Sharing: The general premise behind service sharing for fire departments is the creation of one entity covering the territory of another in an effort toward covering a certain area for fire services ranging from fire suppression to emergency medical calls. Often services are shared via a binding contract between either two or more municipalities, or a municipality and a county or state level provider.  One local example of this is the City of Bemidji, which shares services with surround small municipalities. The sharing of services for the area has been noteworthy, and continues to be.

Consolidation: Consolidation goes beyond an agreement and contract to create an entirely new authority to oversee a joint-venture department. The process in creating a consolidated fire department is much more in-depth and binding than service sharing, it most often consists of disbanding the current departments and bi-laws while creating an entirely new department and governing laws. A local success story of consolidation is the West Metro Fire-Rescue District. The table below compares the costs for one of the West Metro District (New Hope) and a neighboring city (Golden Valley) both are on-call part-time departments.

City	Population	2012 Fire Budget	Percent of 2012 General Fund
New Hope	20,339	$985,815	9.56%
Golden Valley	20,371	$1,554,480	11.00%

Though both types of fire service redesign afford departments and local government cost-savings, Minnesota departments have not largely moved to restructuring their fire service. One fire chief that was interviewed expressed his hopes that this would change in the future, and says that hopefully budgetary pressures along with changing leadership will bring about that change.

 

Tornado in Joplin: A State Government’s Response to a Catastrophic Natural Disaster

Some things are hard to plan for.  When state governments prepare their budgets each year, they typically have a fairly decent idea of how much they’ll have to spend on things like education, road maintenance, or even Medicare.  However, it can be hard for states to plan their disaster spending given the inherently unpredictable nature of disasters.  Further, the incredibly high costs of disaster relief can significantly burden governments if those costs exceed the set-aside amount.

A report from Missouri’sState Emergency Management Agency (SEMA) sums up the destruction wrought by the tornado:

"[O]n May 22, a three-quarter of a mile wide tornado touched down in Joplin. The tornado tracked on the ground for approximately six miles. There were more than 150 fatalities and more than 5,000 structures were estimated to be heavily damaged or destroyed."

Unfortunately, the probability of tornadic destruction is increasing.  As reported by the National Oceanic and Atmospheric Administration, the number of tornadoes per year has been trending upward since 1950, when the National Oceanic and Atmospheric Administration began keeping more thorough records.  Thus, it is more and more likely that state and local governments will need to understand how best to fund disaster response.  Further, this knowledge can be applied to responses to any sort natural disaster, be it a flood, hurricane, land slide, earthquake, or large-scale fire.  

The response to the Joplin disaster included three basic phases.  First, city, state, and county rescue workers flocked to the area hit by the tornado to treat the injured and help people escape whatever wreckage they might be trapped in.  These workers were funded through their departments as they would be any other day.  Second, work began to help clear the debris and recover bodies from wreckage.  The day after the tornado hit, the Governor of Missouri, Jay Nixon,declared a state of emergency, freeing up state funds to help in relief and sending in the Missouri National Guard to assist in rescue, recovery, and cleanup. The federal government also declared a state of emergency that day, unleashing the resources of FEMA.

The second phase included debris cleanup and finding places for people to live.  According to FEMA, the federal government paid 90% of the costs for three months and 75% of the costs after that to clean up 1.2 million tons of debris from public and private property.  It also surveyed available rental properties in the area for displaced residents, built new temporary houses, and erected modular classrooms to replace the schools.  All-in-all, by November, 2011, FEMA had directed $149 million toward cleanup and immediate relief.  Some of the money the federal government spent directly, and some of it was directed the state.  For example, Missouri received $1.5 million to manage a crisis counseling program.  The State of Missouri, directed by Governor Nixon, paid the remaining 10-25% of the cleanup and relief costs.  Often, the local government is supposed to pay that part, but the Governor thought the state should pick up the tab since the “tornado caused the city to lose tax revenues".

This second phase involved people from all over the country paying for relief in Missouri.  As noted, the state only picked up 10-25% of the tab.  Some might say this type of funding encourages people to live in more dangerous places than they should, especially when considering other more geographically-specific natural disasters like forest fires and hurricanes.

