Dollars, development, and decisions 
Irene S. Rubin 

Editor's introduction 
Planning, budgeting, choices, decisions. These are all part of one unending process, but a process of monumental proportions, as this case demonstrates. Arrington is a community that has been run in the good old down-home manner. Dedicated, hard-working elected officials and community volunteers have made the government work, managed the community's development, and kept taxes low. 
Why, then, are there problems? The community has a TIF district with revenues, but it has no idea how to spend the money. The general fund has been having deficit problems; a past default on a bond issue complicates the ability to borrow money; and the water and sewer tap-on fees that have enabled the city to keep its water rates low are about to end as the last remaining undeveloped parcels of land disappear. Voters want the tax revenues from commercial development without the traffic that such development attracts. 
Faced with this scenario, Arrington recognizes the need to undertake longterm financial planning. But such planning presents still more problems: Service levels have to be established; resource allocation decisions have to be made; and whatever is decided has to be managed in a way that will prevent the mistakes of the past. 
Yet Arrington is also inhibited by an even more common scenario: local reluctance to abandon the ways of the past. The community has managed "just fine" without a budget. Why is one necessary now? The general fund is already tight, so how can the community afford an administrator? The community knows it needs to change, but it doesn't want to. 
From this dilemma the case pulls a number of decisions and problems that need to be addressed. How should Arrington manage its TIF district and economic development efforts? How should it establish its long-term tax and revenue policies? How should it allocate scarce resources, particularly on needed public works projects? How should it manage change? 
The decision maker in this case is an outside consultant-a "hired gun" although she could just as easily have been a city or county manager faced with the same kinds of decisions in the same political environment. In this case, however, the absence of a professional manager adds a different dimension; it illustrates the consequences of piecemeal decision making without professional management involvement, and it poses substantive and political questions regarding the desirability of, and strategies for, employing such an official. 
Fundamentally, however, this is a case about budgeting, about the kinds of decisions that are involved in developing long-range plans for financial management and resource allocation. It addresses both the problems of making such decisions and the process by which they should be made. 

202 Cases in Decision Making 
Case 17 
Dollars, development, and decisions 
Background 
Arrington is a small suburban city in a very large and growing metropolitan area. Although council-manager government is common in the region, and Arrington has long exceeded the size at which many of its neighbors adopted the council-manager form, Arrington itself has never hired a professional administrator to work with the council, mayor, and staff to manage the city's affairs. The community has a strong culture of volunteerism, which has helped provide able leadership inexpensively, but at times the lack of professionally trained talent has led to financial oversights, deficits in particular funds, or, as occurred once, a bond default. 
At the time this case begins, the city had been experiencing particularly rapid growth and had begun to anticipate the development of its last major undeveloped parcel of land. This large parcel, a mined-out quarry, would have significant impacts on the city if it were fully developed. Providing water to the site would require considerable planning and entail substantial expenditures; the early development phase would overburden the city's planning and legal staff; and public works and police services would have to expand to accommodate the growth. The quarry area had been designated a tax increment financing (TIF) district. Under state law, a TIF district is an area that has been designated for development or redevelopment; to finance new local services (such as water and sewer) that are essential for such development, the city may borrow money against the anticipated future increase in tax revenues from the area. It repays the debt from increases in property tax revenues occurring in the district. To make such revenue increases possible, property tax levels are "frozen" at preTIF levels for all governments or special districts serving the area in which the TIF district is located. 
In the past, Arrington's policy had been to require developers to underwrite and construct all infrastructure improvements in areas being developed, so the council was uncertain about what might constitute an appropriate expenditure of public funds in the TIF district. Since development was likely to occur anyway, without the TIF district designation or public expenditures, council members were concerned that they had frozen property taxes to other districts, especially the school district, for hard-to-justify reasons. 
With or without the development of the last major piece of open space, the city was reaching its "natural" size, barring more intensive use of the land. The citizens and the council had agreed that keeping the semirural character of the suburb was important and that high-rises should be kept out. As a result, the fiscal dividends of growth, such as the building permit fees and water and sewer tap-on fees, would soon come to an end. The water fund in particular had come to depend on these fees to keep water rates down. 
