You know money's tight when police and fire have to fight for their share of general revenues. Just five years ago, state and local tax revenues experienced the largest single-year increase in 15 years; and National League of Cities members were least likely to cut public safety services to close a budget gap. Parks and recreation (surprise, surprise) was the first to go.

Today, those revenues are at their lowest level in 50 years; and virtually every organization that serves government — the National League of Cities, the National Association of Counties, the U.S. Conference of Mayors, the International City/County Management Association — reports that members are taking far more drastic measures to balance expenses to income: cutting jobs and services, and canceling or delaying capital improvements.

Now even police and fire departments are feeling the pinch, with cities like Milwaukee and Omaha, Neb., downsizing crews.

The picture isn't likely to improve soon, as history has shown.

It took 18 months to two years after the recessions of 1991 and 2001 for economic regrowth to begin rejuvenating government coffers in the form of higher property, sales, and income tax revenues, the three major sources of income for cities, counties, and states. Economists generally agree that the recession bottomed out last August — at 20 months, one of the longest downturns in recent memory.

So while housing prices are on the rise, city and county finance directors expect deeper budget shortfalls this year and next.

Unfortunately, home sales aren't the only thing creeping upward with a nascent recovery. Associated General Contractors of America Chief Economist Ken Simonson expects asphalt, concrete, and diesel prices to rise 6% to 8% this year. “All of these items had dropped in price compared to a year ago, but the declines have either bottomed out or reversed,” he says.

Meanwhile, the stimulus package hasn't jump-started enough growth to offset the impact of the state budget crisis on cities and counties.

Though states received one-third of the $787 billion made available by the American Recovery and Reinvestment Act of 2009, the Center on Budget and Policy Priorities reports that a record 48 face shortfalls this year. At least 41 states anticipate deficits for fiscal year 2011 as well; and they're cutting grants and passed-through revenues to make ends meet. Three-quarters of respondents to a U.S. Conference of Mayors survey say these reductions exacerbated their budget gaps, which in turn reduced their ability to launch projects even with stimulus funding.

Despite the emphasis on shovel-ready projects, stimulus payment is slow. Most National League of Counties members have received less than half their expected funds, which are coming mostly through the Energy Efficiency and Conservation Block Grant, Community Development Block Grant, and transportation programs. To continue providing services, they're renegotiating labor contracts and reorganizing fleets in addition to cutting jobs, programs, and services.

OUR SURVEY RESULTS

Against this relatively bleak landscape we add the perspective of the government employees tasked with maintaining their community's single largest investment — infrastructure — and delivering the bulk of its services. As we have for five years, late last year we asked readers whether they expect to spend more, less, or the same on operations and maintenance (O&M) and capital improvements (CIP) this year compared to last year.

The respondent group varies from year to year, so we don't make apples-to-apples comparisons of results. But we do get a snapshot of general trends within city, county, and state infrastructure operations.

For the second consecutive year, the largest group of respondents expects to postpone or suspend new construction and capital improvements (42% and 45%, respectively). But they're managing to hang on to operations dollars, with the majority (58%) reporting they don't expect to postpone or reduce planned maintenance. (The chart on page 38 shows average percentage changes.)

However, holding the line represents a decline from 2008, when the largest percentage of respondents (30%) expected a 3% to 5% increase in maintenance resources. Heading into 2010, managers were justifiably concerned about how much longer they can postpone replacement and repairs before the asset becomes dangerous or fails.

“Continued deferred maintenance makes formerly small maintenance projects enlarge in magnitude until they become capital projects. But since they're small in comparison to competing capital projects, they don't get addressed in a timely manner,” says a respondent from EPA Region 9 (which includes California) who's facing a 6% to 9% decrease in both budgets.

“If maintenance in general has been kept up to date, the impact for one year is minimal,” says a reader in the Midwest whose operation manages streets, water and stormwater, fleets, grounds, engineering, and an airport. Though the department received more than $260,000 in stimulus funds for resurfacing, its capital budget's facing a 10% cut. “How do we plan for the long term to have funds available to meet major refurbishment expenses if they continue to backlog?”

“The stimulus has certainly been a help,” says a roads manager from EPA Region 4 whose annual budget is more than $50 million. “But we need this additional investment for each of the next several years to make a noticeable impact. Month to month works okay if you're buying desk and copy paper, but it's unacceptable when you're planning and building major infrastructure.”

Respondents fear public backlash will hinder efforts to keep elected officials and governing boards committed to long-range plans.

“Citizens are feeling taxed to death and new funding strategies, whether they make sense or not, will be fought tooth and nail,” wrote a reader from EPA Region 10 whose team oversees streets, wastewater, stormwater, and engineering.

“A lag in public-sector recovery means that while others are starting to climb, we'll still be sagging in revenue and constituents will not understand the continued budget cutting,” wrote a Region 5 reader who, despite receiving 3% to 5% increases for both maintenance and capital improvements for a wastewater treatment operation, expects to have to delay or postpone activities in both this year.

Given this new reality, managers must rethink purchasing imperatives. “The biggest challenge is getting the very most for every dollar spent,” says one. “Consider the ramifications of contractors that may not be qualified but are lowest bid.”

Anticipated residential permit activity shows growth is on tap

The same company that owns PUBLIC WORKS magazine and www.pwmag.com owns a company that tracks construction trends based on the number of building permits issued for single- and multifamily housing.

This map shows how many permits Hanley Wood Market Intelligence expects to be issued in each EPA region this year.

The figures in red are the total number of estimated permits and the percentage change from the number issued last year. By that measure, the entire country's poised for growth. New York, New Jersey, Puerto Rico, and the Virgin Islands (Region 2) are looking at an almost 100% increase over last year. Even the least robust area of the nation — Region 7's Iowa, Kansas, Missouri, and Nebraska — is expected to grow 14%.

But those numbers don't tell us how regions are faring historically.

The figure in blue text represents how well a region's forecast compares to its best year since 1979. By that measure, every region is at least 20% below its best year over the last 30 years.

The Midwest — Region 5 — is healthiest, relatively speaking; and Region 7 is weakest. Even Region 9, which includes beleaguered California, is closer to recovering.

HOW TO READ THIS MAP: EPA region

Total 2010 permits (estimated) / Percent change from 2009

2010 forecast as percentage of best month (converted to a seasonally adjusted annual rate) since 1979

Source: Hanley Wood Market Intelligence

Source: PUBLIC WORKS

Source: PUBLIC WORKS

Source: PUBLIC WORKS, February 2009

Source: PUBLIC WORKS, November 2009