The third phase of the recovery effort is ongoing and focuses on economic redevelopment.  Again, the state, federal, and local governments all provided some funding for this phase. The federal government provided low-interest loans for businesses and nonprofits, the state government considered business property tax relief and the creation of a redevelopment district, and the local government is passed a $62 million bond to pay for new schools.

Planning & Development Budgets in the Twin Cities Metro

For my analysis, I took a look at the planning and development department budgets of five different cities in the Twin Cities metro. I tried to vary the cities I picked by size and location. In the end, I chose to look at the budgets of Minneapolis, Roseville, Burnsville, Blaine and Wayzata. I gathered city budget data for all of them and tracked their trends from 2007-2012. I wanted to see how planning and development budgets fared in comparison to seemingly more stable departments like public works and public safety. I also looked at general fund expenditures to get a sense for overall trends.

I expected to see a few things in particular. I thought that all cities would show some turbulence in their budgets from 2008-2010 due to the recession. I believed there would be significant cuts during that time, especially for planning and development. I thought that planning and development would see the biggest cuts because cities would see it as the easiest to reduce because it is more of a luxury good. Planning and development is likely more of an elastic good for the city compared to public safety and public works.

The first thing I found was that planning and development was the most volatile of the three departments considered. Budgets from year to year varied widely, and some of this is due to the stimulus and cuts seen to intergovernmental grants, such as Community Development Block Grants. An example for the City of Minneapolis is below.

I also found that several cities' general fund budgets didn't behave like I thought they would. While Wayzata and Blaine decreased their expenditures during the recession, others, like Roseville, didn't cut general fund expenditures during the recession. This variability makes it hard to generalize how cities are impacted by recessions.

Thirdly, planning and development budgets saw the steepest cuts during the five year period I analyzed. Four of the five cities had a budget in 2012 that was lower than it was in 2007, and three of them were reduced by more than 15%. As expected, public works and public safety were much more stable. I believe this is because they have more stable sources of local revenue and they are seen as more essential services for the cities to provide.

I believe that cities have to find more ways to fund planning and development locally. They will have to get more creative with property taxes or fees in order to keep their staff levels from shrinking. It is unlikely that federal funding will come back to 2006 levels any time soon. Business property taxes and local entertainment sales taxes are two options to consider to keep community revitalization strong for cities.

Q Comp: Teacher Performance Pay in Minnesota

In 2005, the Minnesota Legislature enacted the Quality Compensation program, or Q Comp, a teacher performance pay program. Q Comp provides state funds to districts who voluntarily design performance-based pay systems that are approved by the Minnesota Department of Education (MDE). During the 2005-06 school year, 9 school districts and 3 charter schools applied for and were approved to participate in Q Comp. The following year, the program grew to include 14 school districts and 2 charter schools, with additional pending applications. Today, 52 school districts and 56 charter schools have either implemented Q Comp programs or have been approved to participate in Q Comp for the 2011-12 school year. According to MDE, Q Comp has been implemented in 470 school sites, involving over 16,000 educators and over 245,000 students.

Q Comp is funded as part of the general education revenue program, equalization aid, and local property tax levies. In fiscal year 2012, Minnesota appropriated $68.8 million to the alternative compensation revenue, the line item for Q Comp. This is an increase from original pilot appropriation of $3.6 million and a slight increase from the $64.3 million in 2005. The general education funding formula Districts can receive $260 per enrolled student, comprised of $169 from the general education revenue program and the remaining $91 from equalization aid and local levies. The Q Comp levy is equal to $70 per enrolled student multiplied by either the adjusted net tax capacity (ANTC) of the jurisdiction or one, whichever is less. The Q Comp equalization aid is the difference between the aid calculated from the general formula and the levy.