The city had become dependent on the growth dividend in another way, as well. The rapid growth in the city's share of state-levied and -collected income tax and sales tax had exceeded predictions year after year, often bailing out a budget that might easily have been in deficit. 
As growth questions assumed increasing importance, the city, in order to set goals, cooperated with the county planning office to conduct a citizen survey identifying the key issues facing the city and their relative importance. The report prepared by the county planning office on the basis of the survey highlighted a kind of suburban schizophrenia with respect to economic development. On the one hand, respondents wanted to protect the existing neighborhoods from 

Dollars, Development, and Decisions 203 
encroaching strip development; but on the other hand, they wanted to encourage businesses to come to the city so that residents could shop there and stop the dollar leakage. Respondents wanted to control growth on the high-traffic corridors, but they also wanted to increase the city's assessed valuation to keep taxes low. 
Arrington faced other financial issues as well. First, the city had recently refinanced a water bond, only to find out that the long-forgotten bond default of the 1970s was still relevant to the bond market and that the bond underwriters had specific requirements for good financial management. Second, a recent state evaluation of the city's fiscal health, requested by the council, highlighted some weaknesses as well as strengths in the city's finances. Third, deficits in the city's general fund, resolved only by resort to new tax options, underscored the absence of long-range planning by the city. Fourth, council sentiment was growing for a new city hall-a building that would be larger, more suited to municipal needs, and a better symbol of the city's civic pride-but no strategies for financing such a building were evident. 
Spurred by these considerations, the council decided to develop a five-year financial plan for Arrington. The process was organized by the chairman of the council finance committee, Roger Carlson. The council appropriated $17,000 for him to hire consultants and cover the staff time needed to gather historical data on revenues and expenditures. To provide this backup data, the city hired a part-time temporary staffer. Two consultants were also hired. The first, John Erickson, was a former city manager with an engineering background, whose usual consulting work for the city was with the public works department. The second consultant, Verna Fox, was a professor who taught local government finance and budgeting at a nearby university. 
Meetings of the council and selected staff were scheduled on various topics throughout the fall and winter. Early topics included the overall financial condition of the city, the city's revenues and fund balances, problems of space and the possibility of a new city hall, and the need for a professional manager or administrator. Later sessions discussed the progress of the TIF district, including when development was likely to begin, whether the city could hold firm in dealing with the developers, what policies should guide the spending of the TIF district revenues, and whether the TIF district should be abandoned or redrawn. There were separate meetings to discuss the future costs of public works and police services. Following these discussions, there was a session with invited members of the public. The purpose of this meeting was to get suggestions from active citizens-representatives from homeowners' associations, planning commissions, candidates for office, the chamber of commerce, volunteers, and former officials-about what crucial issues the city should include in the five-year plan. 
Verna Fox's assignment was to synthesize the information gathered from these meetings and from the historical financial data and to act as general facilitator of the five-year plan initiated by the council. There was initially no requirement for a consultant's report, but such a requirement emerged about halfway through the process. In preparing the report, Fox would eventually find herself taking on the responsibility of deciding what action to recommend to the council. 
Several meetings were scheduled later for the council to review Fox's report, wrap up the process, and provide whatever policy guidance it could at that stage. The council also assured the public that it would have time to review and comment on the five-year plan. 
The case 
After the council had decided to prepare the five-year plan, Mayor Michael Riggs and Carlson met with Fox and gave her an overview of the city's recent 

204 Cases in Decision Making 
financial history. They also delivered a packet of documents she had requested, including downtown development plans, the report of the county goals-planning session, a set of audit reports, bond ordinances and prospectuses, and the financial condition report prepared by the state. Interestingly, there were no budgets, as the city had not been operating from one. 
In her role as facilitator of the planning process, Fox found herself treated as staff; for example, she was present on the platform with the council during public meetings. Specific questions were posed to her from time to time, such as how cities generally handle the funding of sidewalks or what kind of funding is available for building city halls. 
At times the council asked the same question of both Fox and Erickson. 
