Cities continue to face the prolonged effects of the economic downturn according to a new report by the National League of Cities (NLC). The 27th annual City Fiscal Conditions report shows that for the sixth straight year city revenues continue to fall as financial pressures such as infrastructure, health care and pension costs combine with cuts in state and federal aid to weigh heavily on cities' bottom lines.
In a survey of city finance officers, the report shows that as a result of these pressures, cities are making personnel cuts, delaying or canceling infrastructure projects and cutting local services. The report also projects that 2013 will continue to present challenges to city budgets due to stagnant housing markets, high unemployment, and looming federal budget cuts.
"This report demonstrates the difficult operating environment facing city officials," said Ted Ellis, NLC president and mayor of Bluffton, IN. He continued, "Local leaders are still paying their bills and working to create opportunities for growth in their local communities. But local governments need certainty and support from their federal counterparts."
Despite the news, the report does show some signs of fiscal improvement, with 43% of city finance officers revealing they are less able to meet city needs than last year. This number is an improvement over 2011 where 57% of finance officers said their city was less able to meet financial needs and considerably better than the 87% in 2010 and 88% in 2009 of finance officers who said they were less able to meet city fiscal needs than in the year prior.
"While there are signs of improvement, it is still too early to say that cities have turned the corner," said Christopher Hoene, co-author of the report and Director of the Center for Research and Innovation at NLC. He continued, "The broader economy is still growing at a slow rate, and housing values, income levels, and consumer spending - the main determinants of tax receipts - are not improving significantly. It all points to a difficult 2013 for cities."
Finance officers named a number of concerns that are playing a role in the fiscal health of cities. Most cited increased health care costs (81%), pension costs (77%), infrastructure costs (75%) and public safety demands (61%). Respondents also noted a general increase in costs (83%) along with reduced federal aid levels (51%), declining local tax bases (47%) and decreased health of the local economy (42%).
The report also reveals that the performance of city tax revenues continues to be a key concern. Property tax revenues are projected to fall for the third year in a row by -2.1%, especially important since most cities have some form of local property tax. Income tax revenues are expected to continue dropping (-0.8%) as the unemployment rate remains high. One bright spot is sales tax revenues, which started creeping up in 2011, and are projected to continue to rise by 2.4% in 2012.
As a result, the report finds that cities are taking action to ensure appropriate levels of funding for city services and budget requirements. Two in five (43%) have raised fee levels, with cities shrinking the size of their workforce (48%), decreasing human services spending (21%) and reducing spending for services other than public safety and human services (25%), such as parks, recreation, and libraries.
"Cities have been making significant cuts to their budgets for several years now, and that trend will continue," says Michael Pagano, co-author of the report and Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. He continued, "These are serious times for cities and their residents. Difficult, but manageable, financial hurdles for cities will remain for the foreseeable future."
The National League of Cities is dedicated to helping city leaders build better communities. 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 ad metropolitan areas. Michael A. Pagano, Dean of the College, has helped conduct the survey and author the report since 1991.
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