NLC Report Finds Cities are Cautiously Optimistic about Fiscal Conditions

The National League of Cities’ City Fiscal Conditions in 2013 report, released last week amid the continuing federal government shutdown and the looming debt ceiling deadline, finds that cities are slowly recovering from the recent recession but still bracing for further financial uncertainty.

While conditions are improving, local revenue and expenditure projections continue to point to a slow recovery. Property tax revenues are registering a decline for the third year in a row. Nearly one in two finance officers also express concern over the uncertainty in federal and state budgets and cuts in aid and transfers. 

However, cities are making changes to ensure they remain on steadier financial ground and maintain healthy balance sheets moving forward. For example, many cities are increasing the number and amount of fees charged for public services.

Perhaps the most positive finding from the report is that 72 percent of city finance officers maintain that they are better able to meet the financial demands of their community this year than in 2012. This statistic is a 15 percentage-point increase over last year, and the highest it has been since 2000. A slight increase in revenues from sales taxes (1%) and income taxes (2.3%), paired with general confidence in their local economies, are contributing factors to improved municipal financial conditions.    

Implications for Cities in the Post-Recession Era

Last week, Houston City Controller Ron Green, Michigan Municipal League Executive Director and CEO Dan Gilmartin, and municipal bankruptcy expert and partner at Chapman and Cutler LLP Jim Spiotto gathered in Washington, D.C. to provide context and insight to the report and to discuss how the findings might impact cities’ approaches to governing in a post-recession environment. Watch the City Fiscal Conditions press conference and panel discussion here

“Cities are getting used to being the victims of the ideological food fights in D.C. and in state capitals,” said Dan Gilmartin, who emphasized that cities have no choice but to be adaptable in the face of financial uncertainties because a local government shutdown is not an option for city leaders.  Controller Ron Green echoed that “cities are on the front lines” for offering critical public services and can’t “pass along unfunded mandates” to another level of government.  The buck stops with cities, and they have no choice but to be nimble and continue to lead no matter the financial and economic circumstances.

While Detroit’s bankruptcy filing in July 2013 captured headlines and prompted questions about the likelihood of other cities following suit, Jim Spiotto cautioned that “there is always a better way” for cities to climb out of debt.  Spiotto said that municipal bankruptcies are rare and have been on the decline, in part because many cities realize that partnering with their states has been a more productive avenue for overcoming financial distress.

The City Fiscal Conditions in 2013 report paints a picture of cautious optimism on the part of city finance officers, and demonstrates why innovation and alternative strategies for providing public services have become a common denominator for many cities in the last few years.

Additional highlights from the report include:

  • Finance officers report positive improvements in their cities’ local tax bases and local economies. 

  • Ending budget balances increased in 2012 indicating that cities are rebuilding their reserves after using rainy day funds during the recession.

  • Leading pressure factors, in addition to pensions, health care, and cuts in intergovernmental aid, include infrastructure and public safety costs.

  • Hiring freezes, salary freezes, and layoffs are less popular methods of balancing city budgets than in previous years.