Nation’s cities foresee budget shortfalls for years to come

According to a new report by the National League of Cities (NLC) the municipal sector is on pace to see budget shortfalls reach between $56 and $83 billion over the next three years. The group says federal legislation, such as a jobs package, transportation and energy efficiency programs, and renewed focus on credit to small business will help cities through the expected revenue declines.

The NLC board of directors held meetings last week in Washington, D.C. to call for more federal help in making sure gains made through the American Recovery and Reinvestment Act are not diminished at the municipal levels of government.

“While Recovery Act funds are beginning to arrive in cities, without greater federal intervention cities will continue to slide and will hobble the national recovery for years to come,” NLC President Ronald O. Loveridge, mayor of Riverside, California, said in a statement. “We urge federal action that would create jobs.”

According to the NLC, cities are facing layoffs, furloughs, cancelled contracts with small business and vendors, and reduced services due to declining revenues midway through the fiscal year. And those problems are expected to worsen over the next three years. Another big concern is cuts in state aid – a major source of pain during the 2001 recession.

The group said cities usually trail national economic recovery trends by two years, and that states cut aid to cities by 9 percent in ’03 and ’04 in response to the 2001 recession. If similar cuts are made over the next two budgetary cycles, cities will lose an estimated $21 billion in combined funding, the report said.

“In comparison, the current recession is by nearly all measures more severe than the 2001 recession, suggesting that state cuts in transfers will, if anything, be more severe as well,” the report emphasized.

Several examples were cited in the report, foreshadowing problems to come:

  • Baltimre: $127 million shortfall, likely resulting in a next round of layoffs and furloughs after already having eliminated more than 500 positions.
  • Los Angeles: $98 million shortfall in 2009-10, $408 million in 2010-11, and predicting total shortfall near $1 billion by 2013; the city has already removed 2,400 positions from the city payroll through early retirement, furloughs and other workforce reductions.
  • Denver: $120 million shortfall, resulting in layoffs of 80 positions and early retirement of 322 city workers.
  • Little Rock, Ark.: $2.8 million shortfall, resulting in $200,000 cut in police services and $450,000 cut in fire services.

To combat the grim outlook, NLC officials are urging federal investments in rebuilding infrastructure, improved access to credit and targeted aid to local governments must be included in any future jobs package legislation. Additionally, the NLC board urged federal passage of key priorities for cities, including the authorization of a new federal surface transportation program, fully funding the Energy Efficiency and Conservation Block Grant Program, and continued focus on the housing market.

“Inaction at the federal level could worsen the already difficult situation facing cities and the country,” Mayor Loveridge warned.

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