|
NLC Survey Finds Cities' Financial Conditions Worsen
09/01/09
Washington, DC – Cities are in the early stages of registering the effects of the nation's economic downturn, according to the National League of Cities (NLC) annual report on fiscal conditions. The report finds that the ability of cities to meet their financial needs will only worsen through 2010 and beyond.
The report, "City Fiscal Conditions in 2009", reveals that cities face significant budget gaps (-2.9%) this year, due to the decline of income (-1.3%) and sales tax (-3.8%) collections. These taxes are typically the earliest source of city revenue to decline as job losses in a community increase and consumer purchases decrease. Property taxes, which make up the bulk of city revenue nationwide, are beginning to slow (1.6% growth) as real property assessments are adjusted to reflect declining housing values.
Because most city tax revenue is collected only at a few specific points during the year, or over the course of several years in the case of property tax revenue, there is usually a time lag of 18 months to several years before economic shifts have an impact on city fiscal conditions.
Report co-author, Michael A. Pagano, professor at the University of Illinois at Chicago, cautions: “Cities face the burden of confronting the effects of the downturn for years after any recession ends. This means that cities will be navigating the implications of the downturn for awhile longer, even if the business climate turns around immediately.”
In the face of declining revenue and increasing expenses, city finance officers are pessimistic about cities’ abilities to meet their financial needs. Nine in ten (88%) say this year will be difficult in meeting fiscal needs, while 89% expect the same in 2010. This is the worst outlook the report has detailed in 24 years.
Under state law, most cities are required to balance their budgets, which means their expenses cannot exceed revenues in a given budget year. According to the report, to meet projected budget shortfalls, cities are taking a number of steps to cut back expenses or raise revenue. Cities are instituting hiring freezes or layoffs (67%), canceling capital infrastructure projects (62%) and cutting services other than public safety (32%). Many are decreasing spending on non-personnel operating expenses.
To raise revenue, according to the report, cities are increasing the fees charged for city services or increasing taxes. Four in ten (42%) cities are increasing the level of fees they charge and 25% are creating new fees for some services. The report indicates that 25% of cities have increased property taxes.
“The current economic situation is wreaking havoc on city budgets,” said National League of Cities President Kathleen Novak, mayor, Northglenn, Colo. “Although we are beginning to see signs of a possible recovery in the national economy, city officials will need to be more proactive than ever in terms of monitoring their budgets, reevaluating budget priorities, and identifying new revenue and savings opportunities.”
Most of the available economic data points to a slow recovery beginning sometime in 2010. Housing is expected to recover slowly with consumer spending remaining at low levels. Since these are the main drivers of property tax and sales tax revenue streams, cities will continue to endure a difficult economic environment in the coming months.
“Cities will be seeing difficult conditions for some time,” said Chris Hoene, co-author and director of research and innovation for the National League of Cities. “The impact of the housing market drop is really just beginning to be felt. City leaders and residents will need to work together more than ever to make decisions about the future of their communities in terms of the types and levels of services cities will provide in the next few years.”
The report also calls for a greater coordination of effort among local, state and federal governments in responding to these challenges.
“It is imperative that as the national economy recovers, the nation keeps its attention focused on the recovery of our cities,” said Donald J. Borut, executive director of the National League of Cities. “The fiscal health of our cities is essential to keeping our nation innovative and competitive on the world stage.”
The City Fiscal Conditions Survey is a national mail and online survey of finance officers in U.S. cities conducted in the spring-summer of each year. This is the twenty-fourth edition of the survey which began in 1986.
The National League of Cities is the nation’s oldest and largest organization devoted to strengthening and promoting cities as centers of opportunity, leadership and governance. NLC is a resource and advocate for 19,000 cities, towns and villages, representing more than 218 million Americans.
Through its Center for Research and Innovation, NLC develops, conducts and reports research on issues affecting cities and towns. The Center assists cities and their leaders to implement innovative practices by providing qualified information and technical assistance.
###
|