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The National League of Cities’ 40th annual City Fiscal Conditions report offers a comprehensive snapshot of the financial health of U.S. municipalities as they transition from pandemic recovery to fiscal restraint. Drawing on data from 263 cities and in-depth analysis of 213 city budgets, the report highlights how inflation, policy uncertainty, and the winding down of federal aid are reshaping local government finances.
The 2025 City Fiscal Conditions analysis presents a comprehensive picture of broader fiscal trends observed across the United States following the COVID-19 pandemic.
Key Findings
Shift from Recovery to Restraint
Local governments are navigating a complex environment. Facing rising external pressures, shaped by policy uncertainty and shifting economic conditions, cities are learning to adapt in the post-COVID era.
- Cities saw a 7.5% increase in general fund spending in FY2024, but growth slowed to just 0.7% in FY2025.
- Revenue growth is tapering off, with a projected 1.9% decline in FY2025, as federal aid phases out and economic normalization sets in.
Elimination of Municipal Bond Tax Exemption Could Lead to Reduction or Delay in Infrastructure Projects
PERCENTAGE (%) OF CITIES INDICATING HOW THEY WOULD RESPOND IF THE TAX EXEMPT STATUS OF MUNICIPAL BONDS WERE TO BE ELIMINATED BY THE FEDERAL GOVERNMENT
Community Investment & Resilience
Municipalities continue to make major investments in their community’s safety and enriching the life of their residents.
- Public safety remains the largest area of municipal spending, accounting for 60% of general fund budgets in FY2025.
- Recreation and culture spending holds steady at around 10%, reflecting continued investment in community well-being.
Fiscal Confidence Declines
Local governments are adapting to the reality of their fiscal headwinds. They are cautious about the impact of tariffs and the future of municipal bond tax exemption.
- Only 45% of city finance officers feel optimistic about meeting fiscal needs in FY2026, down from 64% in 2024.
- Concerns include rising costs, infrastructure demands, and potential changes to municipal bond tax exemptions and tariffs.
Cities Brace for Tighter Budgets in 2026
PERCENTAGE (%) OF CITIES INDICATING BETTER/LESS ABLE TO BALANCE FUTURE YEAR’S BUDGET COMPARED TO LAST YEAR
Conclusion
Despite pressures, cities continue to adapt. Many are exploring alternative financing, adjusting spending priorities and seeking domestic supply options. This year’s findings suggest a shift from recovery to resilience. They are recalibrating, planning and preparing to meet fiscal challenges with pragmatism and purpose.
City Fiscal Conditions 2024
City Fiscal Conditions 2023
City Fiscal Conditions 2022
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