Factors Influencing City Budgets

A number of factors combine to determine the revenue performance, spending levels and overall fiscal condition of cities.

In 2011...

  • Employee health benefits and pension costs have increased.
  • Infrastructure and public safety demands have increased.
  • Prices have increased.
  • State aid to cities, the local tax base and the health of the local economy have decreased.
  • According to city finance officers, changes in these are factors increasing pressures on city finances in 2011.

 

Leading the list of factors that finance officers say have increased over the previous year are employee health benefit costs (86%) and pension costs (84%). Infrastructure (79%) and public safety (63%) demands were most often noted as increasing among specific service arenas. Increases in prices, in general, were also oft-mentioned (84%). Leading factors that city finance officers report to have decreased are levels of state aid to cities (60%), the local tax base (53%) and the health of the local economy (42%).


When asked about the positive or negative impact of each factor on city finances in 2011, at least seven in ten city finance officers cited employee health benefit costs (82%), pension costs (80%), prices (78%) and infrastructure demands (70%) as negatively effecting city budgets. A majority of city finance officers also cited the level of state aid (58%), employee wage costs (56%) and public safety costs (54%) as having a negative effect.

 A note about city pension and health care benefit costs: Over the last decade, city finance officers' assessments of the pressures on city budgets have consistently ranked pension costs and the costs of employee and retiree health care benefits at the top of the list.  Demographic shifts are a key driver of these pressures as the workforce in the public sector confronts the same pressures as the population overall - a wave of people entering the traditional retirement ages.  Policy decisions about pension and health care benefit levels have increased pressures on city budgets as well.  But, much of the national policy dialogue on public sector compensation and benefits portrays the challenges in this arena as a near-term crisis.  For the overwhelming majority of cities, pension and benefit costs represent a small, but growing, percentage of annual budgets.  To manage these costs in the future, city leaders will have to weigh decisions about changes in the structure of pensions and benefits against concerns about their ability to attract and retain a skilled workforce.  Many cities are already making decisions to restructure pensions and benefits in order to better manage costs. For more information on this issue, see the Center for State and Local Government Excellence (http://www.slge.org/).