Cities Cut Jobs and Infrastructure as Finances Continue to Weaken

September 27, 2011
The nation's cities are cutting personnel and infrastructure projects as the economic downturn continues to take its toll on city finances according to the National League of Cities' (NLC) 26th annual City Fiscal Conditions report

The report reveals that general city revenues are continuing to fall, with a projected -2.3% decrease by the end of 2011. This is the fifth straight year of declines in revenue with probable further declines in 2012. 

The revenue decline is mainly due to the suppressed property market that is negatively impacting property tax revenue. Property tax collections are expected to decline by -3.7% with further declines likely in 2012 and 2013. 

Income tax receipts are also experiencing a decrease of -1.6%. Sales tax receipts remained largely flat, but this is at last year's level which saw the worst decrease in sales tax revenue in 15 years.

Cities are responding by cutting personnel (72%), delaying infrastructure projects (60%) and increasing service fees (41%). One in three (36%) cities report modifications to employee health care benefits.

"The cuts in personnel and the delaying of infrastructure projects are prudent and responsible actions by local officials," said Donald J. Borut, Executive Director of NLC. He continued, "City officials are a making difficult decisions and are working hard to find innovative solutions to reenergize their communities. But without more resources and more cooperation, the outlook will continue to be challenging."

National indicators in the property markets and consumer spending point to continued economic struggles at the local level. Cities will have a difficult time in raising additional revenue for the immediate future. 

"The biggest question for cities lies in the uncertainty about the health of the national economy, which is driven by a collection of city-regional economies," said Christopher Hoene, Director of the Center for Research and Innovation at NLC. He continued, "If regional housing markets, unemployment, and consumer confidence struggle, city revenues will continue to lag, city leaders will face more cuts, and those decisions will act as a drag on the national economy." 

Cities have also been forced to contend with significant decreases in state aid, adding to the pressures facing cities. Since 2009, cities report cuts in general aid (50%), shared revenues (49%), and reductions in reimbursements and other transfers (32%). As states make these cuts to balance their budgets, it puts greater budgetary pressure on local governments that must balance their budgets as well. 

Confronted with revenue shortfalls, budget cuts, and state aid cuts, 57% of city finance officers report that their cities are less able to meet financial needs in 2011 than in 2010. 

"Cities are squarely in the center of the economic downturn. We anticipated that property tax receipts would catch up with declining property values. That they are now falling, while consumer confidence and employment falter, make the budget-balancing decisions of cities more challenging than at any-time in decades," said Michael A. Pagano, Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. He continued, "What we may be seeing in this report is evidence of a new normal." 

Find out more about NLC's City Fiscal Conditions report.

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. 

NLC conducts the survey each year in partnership with the University of Illinois at Chicago's College of Urban Planning and Public Affairs, a nationally recognized innovator in education, research, and engagement in support of the nation's cities and metropolitan areas. Michael A. Pagano, Dean of the College, has helped conduct the survey and author the report since 1991.