Despite strong national economic growth and almost full employment, a new report from the National League of Cities (NLC) released today indicates that cities are still recovering from the Great Recession and shouldering the country’s residual economic burden. The report, which surveyed 341 city finance officers, shows that while city finances aren’t declining, they are growing very slowly and many cities still haven’t emerged from the defensive positioning that defined the financial crisis.
“Just as the national economy continues to expand, so too does city fiscal health,” said NLC research director Christiana McFarland of the findings. “But the untold story is that we are starting to see slowing growth and city leaders preparing for uncertainty ahead.”
Numerous factors indicate a more complex economic reality in cities across America as slowing housing markets, stagnating wages and the impact of the 2017 federal tax reform legislation influence the outlook of many city finance officials. In FY 2017, 10 years after the Great Recession, local revenues grew only 1.25 percent over the previous year compared to expenditures, which grew 2.16 percent.
Fiscal conditions are uneven in cities across the country. Communities in the Midwest are faring worse than those in other regions. Smaller cities, too, have a poorer fiscal outlook than their larger counterparts. The report attributes these difference to population and industrial losses that began before, but were accelerated by, the Great Recession.
Data in the report shows that all major tax sources grew at a slower rate in 2017 than they did in 2016 – a trend that appears to hold for 2018. That means it will be more difficult for cities to manage expenditures or plan for the future. Property tax, sales tax and income all grew at rates of under 3% compared with growth of 2.5-3% per year in 2016.
The federal tax cut signed into law last year is also having an impact on city finances. Thirty-five percent of city finance officers are already seeing negative fiscal impacts associated with the elimination of tax-exempt advance refunding bonds. Sixty-one percent report that the loss of this fiscal tool will have negative impacts on future fiscal health.
With fewer options for revenue growth, if the economy slows down, cities may find themselves in an increasingly difficult position. Demand for city services continues to rise as more people move to urban centers. That situation is already putting pressure on city services, less money to respond to those demands will be challenging for city leaders going forward.