Sometimes the two consultants agreed, and sometimes they gave contradictory advice or advice based on different assumptions. Fox perceived that her answers were oriented to what could reasonably be done and that Erickson's answers were more oriented to what should be done or what was technically correct. For example, one difference occurred over how long to assume a road would last: Erickson suggested fifteen to twenty years; Fox said around ten years. Erickson was assuming a road with an adequate foundation; Fox was assuming roads built on less than perfect foundations by cost-conscious councils. When the advice differed, it focused attention on such differences of perspective. 
The planning meetings were held in council chambers. Present along with Fox and Erickson were Mayor Riggs, Finance Chairman Carlson, whatever council members could attend, whatever staff were involved in the subject at hand, any other relevant consultants, and sometimes citizens, especially those on relevant advisory boards. Carlson posed a series of questions in advance to each of the city's department heads; each department then prepared a presentation for discussion by the group. The questions covered issues circulating around city hall that had financial implications. 
For example, one staff member prepared a report that described the space needs at city hall and compared Arrington city hall with city halls in similar cities. She ,also provided estimates of construction costs and in general made a case for a new city hall. The council then discussed the potential timing of such a project, possible sites, and financing options. They asked Fox to describe some possible financing techniques for city halls. This question, like many others, came on the spur of the moment, allowing almost no time for her to research or prepare answers. The council, she realized, was relying on her general expertise and advice rather expecting her to undertake research. 
A number of policy issues were raised during these meetings, some of which were resolved, others of which were sharpened and focused. 
Development issues 
When the council started to review the overall revenue situation of the city, Fox noted that they did not seem to think there was a particular problem, despite recent deficits in the general fund and the anticipated decline in the water fund as the city's growth-and tap-on fees-came to an end. They believed that revenues were sufficiently inelastic that the city would not be unduly threatened by revenue shortfalls caused by economic recession. The problem of funding the water department with one-time revenues from tap-on fees was raised and discussed, and this time the advice of Fox and Erickson coincided: raise water rates gradually but regularly to cover operating costs. Beyond giving the matter the status of a problem, no decision was made on this issue during the meetings, and it was not clear what action would be taken. Later in the process, Chairman Carlson did include water department funding as an issue that would have to be resolved in the five-year plan. 

Dollars, Development, and Decisions 205 
The council also discussed the issue of hiring professional staff. For this part of the discussion, there was no staff report, no structured questions or analysis. Mayor Riggs and some council members described some of the city's concerns in this area, but there was no discussion of the advantages and disadvantages of such an action. Although the consultants felt that the need for professional staff was apparent, Fox was unable to read from the discussion whether there was a consensus on this issue. 
The city hall proposal was more structured, and the response to it suggested considerable council support for the idea-until specific funding options were discussed. Once the matter got down to finances and tax burdens, some of the support evaporated. The issue came down to two questions: what the level of public support was, and whether a utility tax should be levied to pay for such a project. The issues were linked, because if the proposal to build a new city hall went to referendum, the public might reject it. A utility tax would not require a referendum, but levying the tax without one might provoke considerable public unhappiness. The underlying issue was whether the council could impose on the citizens a cost that the council wanted and the staff needed even though the citizens did not want it. The argument seemed to depend on the level of need, but the need had not been established to the council's satisfaction, leaving the city hall matter undecided at the end of its session. Fox later advised that the city wait on a new city hall until the development of the quarry site had brought the city staff to its peak and the need for new quarters was more obvious and convincing. 
Consideration of the city's TIF district included discussion of the obstacles to development and the likely timing of such development, as well as its impacts on city hall staffing and budget. No single staff member had responsibility for economic development or for this particular project. Public works staff was able to discuss roads and water, but the council itself discussed TIF revenues, planning goals, water sources and costs, and how the TIF money could reasonably be spent. Unlike many other cities, Arrington did not have a plan for how TIF money would be spent once the city received it. Because parts of the property had been reclassified as agricultural, the assessed value had actually gone down, but the city was receiving some money from the state sales tax on the working part of the quarry. The council asked Fox to report on developments in the state law and in other cities using TIF financing. 
