California’s $25 billion — and growing — budget deficit tends to grab headlines, but most of the real pain is felt at the local level where cities and counties struggle to deliver services to residents.

Local jurisdictions face the most serious fiscal challenge since the Great Depression. Like their counterparts in other states, city and county officials face plummeting revenues — up to 30 percent less, in some cases — as the economic downturn leads to less development, less consumer spending and, therefore, less income from fees and taxes. At the same time, they cope with increasing costs and demands for nearly everything from fuel and utilities to unemployment programming.

Our region has been hit particularly hard. The real estate boom, which fed our economic growth, also led local governments to expand services. The real estate bust has left our regional economy in worse shape than many others and our local governments with burdens they simply can’t afford.

Things may get worse before they get better: Local governments are bracing for even lower tax revenues in 2011 and 2012 as property tax assessments catch up with market changes. Add to that the fact that the state’s extreme budget distress is inextricably linked to local governments.

Given this grim reality, what can local governments do? There are the most obvious cuts to budgets, staffs and programs: layoffs, early retirements, capital programs postponed, services reduced. There are the drawdowns of reserves, for those who have them. These are all relatively tactical, short-term responses.

But, the best of our region’s city and county governments are using this fiscal challenge as an opportunity — just as the best of our companies have done and continue to do. They are asking strategic questions about the future size and role of government, about what they can and should do, in an economy where resources will be slim for years to come.

Several local government officials are going through a process of re-engineering their organizations by reviewing every department and every program to see how they can reduce layers, save administrative costs and maintain or improve service.

Personnel typically accounts for 70 to 80 percent of general fund expenses, so reductions must start there. Some administrators are whittling down and simplifying the number of layers and salary levels. They are renegotiating contracts to freeze salary and benefit increases as well as require employees to pay more into their health and pension programs.

In addition, administrators are looking at new ways to deliver services, often involving greater consolidation and collaboration. For example, in Sacramento County, officials are examining consolidation of services among cities and the county in such areas as emergency dispatch communication (911), police special team units and animal care services. Why not share resources and costs among all entities? It makes perfect sense.

To their credit, our local governments appear to be willing and able to seek opportunities for improvement within the challenges of the current economic crisis.

This is the most hopeful sign I’ve seen within government in a long time — and I applaud our local leaders who are trying to be the best possible stewards of the public’s resources under these difficult circumstances.

Winnie Comstock-Carlson
winnie@comstocksbusiness.com