Cities continue to face the prolonged effects of the economic downturn according to a new report by the National League of Cities (NLC). The 27th annual City Fiscal Conditions report shows that for the sixth straight year city revenues continue to fall as financial pressures such as infrastructure, health care and pension costs combine with cuts in state and federal aid to weigh heavily on cities’ bottom lines. Property tax revenues for municipalities continue to lag as the smallest parts of government still work their way through the aftermath of 2008. In some areas, tax bases have shifted significantly, creating funding gaps for aging infrastructure and public services.
In a survey of city finance officers, the report shows that as a result of these pressures, cities are making personnel cuts, delaying or canceling infrastructure projects and cutting local services. The report also projects that 2013 will continue to present challenges to city budgets due to stagnant housing markets, high unemployment, and looming federal budget cuts. The projected decline in 2012 general fund revenues represents the sixth straight year-over-year constant-dollar decline going back to 2007, this is notable as municipal spending has largely remained flat over the same period which speaks to a continuing decline in revenues rather than an uptick in spending.
According to the report, “In constant dollars (adjusted to account for inflationary factors in the state-local sector), general fund revenues in 2011 declined -2.3% from 2010 revenues, while expenditures declined by -4.0%.”
Cities are also facing continued cuts in state-aid, revenue sharing and have seen states shift more responsibilities down to the municipal level. Data in the report shows that 45% of cities have experienced cuts in state-shared or state-collected revenues; 42% have seen cuts in general aid. At the service level, 30% have seen a reduction or revocation of reimbursement programs; 22% have seen cuts in services provided by states to municipalities; 19% have had services normally performed by the state transferred to cities, and 24% have encountered state actions that reduce or limit local authority.
Some cities are starting to turn the corner, however, 43% of city finance officers revealing they are less able to meet city needs than last year. This number is an improvement over 2011 where 57% of finance officers said their city was less able to meet financial needs and considerably better than the 87% in 2010 and 88% in 2009 of finance officers who said they were less able to meet city fiscal needs than in the year prior.
Property tax revenues are projected to fall another 2.1% this year and income tax revenues are down 0.8% as unemployment still remains high. The loss in revenue is set against increases in pension and health care costs, infrastructure needs and an uptick in the demand for public safety related services. To fill the gaps, municipalities are relying on increases in user fees, and sales taxes which started creeping up in 2011, and are projected to continue to rise by 2.4% in 2012.
Two in five finance officers (43%) have raised fee levels, nearly half of cities (48%) are cutting public workers, decreasing human services spending (21%) and 25% are making deep cuts to parks, recreational programs and libraries.
“Cities have been making significant cuts to their budgets for several years now, and that trend will continue,” says Michael Pagano, co-author of the report and Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. He continued, “These are serious times for cities and their residents. Difficult, but manageable, financial hurdles for cities will remain for the foreseeable future.”