Local governments need to reevaluate the services they deliver to constituents—and identify other sources that could help them—to cope with ongoing fiscal distress, according to government and private sector leaders from the United States and Europe participating in a roundtable sponsored by the German Marshall Fund of the United States and ULI’s Daniel Rose Center for Public Leadership in Land Use.

The need for creative solutions will continue, panelists said, because the pressure on municipal finances is unlikely to abate soon. We could be in the “eye of the storm” for municipal finance, said Chris Hoene, director of research and innovation for the National League of Cities. “I know there will be a couple of years, even after things start to recover, until we see revenue growth.”

The roundtable, held in Washington, D.C., in September, gathered elected officials, government staffers, philanthropic executives, and academics from the United States, the United Kingdom, and Germany.

Both U.S. Representative Mike Turner (R-Ohio) and Atlanta Mayor Kasim Reed warned that governments cannot afford to stop investing in their communities, even as they attempt a long-term restructuring. ”I believe the natural state of a city is decay,” said Turner. If cities do not reinvest, they will decline, he said, causing a damaging out-migration of people and capital.

Reed said cities cannot afford to be inattentive to basic services, from potholes to police, if they are to maintain public trust. “If you start to have weakness in the public-safety space, when we emerge from the downturn you will have damaged your brand. You will be a loser.”

Reed recounted how Atlanta dealt with what some panelists warned could be the next fiscal bubble to burst—inadequate funding for public-employee pensions. In June, Atlanta’s city government and employees agreed on a plan to deal with $1.6 billion in unfunded pension liability. To help ensure that the pension plan would survive, employees agreed to fund a higher share of their benefits and to an increase in the retirement age, among other changes.

If it had been left unchecked, Reed said the pension deficit would have ballooned to $4 billion in ten years. “And at that point, Atlanta goes out of business,” he said. “We can’t pay a $4 billion liability.” Reed said the effort to resolve the pension issue amounted to an “extremely negative conversation” with city employees “lasting about six months. He encouraged officials to undertake such battles early in their terms, when they can rely on a bank of political capital. “The question is, does the leader have the pain threshold to deal with it?” Reed said. “The electorate will get it, but within the building [city hall], it’s terrible.”

Participants reported that they are relying on similar means to manage budgets: reducing personnel; consolidating government offices and functions; outsourcing to private sector contractors; and partnering with other levels of government, volunteers, and philanthropies. They also are trying to manage public expectations and reduce overall demand for services.

“Everybody wants their local government to control everything—until they find out what it’s going to cost them,” said Akron, Ohio, Mayor Don Plusquellic. In particular, Akron officials are examining what services would be delivered more efficiently at the county level. “This should force us to make some decisions we wouldn’t ordinarily do,” he added.

Mike Emmerich, chief executive of the Commission for the New Economy in Manchester, U.K., said one key to reducing spending is targeting the problems of dysfunctional families. Such families create a disproportionate demand for public services, including law enforcement. “If you’re really going to drive down the need for public services, you must not tackle only the probation budget, you must look at social services,” Emmerich said. “In the end, dysfunctional families are dysfunctional in myriad ways.” And, he noted, they are “making the lives of ordinary folks absolutely miserable.”

New York City is attempting a similar focus on issues affecting families, according to Linda Gibbs, deputy mayor for health and human services. For example, the city has connected data systems so that various municipal workers—whether it’s a parole officer, a child welfare worker, or someone handling Medicaid enrollment—can access the same family records. “We’re trying to take a more holistic approach,” she said.

The city has also streamlined the paperwork requirements for municipal contracts. Instead of establishing contracts with each unit of a government agency, a not-for-profit organization can sign one master service agreement with the city, which is maintained in an electronic database. Not only does it save the nonprofits time and money, but Gibbs said the city realizes significant savings on the contract-review process and on physical storage space for all that paper.

Noting that his city’s “core business” is social services, Birmingham (U.K.) City Council chief executive Stephen Hughes said they are trying to implement social interventions, funded by nongovernment entities, that can reduce demand for government programs. “That’s about prevention,” he said, “putting in place interventions that reduce social costs going forward.”

Hughes said, “In a sense, America would be a better place to do that because the U.S. has great philanthropic foundations that we don’t have. We’re so focused on government providing everything.”

However, representatives of philanthropic organizations, including the Kresge Foundation, headquartered in Troy, Michigan, and the Herbert-Quandt Foundation, headquartered in Bad Homburg, Germany, warned that local governments need to engage them as full partners, not as what Wendy Jackson, Kresge’s senior program officer, termed “charitable checkbooks.”

Christof Eichert, executive director of the Herbert-Quandt Foundation, said funding any troubled enterprise that is not willing to change the way it does business amounts to throwing money away. “Who is the owner of the issue, and is the owner willing to change his way of working, and is he willing to accept help? Then I can bring my capacity—and money—to help,” he said.

In Detroit, Kresge has been heavily involved in transforming the riverfront from industrial use to public space and is promoting construction of a new light-rail transit system. In these ways, according to Jackson, philanthropy can focus on long-term improvements to the community while government focuses on basic services. “We aren’t the elected leadership, and we know it,” Jackson noted.

She said philanthropic organizations have not explained themselves to municipal leaders well enough. “When they’re truly working in sync,” Jackson said, “they’re game-changing.”

The forum was cohosted by the ULI Rose Center as part of its ongoing efforts to encourage leaders in the public sector to envision, build, and sustain successful 21st-century communities. Established in 2008 by ULI Foundation Governor Daniel Rose, the center promotes public leadership in community building by providing access to information, best practices, peer networks, and other resources to foster creative, efficient, and sustainable land use practices.