While the economy overall may beslowly recovering, public-sector budgets won't see much reliefuntil a year or more after the U.S. economy finally stabilizes.

“[The public sector] is always at least a year and a half or twoyears behind the rest of the economy when it comes to recovery,”says Sarah Perry, risk manager for the City of Columbia, Mo.

Municipalities, she explains, have to base budgets on thenumbers they have on hand; they can't project variables like taxhikes or other revenue increases into the budget.

“We have always been very careful, fiscally,” says Perry, andthat prudence has paid off. “We're not like other public entitiesthat have had massive layoffs.”

In Columbia, “the pension battle continues,” Perry adds. Publicentities, she notes, are among the few organizations that stillhave pension programs—although many do not have defined plans forfunding them in a beleaguered economy.

Columbia is still paying pensions but also taking a harder lookat funding and the retirement-eligibility process, she says.

In Gainesville, Ga., “we did have some layoffs, but thankfullynot nearly as many as some public and private organizations havehad to face,” says Cindy Mallett, the city's human-resources andrisk manager.

Scaled-back budgets forced Gainesville, just north of Atlanta,to cut some of its social-services programs, raise taxes, lay offsome 25 public employees and make other city workers take monthlyfurloughs. The public workforce has been reduced by some 10 percentsince 2009.

But the economic situation is brightening: In November the citycouncil approved a one-time payment of $1,000 each for allfull-time public employees (who had not seen a pay raise since2007).

The move stemmed from an unexpected budget surplus that was some$1.3 million higher than expected; the city attributed it to taxesand municipal court fines that brought in nearly $400,000 more thanwas projected, as well as to money-saving efforts by citydepartments, like police and firefighters, which spent nearly$800,000 less than expected due to their own fiscalmindfulness.

Mallett says she's pleased the city's cost-conscious effortshaven't been in vain.

“I don't know that it's so much the economy is improving—or thatwe have, over the last couple of years, tried to make some choicesthat would put us in a better position.”

About the future, she says, “I'm cautiously optimistic.”