Hiring freeze, reserves will help Las Vegas in next economic downturn

Sunday, February 3, 2019

The city of Las Vegas plans to hold open about 85 nonessential positions to save $10 million — and dodge the kind of sweeping layoffs that struck the city a decade ago — in preparation for the next economic downturn.

The managed hiring freeze was borne last spring by a simple objective, according to Chief Financial Officer Gary Ameling: “The realization that we did not want to get in the situation that we were 10 years ago.”

In the wake of the Great Recession, the city laid off 200 employees in a single day and cut its budget by 20 percent over a three-year period starting in fiscal 2010, former City Manager Betsy Fretwell told the Las Vegas Review-Journal in a 2017 exit interview.

The roughly seven dozen positions across a broad spectrum of departments that the city plans not to fill exclude public safety and homeless-focused roles or the 64 jobs added by the city this fiscal year, Ameling said.

It’s a common strategy that is prescient to the next economic slide but also cognizant of the city’s own projected structural budget deficit in a recent five-year forecast that showed a $7.5 million general fund shortfall by 2020 — still only a one-tenth of the deficit faced during the recession — as expenses outpace revenues.

But city officials this week were confident that preemptive decision-making, with a healthy, concerted surge in reserves, will stave off any scrambling to rightsize during the next inevitable economic down period.

Between 2008 and 2018, the city’s reserves fund balance grew by more than 36 percent from $96.8 million to $132 million, city data show.

During the most acute years of the recession, Las Vegas cobbled together money by predominantly deferring capital expenditures to supplement its rainy day cache. But the contribution from the Fiscal Stabilization Fund dropped dramatically starting in 2013, while general fund reserves have continued to rise organically.

The Fiscal Stabilization Fund accounted for just $13.3 million, or 10 percent, of the reserve balance in 2018, allowing the city to expand capital repairs that had been deferred.

The bolstered rainy day fund sits at over 20 percent of the city’s operating budget, by far surpassing a 12 percent policy set by the City Council, and Ameling said officials believe “we’re about where we think we should be.”

In Clark County, the commission has set a 10 percent reserves goal, requires approval to fill vacant roles and mandates that buy-out costs be recovered before filling vacancies.

Keeping budgeted positions unfilled and targeting robust reserves are two typical moves for local governments to employ when trying to save cash, according to Jayce Farmer, a public policy expert and assistant professor of governance at UNLV.

“Most cities are beginning to do that because of the lessons from a decade ago when we were in a recession,” Farmer said, noting that many municipalities struggled to meet payroll demands at that time.

Since the Great Recession, Las Vegas has embarked on a renewed mission to finding efficiencies within City Hall, reconsidering how it hires and whether it needs to, according to Finance Director Venetta Appleyard, whose tenure in Las Vegas began 12½ years ago, prior to the downturn.

“Intuitively, we (were strategic),” Appleyard said, “but now we’re making it part of our ongoing management.”

She and Ameling offered credit to city executives and policymakers for ushering in “Team 2020” last spring, a task force of city department leaders who have been brainstorming how to fix a growth rate imbalance in revenues (about 4-5 percent) and expenses (about 6 percent).

About 80 percent of general fund expenses are people costs, meaning salaries, benefits and pensions. Though the city’s nonpublic safety workforce is only about five-sixths of its pre-downturn makeup, the city has dedicated 11 percent more resources to public safety.

“The thing that you try to avoid is the impact on people,” Ameling said, whether that be evading layoffs or protecting service levels to the public.

City Manager Scott Adams, mirroring the outlook of city finance officials, was insistent in May that the state of the spending plan was “very manageable,” noting employees should not be worried that Las Vegas had returned to a recession-era situation.

But even so, city officials are aware how single-engine economies — Las Vegas relies heavily on tourism and tourism-related construction — inherently face more risk during a downturn.

“You generally don’t want to have your self in a situation where you are reliant on one industry,” Farmer said. “If one goes under or is having a rough time, others can come in and help maintain the health of the economy.”

The city lost $63 million in sales, liquor, cigarette and other taxes during the recession, which it has since recovered, according to Ameling, but “that was a huge problem for us and one that we’re worried can happen in the future.”

Contact Shea Johnson at sjohnson@reviewjournal.com or 702-383-0272. Follow @Shea_LVRJ on Twitter.