7 ways to prepare your fire department for the next recession
Now is the time to take action, before reduced revenues and budget cuts tighten their grip on the balance sheet
By Anthony W. Minge, EdD, Senior Partner, Fitch & Associates, LLC
Isn’t it strange that when the economy is in an upswing, fire service agencies seem to forget about those financial issues that plagued us during troubling times? What can be even more perplexing is that those problems have most likely not completely gone away. Our attention, however, has been shifted to the positive, and we are not focused on those beleaguering financial conundrums that filled our every waking hour and haunted our dreams.
Perhaps our program has been the beneficiary of a windfall. Maybe the meager Medicare increase at the beginning of the new year added new life to the financials. And perhaps, in a few exceptionally rare cases, your state Medicaid program raised their ambulance fee schedule rates, in some instances for the first time in a decade. It could be that your program has even been the recipient of a generous donation, received a grant or, if your program provides such, seen an upswing in the purchase of memberships/subscriptions as people now have more disposable income. Personally, you may be focusing on the benefits to your own investments or retirement plan, dreaming of the days when you’ll reap the benefits of those hard-earned and invested dollars. Everything seems to be coming up roses!
All in all, I have learned that we are creatures easily distracted by the next shiny thing and are seemingly quick to forget about the hard times from the not-so-distant past.
Market realities: From booms to busts
According to whichever news channel, blog, periodical or podcast you pay attention to, the views differ from day to day regarding when the next “big one” will hit. I use this term because I think recessions are comparable to the California earthquakes. It’s not if one is coming but rather when, and those who aren’t prepared often suffer the most.
The facts are that we are currently in the longest-running bull market in history, and unemployment is at its lowest rate in decades. The Dow Jones Industrial Average has been performing at levels above expectation, with steady increases since early-2017, and continues to set records at a regular pace. There have been a few days were the market took a dive, but nothing has plunged us into the depths of a recession like we saw in 2007 and 2009.
Newton’s third law of physics teaches us that for every action, there is an equal opposite reaction. This has proven true, time and again for a variety of reasons, in our economy. With bull markets come bears, and for most every boom, there seems to be a bust. The good times overall seem to outweigh the bad, but that is no reason to think that bleak days are not on the horizon, and that we should not be preparing now to weather those storms. After all, in the past 60 years, there have been eight major recessions in the United States. A review of the timeline shows that, with the exception of two that closely followed a prior economic downturn during that period, these slumps occur on average every 10 years. Note again that the last recession was in 2009 – so it’s coming.
Fire service realities: The constant of increasing costs
A constant, during high times or low, is that fire and ambulance services costs increase. While fuel prices fluctuate, most things in the expense column of our budget remain constant at best or, more often than not, go up. When was the last time you had an employee come to your office and ask for a cost-of-living decrease?
We are more likely to increase salaries, expand benefit programs and make substantial system improvements and capital purchases during a boom. Budgets become more robust and boards and executives more readily provide approval. Spend, spend, spend because, like the old song says, “Happy days are here again!” Until the bottom drops out.
The fire service often falls victim to outcomes of a recession even though the events that precipitated it were outside of its control. Declining oil prices, high-interest rates and slumps in stocks are all things that can push the country into a recessionary period. We in the industry can be budget-conscious, fiscally responsible and active proponents for best practices throughout our service and still become a casualty when the economy sours.
Municipalities often try to keep business as usual until they can’t. At that point, lack of funding brings a whole new meaning to doing more with less when emergencies do not take a holiday just because the economy is in a downswing. Salary cuts, layoffs, brownouts, cutting the number of companies or resources available and hiring freezes are just some of the risks faced by the fire service when times get hard.
“Make hay when the sun is shining”
I heard a saying from elderly farmers while growing up in West Texas: “You make hay when the sun is shining.” Simply put, it means that even though you’d rather be out playing in the nice weather, you’d better be working and getting ready for the next rainy day. You cannot expect to be getting a crop in when the storm is blowing.
Applying this to fire service is easier than you may think. While it is true that we are going to be responding to fires, accidents and transporting patients regardless of the forecast, there are other things that we can be doing to prepare for the future before the grasp of reduced revenues and budget cuts tighten their grip on our balance sheet.