This TIF district discussion was inconclusive. No development had yet occurred on the site; the site was scheduled to be quarried out by the end of the next year, but quarrels among the owners threatened to delay the development, possibly for many years or even indefinitely. At the same time, the council accepted that the quarry would be developed, that the development would entail many expenses for the city, and that it would generate considerable revenue. However, much of that revenue would be earmarked for the TIF district and legally had to be spent in the TIF district (which was coterminous with the quarry site) for the purpose of increasing the assessed value of the site. What complicated the matter was that normal city policy required builders to be responsible for installing their own infrastructure. In other words, city funds would not ordinarily be used for such expenditures. The council noted that the city had insufficient water to deliver to any large development and discussed several possible options for the site, each of which had some problems. Because no consensus was reached, the city did not know what expenditures it was supposed to make. Furthermore, the city suspected that the land value would increase by itself without the expenditure of public money. 
Later in the planning process the township reassessed the land as the prime location for development that it was, raising assessments dramatically and creating a windfall of TIF funds that the city had not yet decided how to spend and that were not a result of any city action.

206 Cases in Decision Making 
These monies touched off a debate on whether the new revenue belonged in large part to the school districts, and thus should be voluntarily returned to the schools, or whether the city should create legitimate ways to spend the money, even if the TIF district boundaries had to be changed in order to do it. 
In the bind of having urgent revenue needs elsewhere in its budget, especially for roads, the city faced the prospect that at some indefinite time in the future, it would have too much revenue locked up in TIF funding, where it might not be needed. In the interim, funding for the public schools and other special districts dependent on the property tax would be held up as development progressed in the TIF district. The possibility of dissolving the TIF district was raised. These issues were aired but not resolved. Carlson submitted a list of existing city policies that concerned TIF funding, including one that prohibited spending TIF money just because it was there. But the policy statement only clarified the city's dilemma; it gave no solution to it. 
Police issues 
The discussion of the police department was much more straightforward. The chief had presented a bound report predicting the impact of growth on the department and requesting increases in future staffing levels. He argued for continued participation in a countywide drug program, to which the city loaned staff, and presented a justification of staff levels based on the number of calls, the time spent on calls, and a certain amount of patrol time per hour. Fox contested this justification, asserting that not every call had to be answered, nor did every call warrant sending a uniformed officer. She argued that calls should be ranked by importance and by "solvability." Crimes where the trail was cold should not warrant an immediate response but should be answered when an officer was freed up. She also argued for non-uniformed police to respond to certain types of calls. These arguments sparked response on the council. Mayor Riggs argued that citizens expected a quick response to all calls; it was a service they wanted and one that the city could provide. One of the council members argued that people were reassured by the police uniform and that what appeared routine might turn out to be dangerous. No policy was formulated at this meeting. 
Public works issues 
The public works discussion ranged over a number of controversial and difficult issues, but Fox felt that the matters were presented and discussed cogently, in terms of concrete departmental proposals. Erickson was present at this meeting, and he argued forcefully for the adoption of specific policies. Some of the issues were resolved at the meeting; others would be raised again during the following few months for resolution in the five-year plan. The issue of sidewalks was raised and for the most part resolved. One key question was whether sidewalks should be extended throughout the city. But the discussion quickly expanded to include repairs on existing sidewalks and financing construction versus repair of sidewalks. With Erickson's help, the council agreed to a policy in which sidewalks that needed it would be repaired by the city at city expense when streets were being reconstructed or resurfaced. If residents wanted repairs at other times or if sidewalks had become dangerous, repairs would be made by the city on a cost-shared basis with the owners of the property. This policy left unanswered the issue of extending sidewalks to other parts of the city. 
The absence of sidewalks in much of the city left bicyclists on the increasingly busy main streets, creating a need for bicycle routes and possibly bicycle paths. A number of recent bicycle fatalities made this a pressing concern. High estimates of the cost for bicycle paths of appropriate quality and safety forestalled a decision 

Dollars, Development, and Decisions 207 
to go ahead and build the paths. At the end of the discussion, it seemed likely that the city would build one segment of a bicycle path and probably designate a bicycle route through parts of the city. At the session for public input, this issue came up again when citizens made an impassioned plea for safer bicycle routes. 
