Beyond 2011

The fiscal realities confronting cities include a number of persistent concerns.

  • Real estate markets continue to struggle and tend to be slow to recover from downturns; projections indicate a very slow recovery of real estate values, meaning that cities will be confronted with declines or slow growth in future property tax collections not just in 2011 but most likely through 2012 and 2013;
  • Other economic conditions - consumer spending, unemployment and wages - are also struggling and will weigh heavily on future city sales and income tax revenues;
  • Large state government budget shortfalls in 2011 and 2012 will likely be resolved through cuts in aid and transfers to many local governments;
  • Two of the factors that city finance officers report as having the largest negative impact on their ability to meet needs are employee-related costs for health care coverage and pensions. Underfunded pension and health care liabilities will persist as a challenge to city budgets for years to come; and
  • Facing revenue and spending pressures, cities are likely to continue to make cuts in personnel and services, and to draw down ending balances in order to balance budgets.

A note about municipal default and bankruptcy: While much of the news about the fiscal conditions of cities points to a sector increasingly confronting the ramifications of a sustained economic downturn, too much attention has focused on the prospects of municipal bond defaults and municipal bankruptcy.  Municipal default and bankruptcy have been and continue to be, despite recent challenges, rare and idiosyncratic cases.  City fiscal conditions are tight, but the overwhelming majority of cities are balancing their budgets and meeting debt obligations.  The real challenge for cities and the national as a whole, as NLC's annual report reveals, lies in the effects of local service and personnel cuts on local economies and quality of life.  For more, see: "Crying Wolf About Municipal Defaults"  and "Municipal Bankruptcy: A Story in Search of a Trend".