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The rolling thunder of the housing, oil, dollar, credit and food crises is being heard in homes across the nation. Also included are the "homes" of our emergency equipment and the crews that staff them. Emergency services organizations (ESOs) are more sensitive to the crises than many want to contemplate, although a failure could be devastating to a community. If the economy worsens, some ESOs may find themselves in need of financial rescuing with nowhere to turn.
ESO financial stress has resulted from many factors, including insufficient insurance reimbursements, decreased public contributions and operational expense increases. Many ESOs continue operations by reducing spending, reducing savings or increasing revenue by way of non-core business activities such as carnivals. Some ESOs approach their municipalities for increased stipends with mixed success. Others take advantage of public and private grants and some have been fortunate to be named beneficiaries in community members' estates. Most of the ESOs that were managed by less financially savvy individuals have ceased operations and their assets were absorbed or liquidated.
While recently attending a National Incident Management System (NIMS) ICS-300 class; I thought about the potential impact on ESOs by an extended economic downturn. After a long day in the financial markets, I was mentally exhausted. My eyes shifted between the wall clock and a photo of a derailed train containing hazardous material cargo near a city. The instructor encouraged the participants to shout out their concerns and any actions that should be taken. Resident safety and the need for a large scale evacuation were quickly prioritized. As the class members worked through the scenario, they ordered close to a million dollars' worth of supplies, personnel and equipment, all assuming someone will pay for it. Considering that few municipalities would be able to pay for this type of response, I suggested that the simulated elected officials sign a disaster declaration, thus gaining access to a ladder of disaster funding -- from local to county, county to state, state to federal.
I continued to think about the funding for the everyday emergencies. Would the same funding occur if the locals faced lower tax revenue and could not afford the growing costs of their ESOs? I assume not, based on local history in which ESOs struggled financially, ceased operations and their territories were acquired by other ESOs. By failing to intervene, the municipalities potentially placed themselves and other municipalities at greater safety and financial risk if the acquiring ESOs succumb to financial hardship.
Post 9/11, the federal government made sure funding for emergency services skyrocketed to an all-time high. ESOs purchased everything from the vital to the insane. Although most ESOs truly needed the new-found money, some did not. This funding opened the door for ESOs to enter into all kinds of purchasing arrangement to include mortgages on new facilities and other term obligations like apparatus payments.
The housing crisis is being fueled by sub-prime adjustable-rate mortgages (ARM). These loans were created to let people buy homes with much lower interest rates for a period, typically three years. At the end of the defined period, the interest rate is "adjusted," as the name implies, and principal repayment begins. The result is a major increase in the monthly mortgage payment and no room to negotiate. In all fairness, ARMs are not just used by low-income buyers in urban centers, but also include "Alt-A" loans used to buy higher-end suburban "McMansions."
For the purposes of this commentary, please disregard any of the potential ARM loan clauses or special situations. We will also assume the following: the buyer is unable to afford the new monthly payment; the buyer was unable to secure a long-term fixed-rate loan because the loan-to-equity or value ratios are too high; and the buyer is unable to sell the home due to a declining market. Most buyers anticipated a market value increase in their home and assumed they would use this increase as equity toward refinancing.