Recession-Proof Your System

     Crises in housing, oil, finance, credit and food are impacting homes and businesses across the nation, and the emergency services aren't exempt. Emergency service organizations (ESOs) are less immortal than many want to contemplate. If the current economic crises continue to worsen, many ESOs may find themselves in need of financial rescue, with nowhere to turn.

     That places a premium, then, on reducing waste and finding ways to spend more wisely now. As an officer or director of an emergency service organization, you should begin this process by clearly defining your ESO's responsibilities to the community you serve and the minimum resources needed to fulfill those functions. What you come up with may be remarkably different from what your ESO has actually evolved into, and the differences may be where you can save. Whether you are an EMS provider that has functionally become a transportation company or a fire department turned mostly code inspection service, defining your purpose can help you recognize your nonpriority agreements and reduce nonessential spending.

CREATING A FINANCIAL TASK FORCE
     To get started, you'll need to create a financial task force. It may be composed of internal and external auditors, officers and local business owners. This may sound like your current board of directors, but it's not the same thing. Your board focuses on the entire picture, whereas the task force focuses specifically on financials. Keeping the bodies distinct and separate can keep the process free of board members' own interests and agendas.

     The task force's goal is to review your balance sheets, cash flows and income statements. It should establish short- and long-term financial strategies with flexible budgets. Financial strategies are much like strategies used for firefighting or managing difficult rescue operations. You must look at the end goal first and work backward to calculate what you'll need to get there. As in a fire/rescue operation, you must always reevaluate your financial strategy to see if it is working and make corrections along the way to accommodate the unforeseen.

     To facilitate a debt consolidation plan or cash management policy, the task force may recommend instituting a moratorium on nonessential spending. Nonessential spending includes anything outside the mandatory minimums needed to operate your ESO. Items that fall into this category may include:

• mobile phone services
• vehicle wi-fi cards
• dress uniforms
• employee bonuses, stipends and gifts
• volunteer pension plans and benefits
• holiday parties and banquets
• training and travel expenses
• officer expense accounts
• officer vehicles
• subscription services (cable TV, Internet access, periodicals)
• system upgrades (radio, office and operations equipment, software, social operations)
• cleaning services/housekeeping
• public relations/fire prevention programs
• building upgrades/aesthetics
• support staff
• inventory controls.

     A moratorium could last several months to several years, depending on your financial strength. The items listed are often overlooked but could collectively amount to thousands of dollars per year.

THE NEED FOR TRANSPARENCY
     Many ESOs are still governed financially by a social side of their organization. Unfortunately, this division may create issues when trying to access and understand your financial strengths and weaknesses. Too often the social side limits the operational side from viewing detailed financial information. If you are struggling with this situation, you must be persistent about gaining access to this vital information. Fully transparent financial records keep everyone honest and budgets in line. Honesty is important during every economic stage but may be critical during a recession or depression.

BANK, INVESTMENT ACCOUNTS
     A bank run occurs when a large number of banking customers fear their bank may fail and begin withdrawing. When faced with mass withdrawals, the bank may become destabilized and collapse. The most recent bank run in U.S. history occurred in March. Customers of Bear Stearns feared the subprime exposure was too great for Bear to handle. With the resulting run, Bear's market capitalization decreased by almost 90%, and the company was doomed. This unfortunate and unusual situation may play out again in the near future with other banking institutions.

     All bank accounts are insured by the Federal Deposit Insurance Corp. However, FDIC protection is only up to $100,000 per depositor and may not cover all ESO assets held at a bank. ESOs should keep their assets at any one bank under $100,000, including certificates of deposit. To ensure coverage, ESOs might divide their assets between several banks. Another alternative is to utilize a brokerage account. Every brokerage account is insured by the Securities Investor Protection Corp. (SIPC). The SIPC insures accounts up to $500,000 ($100,000 cash, $400,000 securities) combined. Most brokerage firms offer money market accounts, which are considered securities by the SIPC. Additionally, most brokerage firms offer supplemental account insurance for up to several million dollars at no charge.

     Investment accounts should be reviewed with your financial advisor. Consider utilizing stop-loss orders for all of your equity positions, including mutual funds, stocks and investment trusts.

CREDIT LINES
     Most corporations have credit lines available should they need them to cover expenses or purchase capital items. ESOs should establish their own lines at high-rated banks. These lines should never be utilized for nonessential items, and should only be used if your ESO can afford to pay them back in full after considering major income decreases. Never consider paying bills with credit unless you have exhausted every other possible solution, including negotiating with the creditor, fundraising, advances on municipal stipends or outright begging for donations.

BUYING COOPERATIVES AND VENDORS
     There are many buying cooperatives available to nonprofit and municipal organizations. ESOs can access many of these with little effort or monetary commitment. Buying cooperatives have been established for just about everything from vehicles to office supplies. If a specific cooperative does not meet your needs, join several or create your own. Fire and EMS associations can be helpful in creating a strength of numbers to negotiate with vendors.

     Negotiating contracts with vendors and insurance providers takes great skill. The person sitting across the table from you knows this already. If you push too hard, they may walk away, leaving you with substandard vendor choices. If you push too little, you may pay too much or receive too little in return. The use of a professional buyer or negotiator might be a better solution when dealing with vendors. Additionally, your solicitor or legal counsel should be consulted to review the details of any complicated contracts you consider. You must also consider the vendor's ability to deliver your prepaid goods and services should they encounter financial hardship.

