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2010 – Predictions and Ruminations

As we enter 2010, my greatest concern is that decision makers will continue a unilateral focus on the near term when a longer view is needed. Stressful and chaotic times bring myriad threats and opportunities – typically more threats than opportunities. The U.S. is experiencing a predictably slow economic resurgence, with persistent high unemployment, job loss, poor balance of trade ratios, reduced industrial productivity and general malaise in many communities. People just don’t know how to cope and most were totally unprepared for challenging times.

Elected officials and professional public managers are expected to solve problems and produce clear answers. People want quick and understandable remedies; citizens want an elusive ‘return to normal.’ As noted many times in this Blog, our research over 25 years indicates that people/ communities gravitate to four things during challenging times: Clarity, Direction, Truth, and a dignified and harmonious Leadership Style. Venting frustrations is fine, but ultimately no one wants blaming, empty rhetoric, or spin. Today and for the foreseeable future, leaders had better work two tracks – the short-term operation of efficient/ effective government, and a long-term plan that will support a new economy and an evolving society. Few are doing this. Many are trying, but most are in survival mode.

As discussed last week, oil and the economy are huge factors that are shaping the American landscape. Jobs will emerge when this country dedicates effort and money to building an infrastructure appropriate for a new economy. This does not mean we neglect traditional structural elements of society. It merely means finite dollars must be dedicated to projects that simultaneously build the future and energize the present. Sooner or later, this Country must invest in high speed rail, at least between major hubs; it must upgrade the national power grid to encompass solar and nuclear energy; fragmentation of the Nation’s telecommunications infrastructure must end and Internet access and speed must increase dramatically; and, the southwestern region of the U.S. must face water issues that could greatly inhibit  future economic development in Arizona, Nevada, and parts of Kansas, Oklahoma, Texas, New Mexico, and California.

Predicted Areas of Concern

Infrastructure – I wrote an article for Public Works Magazine some time ago, citing the need for close to a trillion dollars of new investment in roads and bridges. The infrastructure is deteriorating eight to ten percent faster that it is being repaired – faster in many areas. In its 2009 Infrastructure Report Card, the American Society of Civil Engineers (ASCE) gave the U.S. infrastructure a ‘D,’ stating that $2.2 trillion is needed over the next five years to bring America’s ageing infrastructure to safe and reliable performance standards (an estimated 1/3 of U.S. roads are in poor or marginal condition and 26 percent of the Nation’s bridges are either structurally deficient or obsolete – and virtually no change has occurred in the past 5 years). The 2009 stimulus bill (American Recovery and Reinvestment Act or ARRA) dedicated only $135 billion to infrastructure -$27.5 billion for roads and bridges, up to $150 million for air traffic control, only $6 billion for water systems, $4.5 billion for electric smart grid development, and $8 billion for high speed rail. Airports, ports, drinking water and waste water systems, waterways, public parks, dams, schools and hazardous waste disposal are all underfunded and will continue to accrue a HUGE future cost if deferred maintenance continues. The predictions are dire…we are on a slippery slope that will bring enormous consequences and I don’t see much movement toward sensible remedies in 2010.

Water – The EPA reports that drought and population growth have left 36 states facing the prospect of drinking water shortages in the next five years. Predictably, those populations will see higher drinking water rates, more required gray water recycling and more attention paid to the link between water and economic stability and growth. A major issue is that small municipalities cannot afford costly repairs and system expansion and the federal government just doesn’t have the money. This dichotomy will continue and worsen.

Air Traffic Control System – This national system is sadly out of date and will continue to contribute to flight delays until public outcry escalates or serious accidents occur. Last year, nearly one in four U.S. flights was delayed.  System overhaul costs are expected to exceed $35 billion over the next 15 years; the American Recovery and Reinvestment Act  / stimulus has only pledged $150 million – far too little to keep problems from escalating.