The Medicare and Medicaid connection
Medicare and Medicaid are the payor source for the largest percentage of most fire service transport agencies in the United States. Baby boomers are reaching retirement, or Medicare-eligibility age, at a reported average of 10,000 per day and are expected to continue at this rate for at least the next several years. This means that the cohort using your agency the most is likely going to continue to increase at a similar proportion for at least the next several years.
Last year Medicare rates increased modestly, again, for most states. What most people seem to forget is that Medicare rates do not always rise. In fact, they tend to decrease after a period of strong economic growth, at least for one annual cycle. If you don’t remember this fact, just pull up the fee schedule and look back a few years, and you will see that there have been a couple times since the inception of this payment model when the rates dropped.
Healthcare reforms have stimulated growth in Medicaid programs as well. This is another contingent that relies heavily on EMS. Meanwhile, most Medicaid programs do not see regular improvement for ambulance service rates. Most remain stagnant for years, even in the strongest economic periods. During times of deep recession and economic gloom, some Medicaid programs will even make cuts that negatively impact reimbursement rates. Watching these trends and understanding how your agency can be impacted is very important.
Preparing your fire department for downturns
While it is great to live in the moment, you need to prepare your agency for the inevitable future. Some things you can do “while the sun is shining”:
- Ask for funding. It may seem strange to be requesting money during times of financial stability or growth, but this may actually the best time to present your case for a subsidy. Public response to appeals for taxes and bonds may meet a more favorable response when personal finances are not constrained by the pressures of a recession. Gaining approval for a percentage sales tax increase or a bond now may give you access to much needed funds during the next fiscal plunge.
- Raise rates: Cost are always changing and typically they are not declining. As with taxes and bond requests, a price increase can be more palatable when your community is doing well financially. EMS, hazmat incidents and inspections are all areas that should be reviewed to ensure that costs are being covered and to determine if the market can bear an increase in one or more of these.
- Keep applying for grants: Services may become lax in applying for this type of funding when times are good. Application processes can be complex and lengthy. Keeping skills sharp and having a variety of requests in the pipeline will benefit the service in the long run.
- Grow your service lines: Focusing on obtaining agreements or more favorable contracts with surrounding communities or medical facilities is often easier when the economy is robust. Remember, it is easier to find ways to make more money when money is easier to come by. When the economy is good, people have more disposable income. This could be a good time to start a membership or subscription program if these are allowed in your area. Other opportunities could be offering educational services to other organizations.
- Replace aging equipment: You don’t have to replace the whole fleet; however, if you can afford it, request the capital to upgrade technology, vehicles and equipment to be as cutting edge as possible now. Outdated and overused equals increased service costs down the road. Planning now will pay dividends in saving on service and maintenance contracts in the future. The dollars saved may be the difference in keeping or laying off staff during the next financial rollback.
- Educate your firefighters: Most often the first items to be cut when the economy goes sour are travel and education. Now is the time to be improving the value of your staff by providing them with educational opportunities while you can afford it. You will need these skills regardless and it may pay benefits by keeping employees happy. If you invest in them now, there is a greater chance that they will be more willing to tighten the belt with you during the bleak days of a recession.
- Stay in touch with community leaders: Politicians are expecting to see you or hear from you when things are going rough financially, but probably not so much when the country is in a financial upswing. Make it a point to keep those things that are important to your agency in front of them during the good times. Don’t stop seeking improvements to fee schedules and reimbursement rates. The more rates improve now, the more opportunity you have to save and eliminate debt before the economy cycles to the next financial dip.
Time to observe some fire service “healthy paranoia”
I’m fond of the term healthy paranoia. This means that I am optimistically pessimistic and believe that even though things are going well, we always have to be on the lookout for trouble. Recessions are hard, some worse than others, but can be especially rough on the fire service.
The need for fire and emergency services does not recede when the economy takes a dive, and we have to be prepared to keep providing the same level of high quality, life-saving and sustaining care that our public has come to expect, regardless of where the stock market closes on any given day.