There are several noteworthy elements of this expenditure structure. First, Q Comp requires a local contribution. This both relieves the state’s financial obligation in implementing a new program, but also requires a district-level investment in implementing Q Comp and its objectives. Second, the equalization aid and local levy tied to the ANTC attempt to “neutralize the effect of different assessment practices among the taxing jurisdictions of the state.”Because districts vary in the amount they are able to levy from local residents, equalization revenue ensures there is a more equitable distribution of Q Comp expenditures. Finally, charter and independent schools are given $243 per enrolled student in state aid, as these types of schools do not have taxing or levy authority.

Little has been done to analyze the impact of Q Comp on student academic achievement in Minnesota.  In 2009, the Minnesota Office of the Legislative Auditor issued a report analyzing MDE’s administration and oversight of the Q Comp program. However, the report did not measure the effect of teacher performance pay on student outcomes. At the time of the report, Q Comp had only been in place for three full school years and as such, “Q Comp’s effect on student achievement [could not] be adequately measured using existing data.” The program’s effectiveness on improving student performance has not been reevaluated since 2009 report. Further, academic literature on whether teacher performance pay impacts student growth has produced inconclusive empirical results.

The progression of broadband internet from expensive and isolated to the service standard has occurred rapidly. Broadband access has become a necessary utility for organizational capacity and economic development. However, there are many areas of the country that are still working towards adequate access. Rural communities in particular suffer because their relatively small consumer markets do not provide a sufficient base for private firms to recoup initial investment costs. Additionally small communities offer spatial challenges in that they may be separated from other markets by greater distances than metropolitan areas. 


The following video shows how this challenge has affected businesses along the Gunflint Trail:

Some efforts to extend broadband to rural Minnesota have had measurable impacts:

Figure 1 displays how broadband access in greater Minnesota has grown most dramatically over the past decade. While this growth is undoubtedly a positive sign, there are still communities with problems of access. 

In west-central Minnesota, the Red River Telephone cooperative provides high-speed internet to much of the area. The cooperative’s coverage includes rural residents of Barnesville, but not to citizens within the city proper. In order to provide web access to all Barnesville residents, city leadership used a revenue bond to tackle the problem itself. They established an enterprise account, and installed the necessary wiring and equipment to provide internet, phone, and television access directly to its citizens. Barnesville now provides internet service to to 651 residential and business customers, representing 25.4% of the city’s population. 

Barnesville is a case of private production of public goods, but with public choice and financing. In a sense, Barnesville holds a natural monopoly, and because consumers of the service are directly identifiable, revenues are generated from user fees.  However, Barnesville cannot charge a fee equal to marginal cost, as users will vary in terms of bandwidth needs. For example, a family does not have the same internet needs as a business with multiple computers with internet access. To account for this, the city uses a two-part pricing method, levying a higher fee on users who consume “more” of the good. In this context, consuming more of the good means higher download speeds or bandwidth capacity. Barnesville's method for pricing and marketing mirrors how private companies charge customers for internet access. 

As previously noted, the motivating factor in providing municipal access was to fill a gap in the internet service provider market. Yet Barnesville also utilizes revenues from the service to aid in other government capacities. While city’s role in providing broadband internet is largely fulfilling a market need, the service has produced a surplus, and is currently budgeted to continue be a potential support for operational funds.

Of note in table 1 are the budgeted transfers to the general fund, indicating a planned reliance on the broadband enterprise fund as a revenue source. This dependence extends to other enterprise funds as well:

Barnesville has found adequate funding sources through self-reliance. While comparisons to a large sample of small communities would be helpful in evaluating Barnesville, the city’s large number of services typically fulfilled in some capacity by the private sector appears exceptional.

The city of Barnesville is a case of local government solving a private market problem.  While many small communities rely on successful partnerships with the nonprofit sector to address the rural web access challenge, Barnesville internalized the problem and in the process, created a funding source for day-to-day public activities.

 One recommendation for the city moving forward, is to monitor general reliance on enterprise revenues. In the event that any given service provided becomes obsolete, or a private competitor enters the market, it will be important for city leadership to be prepared for any significant revenue decreases that might result. For the foreseeable future however, this innovative approach to local service delivery has put Barnesville in a strong financial position.

