Beware of Budget Cuts that Bite Back

How to Minimize Liability Exposure While Tightening the Public Belt

It’s a safe bet that relatively few public entity administrators or officials grew up wishing they’d become magicians one day. But if you read closely between the lines of their job descriptions, the role is evident. Somehow, they must pull off the amazing feat of providing quality service while protecting both the public they serve and their balance sheets — all with diminishing funds and resources.

When push comes to shove, what do you cut? An important part of such decision-making involves balancing budgetary cuts in areas such as employee training or equipment maintenance against the long-term consequences of liability exposure. Without doing so, “short-view” actions could prove costly in the long run.

Fiscal Pains and Service Strains

Despite recent glimmers of light at the end of the economic tunnel, the meltdown that began in 2008 continues to wreak havoc on cities, towns and states across the U.S. Funding cuts, falling tax revenues and diminished grants are forcing public entities to trim back services, programs and training. The resulting fiscal pain has become a national epidemic affecting education, health, welfare, public safety and state infrastructures.

At a time when consumers’ disdain for gas prices and regard for the environment have led to increased public transit ridership, the level of service provided — and the ability to ensure public safety — have been compromised. According to a June 2009 survey by the American Public Transportation Association, more than 80 percent of public transit systems have seen flat or decreased funding from local, regional and state sources, with 89 percent of surveyed systems forced to raise fares or cut service.

Cuts and Consequences

Two areas with arguably the greatest potential for liability exposure and long-term consequences (and therefore strong need for budgetary protection), are training and equipment maintenance. Compromising on the quantity and quality of training is a four-star recipe for disaster. A lack of proper training on policies, procedures and protocols jeopardizes the safety of the public and the employees who serve them, creating a tremendous opportunity for injuries and other incidents leading to liability claims.

Along with training, equipment maintenance is an area where budget cuts can lead to big problems. Public safety is put at risk when the replacement of outdated equipment is deferred, and “making do” with older technology and infrastructure can often prove to be a costlier decision in the long run. Similarly, the deferral of much-needed maintenance, including items such as regular fleet checkups and documented inspections, can only increase the risk of injury or loss of life.

Insurability Issues

In addition to creating opportunities for a breach in public safety and trust, budget cuts that increase liability exposure can be a pain in the wallet when it comes to insurance.

For starters, greater liability exposure increases the potential for claims. It can also lead to higher deductibles, as well as higher premiums stemming from adverse loss experience. In addition, self-insured entities may be required to fund higher retention levels. In a worst-case scenario, ongoing liability issues could make some public entities uninsurable.

Synergies and Solutions

The good news is that practical thinking about managing the budget and minimizing liability exposure can lead to creative solutions. Here are a few examples:

Job it out. Contracting with private companies to provide operations and services can often be a cost-efficient alternative to the status quo. In addition to waste management, public entities have done this with success in a number of areas including animal control, as well as for correctional facility management and food services.

Be civic minded. Your community holds a great many associations, clubs and local chapters of national organizations. Given their focus on community support, they may be more than willing to contribute basic services at minimal or no cost, thereby helping to alleviate overhead expenses.

Share services. Underutilized resources and services are a fountain of wasteful spending. For example, a neighboring town or county may have an underutilized training program, dispatch system or shooting range. Create synergy and cost-efficiency by joining forces and creating reciprocal or mutual aid agreements to provide the services for each other.

Bargain for training. Given the fiscal challenges at hand and the importance of training to help mitigate liability, negotiate with insurance carriers to provide onsite or specialty training at no charge, as part of an insurance package renewal. Carriers should have the right risk control expertise to support specific needs and tremendous motivation to help minimize liability exposure stemming from inadequate staff training.

Tackling a seemingly endless list of budget decisions affecting immediate and long-range issues is undoubtedly a daunting challenge. And while it would appear to require magic, it’s really about collaboration and creative approaches to problem solving. Before pulling the trigger on certain cost-cutting decisions, public officials should consult with their risk manager, attorneys and insurance agent to determine the potential liability exposure. Together, they can develop a strategy to minimize liability issues that can threaten the safety of the public and the bottom line.

Topics Training Development