Smart Electric Grid – There are over 200 different standards that apply to technology in the smart grid and up to 60 or 70 that only apply to ‘smarter’ appliances. There is little national coordination and this will continue. The ARRA set aside $4.5 billion for grants that will improve the grid but far too little project coordination exists. Some organizations, like Boise’s Inovus Solar, have invented a new type of solar powered streetlight that ties to the grid and returns energy to it, or can operate totally outside the existing grid to offer light in any venue – regardless how rural.  The problem is getting its product recognized as a next generation improvement that can make a huge contribution to electric power reliability. While more focus will be generated on the Nation’s smart grid issues, it will remain too fragmented in 2010.

Merging Metro Areas – Consolidation will continue to gain momentum. Even though human nature drives the tendency toward local control and self determination, the practical side of consolidation will attract more attention. As of last year 38 regions across the nation have created some form of consolidated government. In 2003 Louisville and Jefferson County Kentucky created the new Louisville Metro government. Merging cities and counties is not new and has worked well is many venues (New York City, San Fransisco, Nashville/ Davidson County, Indianapolis/ Marion County to name a few). It will gain more favor as community leaders realize the economic value of mergers and that local control is not lost. In fact, greater control can be gained over a broader area, which, if done correctly, can produce greater efficiency, more effective programs, and higher productivity levels.

Outsourcing and Partnerships  – Information Technology, ambulance and emergency services, jails and prisons, human resources, employee development (training), and a variety of other services will be more closely examined for potential outsourcing. It has been proven that government can do some things very well and, if moved to the private sector, costs go up due to the inclusion of profit margin. Once services, such as printing, move ‘outside’ there are no checks and balances to future printing costs. Custodial and grounds keeping services are notorious for cost escalation once moved to a private supplier. Economies are available, however, and the trend toward outsourcing and partnering will grow in 2010.

A variety of 2010 trends will hold true from 2009 – unemployment will remain high, gas prices will grow somewhat as oil grows to $75-$85 per barrel, and new building permits will remain slow – but will pick up from 2009 levels (building permits were down 37% in 2009). We’ll see GDP around 3% in 2010, with more gain in Q3 and Q4. Business will pick up as the economy begins to slowly recover, with a gain of around 1 million new jobs. This is not nearly enough for a robust recovery, but stages the country for a stronger 2011. Inflation should be relatively tame at around 2%, down from 2.7% in 2009.

To avoid a massive, long-term depression and promote a more rapid recovery, the federal government allocated huge sums for the stimulus – much of which is not yet spent. Government spending is now at 25% of GDP – well above its recent historic level of around 20%. Entitlements will wreck the country if something is not done. The political theater is totally out of control – virtually nothing is being done to address serious, truly catastrophic fiscal issues while the two parties vie for control. This has become highly toxic…and is not party specific. Members of BOTH parties contribute to the rhetoric, earmarks and nonsensical spending. No one seems to want to take the lead to solve the most serious problems – all of which will take public sacrifice. The annual deficit now equals about 10% of GDP – the highest since WW II. The federal public debt now stands at $7.8 trillion and, at the current pace, will equal two thirds of GDP by 2014. At that rate, by the end of this new decade interest payments will be $800 billion annually – 16% of the total federal budget.  Add defense and Medicare and we have a mountain of compounding obligations without associated funding. When will there be the political will to address this issue? The cost of borrowing will increase, the rate of Treasury bonds will escalate, and the U.S. stands to lose its top credit rating…which in turn increases rates and reduces negotiating power and global economic influence.

In general terms, 2010 will not be a bad year. But it is a year in which we must begin to pose workable remedies to deficit spending and pay more attention to rebuilding the fundamental elements of American enterprise, innovation, and infrastructure. So far, there is no demonstrable or collective political will to undertake the necessary actions. Governors, mayors and commissioners are up against the wall. They must balance tight budgets while operating lean agencies that still provide decent and adequate services. We are finding a new center, both economically and with regard to levels of service. The road ahead is challenging and filled with temptations. But it is the road to a stronger America and it is the only road that matters.