STAFFING ISSUES
     Nonessential support staff may need to be dismissed during slow economic times. This difficult decision should be executed only with the full interests of your organization in mind. Supervisory staff may need to be redeployed into the field. Part-time staff may need to be removed from the schedule, and vacancies filled with salaried personnel. Contract labor may provide a valuable alternative to the rising costs of employee benefits. ESO employee unions and collective bargaining units may be forced to take concessions. Unions might consider possible concessions before mandatory cuts are announced.

     When forced to downsize staff, ESOs may spend a considerable amount of money on the remaining employees' overtime compensation. Overtime may be reduced by changing the status of full-time employees from hourly to salaried. Tracking trends in call volume, times and locations may be beneficial when scheduling crews and staging units. Overtime generated by late calls may be reduced by utilizing a dictation service for call documentation or incident reporting.

VEHICLE FUEL
     With vehicle fuel, as with any essential item, ESOs should examine three important factors: purchasing, conservation and cost recovery. Some ESOs purchase vehicle fuel at retail filling stations, which means they pay pump price. The pump price includes taxes and profit. Nonprofit ESOs may submit fuel receipts to a taxing entity and then receive reimbursement later, but they still pay a higher underlying price. Ideally, ESOs would purchase fuel from another nonprofit organization or a government agency (e.g., municipality, school district, airport authority). Alternatively, ESOs could buy from a taxable entity (e.g., trucking terminal, farm supplier or other taxable bulk purchaser of fuel). Vehicle fuel prepayment services are beginning to emerge on the Internet. If you are considering a fuel prepayment service, perform due diligence on the provider. If you are unable to make arrangements with any nonprofit or bulk purchaser and still utilize retail filling stations, consider paying with a cash-back credit card.

     Conserving vehicle fuel should also become a priority. Shutting down units on extended incidents and preventative vehicle maintenance schedules may dramatically reduce fuel consumption. Consider reducing box or run assignments and vehicle staging during peak times. Limit participation in parades and uncompensated low-risk standby events. Powering vehicles with alternatives like biodiesel or ethanol may be impractical for most ESO apparatus, but these or hybrid vehicles may be useful as support or auxiliary vehicles. Needless to say, methods deployed to reduce fuel consumption should never compromise provider or patient safety.

     To offset the rising costs of vehicle fuel, EMS may want explore a fuel surcharge. Fire departments may need to increase permit and inspection fees. Volunteer ESOs that do not bill for services may need to reconsider. Finally, you could appeal to your municipality for an increase in your annual stipend.

GRANTS
     Presently there are billions of grant dollars available from both public and private sources that savvy organizations can take advantage of. Grant research and application processes can be extremely time consuming and frustrating, but I encourage you to pursue them. Consider hiring a professional grant writer with ESO experience to achieve your goals.

MUTUAL AID ABUSE
     In times of economic downturn, municipalities may become financially depressed or even blighted. If communities can't afford and maintain adequate emergency services, mutual aid requests into these areas can increase, with coverage gaps filled by surrounding ESOs. Filling these gaps comes at a cost: Who is covering your area while you're gone, and who's ultimately paying for it?

     ESOs facing this situation may need to negotiate with the blighted municipality and establish an escrow account that funds uncompensated responses. The escrow account would ensure bill payment if the blighted municipality were to face bankruptcy. Habitual abuse of ESO mutual aid may eventually lead to conflict and should be addressed quickly.

THE NEXT STEPS
     As you pursue these measures, you should clearly define your ESO's responsibilities to the communities you serve. A clearly defined core mission forces you to scrutinize nonpriority agreements and nonessential spending. Carefully review all your revenue streams, assets and liabilities to determine your financial strengths and weaknesses. Increasing your ESO's debt during these tumultuous times may prove fatal to your organization. Use great caution when considering major capital purchases. Creating buying cooperatives and purchasing groups with other ESOs is a good start, but more may be required. Try bulk purchasing for vehicle and heating fuel, equipment and anything else you need. Consider working through associations when negotiating prices or seeking bids. Bidding will become more competitive as the economy declines.

     Closely scrutinize emergency vehicle usage. Reconsider participation in parades and standby events, and that SUV your chief may be driving. If your department is staffed by volunteers, consider a fuel stipend to ease their pressure. Pension plans and security portfolios should be evaluated to determine your exposure to subprime or mortgage-backed paper. Discuss your concerns with your advisor or plan manager.

     Reexamine energy efficiency to prevent wasting valuable electricity and heating fuel. Most energy providers offer their customers this service for a nominal fee. Electricity providers may have financial assistance programs for ESOs.

     Posing "what if?" scenarios and asking uncomfortable questions may be necessary to secure your ESO's financial stability. A discussion with your elected officials is highly recommended, but use caution when approaching them. Do not spring this on them during a public meeting; consider a workshop or executive session. Elected officials have to crunch numbers for entire municipalities, not just the ESOs, and potential problems do not take priority over real ones.

Michael J. Abrams is a securities trader at Ridgeway & Conger Member FINRA/SIPC/MSRB in New Woodstock, NY. Michael serves as a deputy emergency management coordinator for the Board of Supervisors of North Whitehall Township, PA. Michael has worked as a paramedic in urban and rural settings.