The bicycle route issue initially arose in the context of public works, but it was part of the larger issue of recreation, which came up only tangentially during the council discussions. During the police department discussion, the chief's prediction of an increase in teenage crime led the group to consider increased recreation facilities as a reasonable response. In the public works discussion, the issue of recreation surfaced with respect to bicycle paths and drainage and detention ponds, since detention ponds can be used as recreation areas during the drier months of the year. Then, at the meeting for public input, volunteers who ran the existing recreation programs urged that the city purchase land for playgrounds, since such purchases were beyond the capacity of volunteers, no matter how dedicated. The issue of recreation also made its way onto Carlson's list of issues to be resolved in the five-year plan, despite the fact that it had never been presented as a formal proposal and costed out. 
Sewer and water issues were also presented by the director of public works. 
There were two key issues here. The city contracted for sewage treatment with a neighboring city, having sold its old treatment plant a number of years earlier. The council questioned whether the city should consider building its own treatment plant again. The public works director spoke against such a plan, arguing that the city lacked personnel with the requisite technical skills to deal with particular disposal problems. Lack of technical expertise made it likely that the city would violate EP A regulations and be fined for it. The second issue was the extension of sewer and water service to all households and lots in the city. It was city policy to force hookups and tap-ons in areas where utility services were available, but the policy was meeting with considerable resistance from affected citizens. Not discussed in this context, but perhaps part of the reason for the policy, was the fact that keeping tap-on revenues high was keeping the water rates down. Fox asked if the policy of forced tap-ons could be justified on the basis of public health.  The mayor confirmed that health and odor were concerns. The group agreed to maintain and enforce the city policy of extending city water and sewer services to all residents. 
The question that remained was how to cover the cost of extending such services to new areas-by special assessment or by general revenues-and whether such costs should be split between the residents and the city and, if so, in what proportions. The consensus seemed to be that residents should bear the costs of extending the system. The unsettled question was whether the city should subsidize extension of utilities to undeveloped parcels likely to be developed as commercial properties, given that these properties would later increase in assessed valuation and bring in additional tax revenues. The argument was made that some parcels had not been developed because the owners could not afford both the costs of construction and the costs of bringing in utilities. Carlson argued that development was likely to occur without city assistance. No clear policy statement was made on this issue. 
The key issue for public works was the condition of the roads, many of which were chip and seal and had been blacktopped so many times that the level of the roads was higher than the surrounding property, creating runoff problems. Ditches at the sides of the roads provided drainage for many of the city's roads. The public works department prepared a list of costs involved in routine maintenance and also a list of roads that needed to be rebuilt with proper foundations. The technical arguments were clear, but the costs to the city were well beyond its budget. Fox recommended slowing down the rate of conversion from chip and seal to roads with foundations and edging down the quality of roads with less traffic.
208 Cases in Decision Making 
This was another issue that made its way to the list of policy decisions that would require resolution in the five-year plan. One of the key issues here, as elsewhere in the discussions, was how to pay for road reconstruction and what the city's share of the expenditures should be. 
One of the council members asked how the public works department had chosen the roads that were proposed for reconstruction. The answer was that the department head and Erickson had driven around the city, taken a census of road conditions, and drawn up the list accordingly. The list thus had no political sensitivity-no balance among parts of the city or among election districts. 
The public was invited to comment at a regular council meeting on the ideas discussed during the special planning sessions. About ten persons and groups asked for permission to submit testimony. They included representatives of the chamber of commerce, the homeowners' associations in the new parts of the city, the volunteers running the recreation programs, members of the planning commission, and a former member of the park board. They made pleas for bicycle paths, city acquisition of ball fields, preservation of the city's historic homes, and protection of the neighborhoods from encroaching development. The chamber of commerce presented a pointed list for consideration, including more funding for the economic development commission to enable it to go after the specific businesses the council said it wanted to have in the city. The chamber also urged the council to pick a style or image for the city and to appoint an architectural board to review plans for conformity with the city's desired image. The chamber spokesman made a general plea for the council to take control and not simply let things happen. 
The decision problem 
With the discussion process completed, the next step was the preparation of a consultant's report presenting recommendations for consideration by the city. Fox's task was to set forth specific proposals, with accompanying rationales, that would establish goals for the city, would be reasonably certain either of gaining acceptance or at least of avoiding prolonged controversy, would provide the impetus for action to achieve those goals, would establish a long-term basis for improved and sustained city fiscal health, and would sustain her credibility with the council, the staff, and the public. 