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. Founder and President of The Futures Corporation  and an innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges. He holds both the MPH and MPA degrees as well as a doctorate in education.

Predictions for 2010

After some weeks gathering mountains of data to support various predictions it became apparent that there is enough information for several discussions. My predictions pertain primarily to local government but relate to the broader society. In particular, I am deeply concerned about state and local government – and our communities where we live and work and, for the most part, where leadership decisions have immediate impact. Let’s begin with two major interrelated concerns- oil and economic recovery.

Oil – We cannot continue to avoid discussions about the realities of peak oil and how the relatively rapid decline of oil reserves will impact society. Even though it is a platform for daily life, economic vitality, and industrial progress, few seemed inclined to address and plan for the impact of declining reserves or the hoarding that accompanies every decline in a precious resource. This cannot continue. The good news is that, according to Jad Mouawad in his New York Times article (9/24/09), over 200 discoveries have been reported in dozens of countries by huge oil conglomerates (Exxon Oil, ConocoPhillips) as well as by smaller players (Tullow Oil). Oil prices have stabilized at around $70 per barrel after falling to $34 in late 2008. Oil companies have stated that prices must be above $60 a barrel to support development of existing and new reserves. I believe that oil prices will continue to meander upward toward $85-$90 a barrel as exploration and oil field development continues. Per gallon cost will increase but will support supply and production at a level that may extend peak oil predictions another two to three decades. Because there have also been new discoveries of natural gas coupled with amazing new extraction technologies, price escalation will also be moderated as supplies remain stable. This will allow time for technology to provide greater vehicle efficiency, alternative energy sources, and much more emphasis on conservation.

Economic Recovery – It has been said before and needs to be repeated – economic recovery will be slow and just because citizens want and expect good times to return quickly, it just won’t happen. There are too many ‘converging variables’ that mitigate rapid recovery – personal and corporate savings are still far too low; people and too many businesses are overextended financially and have too much debt; global financial markets are afraid of the huge U.S. federal debt; the foundation of trust so critical for healthy financial markets has been eroded and is not likely to surge back any time soon; overall income, sales, and property taxes will be lower and will create Catch-22’s as local governments try to balance stressed budgets while sustaining service levels. Entitlements are not being addressed by elected representatives who will continue to squabble over earmarks and political agendas while the U.S. digs itself deeper. Social Security, Medicare and Medicaid are especially onerous and are looming as disasters-in-waiting. Unemployment will continue to remain high, perhaps drifting below 9 percent by 2011 but close to 10 percent through 2010. I see high unemployment for several years- it might be 2013 or 2014 before we see unemployment drop below 7 percent. There just isn’t the right mix of economic development opportunity, future vision, international trade, natural resources, new markets, etc. to generate a lot of new jobs. Will some growth occur? Yes, but in most communities job growth will be stagnant and the impact on municipal commerce will be very negative.

GDP will grow about 3 percent in 2010 with perhaps one million new jobs. Consumers will open up a bit, with approximately 2 percent more spending, after contracting to 1 percent in 2009. After falling to around 600,000 in 2009, housing starts should exceed 700,000 – and perhaps will exceed 800,000 if banks become more cooperative. This is still far below the 1.5 million new housing starts we have grown to expect, but a new beginning. Generally, traditional businesses enter 2010 in a hyper conservative mood; spending will be careful and major expenditures will be delayed as long as possible. This, coupled with reduced federal government stimulus spending, will dampen any opportunities for rapid growth and accelerated spending. (Significant amounts of the $787 billion stimulus program will continue to be spent, but several elements – tax breaks for home buyers, extended jobless benefits, additional food stamps, COBRA subsidies, and other special programs will expire in 2010.)

Many state governments are in dire straits. Budget shortfalls already total in the tens of billions and should grow. California alone has a $42 billion deficit and projects the elimination of close to 60,000 jobs. This is in addition to already furloughing 238,000 jobs to reduce its deficit. Well over 50 percent of the states are struggling to balance budgets – and all of this will impact municipal government as funds are cut and programs reduced.