Regional Competition in Bay Area Rapid Transit (BART) Financing

The San Francisco Bay Area’s regional planning body, the Association of Bay Area government, lacks the transit planning and financing authority of the Met Council. The Bay Area transit network is provincial and defined by pre-existing municipal boundaries. Some of the transit agencies in the Bay area include Alameda County Transit, Sonoma County Transit, Marin Transit, Contra Costa County Connection, Santa Clara Valley Transportation Authority (VTA), San Francisco Municipal Transit (MUNI), San Mateo County Transit (SamTrans), Golden Gate Transit, and the San Joaquin Rail Commission. Each of these agencies either collects finances locally and independently and/or funded by the State of California.

Only one system, Bay Area Rapid Transit (BART), demands major coordination between the different municipalities. Bay Area Rapid Transit (BART) is a 1970s heavy rail and subway system that provides service to five of the nine counties in the Bay Area: San Francisco County, San Mateo County, Contra Costa County, Alameda County with future service planned to Santa Clara County. 

Brief History and Development of BART
A brief history of the development of the BART system is integral to understanding the problems it now faces. In the mid-1960s, when BART was first being planned, only Alameda, Contra Costa and San Francisco counties were able and willing to finance the initial development of the system. Because of the huge sunk costs contributed by Alameda, Contra Costa and San Francisco Counties during the initial creation of the system, there has been a lot of tension between the counties when expansion is proposed. BART has since expanded to San Mateo County.

BART Funding Overview

According to the BART Fiscal Year 2013 Preliminary Budget Memo[4], Bart receives revenue primarily from passenger revenue, parking revenue, sales tax, property tax, and California state transit assistance.

Tax

The sales tax and property tax revenue, when disaggregated, comes from the counties enjoying transit service. Sales tax comprises roughly a third of BART’s revenue, and comes from a “75% share of a one-half cent sales tax levied in San Francisco, Alameda and Contra Costa counties” (Budget). Property taxes come from a permanent dedicated assessment in the same three counties. San Mateo County, not part of the BART district, funds BART through SamTrans)[2][3]. 

BART Services Overview

The map below, in orange, the residences of BART riders, and, in purple, the employment destinations. Even though the bulk of the ridership is centered on San Francisco, Contra Costa and Alameda Counties, the map clearly shows ridership in Santa Clara and Solano counties (which currently do not contribute, although Santa Clara VTA has recently entered into a similar agreement to that of SamTrans.

Contra Costa County only comprises 12.6% of total ridership, but charges all of its citizens sales tax to pay for the system.[7] But on a regional approach, the inclusion of Contra Costa County in the BART system has benefited Contra Costa County by allowing expansion of its suburbs, fueled by people wanting easy commutes to the San Francisco and Oakland job centers.

Conclusion

The goal of the system should be to increase access to Bay Area citizens rather to balance competing financing interests of the different counties. A transit system that provides access to the job centers of San Francisco, Alameda and San Jose is necessary to strengthen the downtowns of the three cities and job displacement and mitigate sprawl. Until a regional transportation body is able to levy taxes, no cross-county transit system will ever be able to fully provide service to the major commuter-sheds in the Bay Area.

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[1] Surface Infrastructure: Costs, Financing and Schedules for Large-Dollar Transportation Projects” General Accounting Office Report to Chairman, Committee on Appropriations, Subcommittee on Transportation and Related Agencies, House of Representative. February 1998.

[2] Soap Opera drama between SamTrans and Bart, May 17 2006, http://vtawatch.blogspot.com/2006/05/soap-opera-drama-between-samtrans-and.html

[3] http://www.bart.gov/docs/SettlementAgreement.pdf

[4] http://www.bart.gov/docs/financials/FY13PBM_Master.pdf

[5] SamTrans 2011 Budget and 2012 Proposed Budget presentation http://www.samtrans.com/AssetFactory.aspx?did=1458

[6] 2012 Budget http://www.ebudget.ca.gov/StateAgencyBudgets/2000/2640/department.html

[7] 2008 BART station Profile Study, http://bart.gov/docs/StationProfileStudy/2008StationProfileReport_web.pdf