The first phase of the planning process had raised issues that underlie routine budgets but that seldom get discussed in the budget process. These issues included almost all the major policy decisions that cities make. The process had brought to light unfunded liabilities of the city-in particular, the roads that had been constructed without foundations or drainage, which were increasingly difficult to maintain and repair and that were not cost effective over time. The process had also revealed unmet needs in the community, such as the need for recreation. One of the most important effects of the planning process had been to focus attention on how major capital needs were to be met and on whom the burden of payment would fall. The focus of much of the discussion had been the choice between general taxation and user fees. 
The chamber of commerce presentation had raised the crucial issue of what the city wanted to become-whether it wanted to take action to shape the future or be passive and allow change to occur in an undirected manner. The chamber spokesman had also raised the crucial issue of mechanism, creating the link between goals and outcomes. He had argued for more funding of the economic development commission, but the same outcome could be achieved by hiring more staff at city hall. 
Fox developed a list of approximately twenty issues that had emerged from 

Dollars, Development, and Decisions 209 
the planning process and that needed to be addressed in any five-year plan, but she considered three issues to be central. The first of these was the employment of professional management staff to provide central direction and coordination not only for the development of a five-year plan, but also for its implementation. The council was wavering on the commitment of funds for such a staff. It was caught between its preference for the city's tradition of volunteerism and its own penchant for managing the affairs of the city directly, on the one hand, and, on the other hand, its awareness of past problems-such as the bond default and general fund deficits-that had arisen because of the council's own managerial limitations. Fox believed that the employment of a manager was essential, but the council remained unconvinced. 
The second issue was the development of a budget: Fox believed that the city had to develop a budget process to achieve and sustain fiscal health over the long term; but, again, the council remained unconvinced. Council members had varying and sometimes contradictory attitudes about shifting from an annual appropriations ordinance (which required only a list of possible expenditures and depended on continuous cash balances for financial control) to a real budget. Sometimes the council argued that it used a budget informally, anyway, so that such a process would not represent a change. At other times, members of the council would contend that a real budget, setting forth estimated revenues, expenditures, and expenditure limitations, would hamper their administrative flexibility and discretion. 
The third major issue was the development of the quarry land and the problems pertaining to the TIF district. Fox considered three different recommendations that she might make. One recommendation would be that in each year that development does not occur, the money earmarked for the TIF be released for normal uses: the educational portion be given back to the school district, and the city portion be released for general expenditures. 
A second possible recommendation would be to dissolve the TIF district. The purpose of such a district is to encourage development that would not otherwise occur, and it was clear that the site would be developed without public assistance. While this position might be the moral high ground, it would be certain to provoke opposition from council members. Some felt that participation in the project would give the city more control over the nature of the development; others felt that it would entitle the city to take credit for the development; still others felt that the project would improve the city's capacity to carry out other needed projects, despite the legal constraints on how the money would be spent. 
Third, Fox could recommend that the city alter its policy requiring developers to pay all infrastructure costs. The city could assume the unusual costs of preparing the site for construction, including relocating major city drainage ponds. The costs of engineering and planning could be taken immediately from TIF funds. However, there were disadvantages to such a recommendation. City funds spent for these purposes would not be available for other uses; if the city assumed these responsibilities, either more staff or more consultants would have to be hired; and neither the status of the land nor the nature of the development had yet been determined, nor was it known when such issues would be resolved. 
Clearly, the matter of the TIF district was an issue that divided the council, and hence it was an issue with which Fox would have to deal circumspectly. 
Although Fox considered the resolution of these three major issue areasprofessional staff, a budget process, and the TIF issues-as prerequisites to the development of a five-year plan, it was not clear that the council agreed with her assessment regarding their centrality. Yet her job was to prepare a report that would provide the basis for the development of that five-year plan and that would address all of the issues raised during the planning process. Professor Fox, now Consultant Fox, had to devise a strategy and formulate recommendations. 

James M. Banovetz, ed. Managing Local Government: Cases in Decision Making (Washington, DC: ICMA 1990)