Infrastructure should receive more funding – up to $50 billion more for infrastructure spending, which will target airport, mass transit, water systems, and waste treatment construction projects. There is also talk about another form of stimulus – around $100 billion to create or save jobs. This should have bi-partisan support as mid-term elections draw near.

The auto industry is in a major transformation and the reality of its ‘recovery’ is not widely discussed. In actuality, auto sales declined from a historic annualized 16.5 million vehicles to between 9 and 10 million in 2009. While ‘recovery’ is an optimistic term, this industry in fact may never return to more than 12 million vehicles in annual sales. Between 1950 and 2008 the U.S. increased from 49 million to 250 million vehicles on the road. However, in 2009, 14 million cars were scrapped while around 10 million were sold, shrinking the fleet by 4 million vehicles. If this trend continues (which I believe it will), the U.S. could have fewer than 225,000 cars/ light trucks on the road by 2020. Light rail, express bus systems, and other transportation modes could very well converge to further shrink the auto industry – reducing this key industry’s contribution to GDP.

2010 is a transformational year. In my new article, The Tyranny of Normal, I discuss the tenacity with which people hold on to what they consider ‘normal.’ We expect shopping malls, great highways, ample drinking water, clean streets, waste treatment, and a host of other services. Public demand has never been higher and, as services are stressed or reduced and their quality or breadth diminished, there will be a clash between expectation and reality. I am concerned for our communities as they continue moving through a very difficult transition. Mayors, Councils and Commissions will be petitioned to provide ‘normal’ service levels when that is no longer impossible. How will they respond? What will they say? How can they prepare? Are their communities moving fast enough and in the right direction?

More predictions and discussion on the ‘new normal’ in my next Blog…

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges (public futures at http://www.futurescorp.com).

Competing for the Heartland

Back in November I wrote a Blog titled ‘Best in Class,” citing a Forbes article that listed the Top 10 best cities in America to build a business. Review of that article and its rationale for selection into this elite class encouraged more consideration of Richard Florida’s superb book Who’s Your City, which describes characteristics that generally attract young talented people and new business enterprises. Florida’s premise is fairly straightforward – if you want a vibrant, growing and competitive city, it must have the ability to attract the best and brightest.

As I was developing predictions for 2010, I found myself more interested in the questions surrounding out- and in-migration of people, why they choose to leave (or stay) and what might prompt a talented person to pull up stakes and search for a new city. For those of us who spend considerable time working on economic development and building efficient communities, this seems a central question.

For those elected officials and professional public managers who have not read the new book by Patrick Carr and Maria Kefalas, it is a must-read. Hollowing Out the Middle: The Rural Brain Drain and What It Means for America is a marvelous book about the motivations and heartache that accompanies hard decisions related to abandoning a nurturing rural community. Journalist Nick Reding has captured similar sentiments and causative factors in his equally powerful book, Methland, which documents the new economy, changing social structures and the corrosive polarity that exists between the communities celebrated by Richard Florida and those he, Carr and Kefalas describe.

Let’s be clear – the U.S. landscape is changing. And it is not a slow, passive trendline. Current economic forces are accelerating the evolution of many communities. Young and mid-career people who cannot find work are leaving for larger, more dynamic cities. While those cities are and will continue to prosper in the New Economy, communities that do not evolve quickly will slowly fade. While this accelerating trend has been well documented, remedies have also been proposed. Unfortunately, far too many communities have not responded or waited too long to mobilize resources.

As I return to my predictions for 2010 (out next week) I encourage you to think about the status of your community, your department, and your citizens. Is there magnetism that can be used to attract new business and talent? What is the mood of the community? Is there a reasonably high level of ‘can-do’ spirit? What are out-migration trends among both employees and residents? Are you seeing new residents choosing the community and asking why?

Communities must be more Prepared For Challenge than ever before…and must develop a plan. Take time to pick up the books mentioned above. They may provide insight and encouragement, if the depression doesn’t get you first.

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges (public futures)