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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.

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