City Fiscal Conditions: How Municipal Expenditures Changed In the Post-Pandemic Era

By:

Ivonne Montes Diaz
Farhad Kaab Omeyr

April 10, 2024 - (5 min read)

Municipal Finance

As municipalities planned their recovery from the COVID-19 pandemic, their expenditures offered a glimpse into the changing priorities as cities, towns, and villages adapted to the changing financial needs of their communities. Considering the economic impacts of the pandemic on city budgets and limited resources at municipalities’ disposal, NLC’s City Fiscal Conditions gives us a picture in time of how cities, villages, and towns prioritized their various expenditure categories* in the years following the pandemic.

NLC, through its City Fiscal Conditions 2023 research, collected budgetary data on a sample of 287 cities for fiscal years 2021, 2022, and 2023. From our sample, 188 localities (65%) reported changes of more than 5 percent in their expenditures category from fiscal year 2021 to fiscal year 2022. Here are the four top ways that municipal budgets changed.

* For this blog, we will limit our attention to the data collected for Fiscal Years 2021 and 2022.

1. Public Safety Expenses Saw Biggest Increase

Public safety was reported as the largest driver of general fund expenditure increases by the sample. Forty-six percent of the cities mentioned this category as the one with the biggest change between the fiscal year 2021 and fiscal year 2022. Most of the cities with large public safety expenditure increases, like Amarillo, TX; Glendale, AZ; and Palo Alto, CA, indicated that expenses for the police and fire departments occupy most of their resources.

Other cities, such as Laredo, TX; North Las Vegas, NV; Philadelphia, PA; and Portland, OR, stated that public safety expenditures are mainly driven by payroll, contractual adjustments, and benefits like health care or pensions, equipment, and material. Other cities, like Peoria, IL, experienced sharp increases in public safety expenditures due to the expansion of their public safety workforce and opening new positions.

2. Inflation Drove Up General Fund Expenditures

Overall, general fund expenditures on general government were the second largest category after public safety. Cities like Los Angeles, San Antonio, and Colorado Springs, CO, are among the cities with large increases in the general government expenditure category. The main driver of the increase in this expenditure category was the high inflation rate experienced during the fiscal year 2022. Unprecedented inflation drove up the cost of fuel, supplies, materials, utility costs and purchased services for the General Service Department. This last factor was a main concern for cities like Los Angeles as operating equipment and supplies went up by 4.4 percent, primarily attributed to increased fuel and utility costs. Another example is the city of Thousand Oaks, CA which had an increase of $300K for equipment and building repairs compared to FY 2021.

Seven percent of the municipalities in our sample, for example, Los Angeles, Warren, MI, Jacksonville, NC, and Boca Raton, FL, noticed large increases in operating equipment purchases. On the other hand, six percent of the cities experienced an increase in their debt service expenses mainly due to increases in principal repayments. Under this category, we found localities like Roswell, GA, whose debt service costs increased by approximately $4 million compared to FY 2021, mainly due to principal repayments. Similarly, Raleigh, NC, experienced a $2 million increase in debt service costs, and Gastonia, NC, saw an increase of approximately $1.5 million in FY 2021.

Community and Economic Development was mentioned by 8 percent of the cities as having a major impact on general fund expenditures. Spending on housing was the most common expense category among the sample. Cities like Berkley, CA, increased their expenditure in housing & community development during FY 2022. Likewise, Missoula, MT, increased expenditures in this category by approximately $1.5 million over FY 2021.

3. Demand for Recreational Activities Increased Costs

As the restrictions for the pandemic were lifted, the demand for leisure increased. Therefore, municipalities increased their expenditure in the culture, parks, and recreation category. Alexandria, VA, Saint George, UT, and Louisville, KY, had increased expenses as they reopened public libraries, zoos, golf camps, and pools. However, the desire for enjoyment after the COVID era was not the only driver of increased expenditures related to culture, parks, and recreation. Another key factor for the increase in this category was the elevated maintenance costs associated with these items due to high inflation. Salem City, OR, for instance, saw library services expenses increase by $300K due to increases in personnel costs, materials, and services.

Ten percent of municipalities in NLC’s sample experienced an increase in their public works expenses. One of the principal drivers of this increase was personnel and full staffing of the public works departments, which had significant vacancies after the pandemic. This was the case for the City of Mobile, AL. In Wilmington, DE, its Public Works expenditures, which represented 15 percent of the City’s General Fund expenditures, increased primarily due to an increase in debt service. Increased facility costs were also another factor impacting increased spending for Tracy, CA.

4. Personnel Costs Increased

Larger-than-normal personnel costs and benefits impacted 9 percent of the cities in our sample, like El Paso, TX; Los Angeles, CA; Oklahoma City, OK; and Santa Ana, CA. A lot of cities felt the need to adjust the contractual services due to the increase in the cost of living as well as overall increases in wages and salaries. Glendale, AZ; Peoria, AZ; and Springfield, MA, increased their retirement contributions. On the other hand, given the recovery of the economy and the increase in the demand for public services, Henderson and Mobile, among others, also expanded their workforce.

By investigating city general funds, the CFC report helps present a big picture of how cities have been managing their financial health over the years. In the case of fiscal year 2022 we can see how public safety was the expenditure category that increased the most over fiscal year 2021 and that its main drivers were increases in personnel cost, among other factors.