Despite nearly five years of a major economic downturn, the City of Jefferson has withstood those rough waters better than many other small towns. How has that happened?
The answer to that has multiple parts, but one of the major reasons Jefferson hasn’t struggled as much as some other towns is that it had its own “storm before the storm.” Long before the housing bubble burst in late 2007 and the economy crashed in 2008, Jefferson had been through its own financial crisis in 2006. The events surrounding that had, ironically, prepared the town for the housing bubble burst and the resulting national economic crash.
In August of 2006, the Jefferson City Council learned that it needed to borrow $1.6 million to make it through the end of the year. The city was out of money. There were a number of reasons Jefferson faced that fiscal crisis. For one thing, the town’s revenues had declined between 2003 and 2005 while at the same time, its spending had gone up by 33 percent. The city’s tax collections were lagging while at the same time, it had taken on new debt to fund capital projects.
The city was also using a manual bookkeeping system at the time and there had been errors in city budgeting with revenues having been over-projected. All of that caused the city to use up its reserves to stay afloat during 2005-2006.
None of that happened overnight, but the city council didn’t know about the situation until August 2006 when it found itself in deep water. The town’s 2005 audit showed it was low on cash and that it had been letting unpaid bills pile up, but nobody noticed. The city’s auditor didn’t mention it to the council. The city manager didn’t mention it to the council. Nobody on the council seemed to know the town was in a financial tailspin.
There was a lot of blame to go around in all of that, but the main cause was a lack of structural financial oversight by the council. Before that crisis in 2006, the city didn’t review financial reports at its monthly meetings on a regular basis. In fact, the city very seldom discussed money at meetings, other than how to spend it.
But a crisis has a way of focusing attention and that’s exactly what happened in Jefferson in the fall of 2006. Although the council dithered around for several weeks, it did eventually get focused not only on that immediate cash flow crisis, but also on making some major structural changes. Among those was to buy a computer accounting system and toss the old manual books and to hire people trained in finance to oversee the city’s operations. It also changed auditors and began reviewing city finances at every council meeting.
The result was that in 2007 and 2008 as the national economy crashed, Jefferson was already intensely focused on its financial picture. Having just survived a major internal fiscal crisis, the town was keenly sensitive to making adjustments as the overall economy went down in 2008-2009.
That wasn’t the case in many other public agencies. Most officials in local governments thought that the economic downturn would be short, so they didn’t react quickly. The federal stimulus funds also delayed action by local officials. The result was that many local governments continued to spend money as they always had done even as their revenues decreased. Most began using up reserve funds and today many towns face a major crisis similar to what Jefferson faced in 2006.
But because Jefferson was so focused in 2008-2009, today it has cash in the bank and is in the black at a time when many other governments are bleeding red ink.
Of course, there are other some other reasons for this. For one thing, the city’s tax digest hasn’t decreased as much as some other towns. And one could make the argument that Jefferson’s millage rate is on the high side compared to other towns its size.
Still, Jefferson has come light years into the future since its crash in 2006. Before that crisis, town leaders were not holding city officials accountable for the city’s finances. But after that crisis, the council did begin to pay attention to taxpayer dollars and that helped the city navigate the later economic downturn that hit all local governments.
Maybe in hindsight, that 2006 fiscal storm was a good thing to have endured so that the city would be in a stronger position today. Funny how bad times sometimes create better times.
Mike Buffington is editor of The Jackson Herald. He can be reached at firstname.lastname@example.org.