Cities Raise Fees and Taxes, Cut Projects and Staff to Deal with Fiscal Squeeze

A survey of 330 cities and towns by the National League of Cities (NLC) shows that cities are raising fees and taxes while cutting infrastructure spending and city staffs in order to deal with the worst fiscal conditions for municipalities since NLC began its annual survey of city finance managers in 1985.

The survey's release follows House and Senate conferees' decision to ignore a 95-3-2 Senate vote that would have provided $4 billion to local governments as part of the President's Jobs and Growth bill.

More cities are less able to meet their financial needs, according to NLC. Four out of five cities (79 percent) report they are less able to meet financial needs than they were during the previous year. This is a sharp rise compared to NLC’s 2002 survey, which listed 55 percent of cities as being less able to meet financial needs.

Cities face a 4 percent gap between revenue and spending, NLC adds. The gap between revenues and spending is highest in more than a decade. Revenues are down 1 percent over the previous year while spending is up 2.9 percent, making for a 4 percent gap.

NLC also highlights the following:

• Respondents in the NLC survey said they expect revenues traditionally returned to cities and towns by states to decline by an average of 2.1 percent during 2003. Nearly half (45 percent) of the surveyed city managers said the states will take additional action to cut funds that should go to cities.
• City financial managers say budgets continue to be squeezed by increased homeland security and public safety spending, the poor economy, and the budget crisis that plagues most states.
• Most cities and towns (61 percent) are increasing fees or creating new fees and drawing down their rainy funds (54 percent). Many are also increasing property taxes (25 percent) and other taxes (13 percent).

NLC argues that all levels of government should work together to prevent higher unemployment, lower incomes and lesser construction in response to declining city fiscal conditions. Congress should fast-track a stimulus package for states and communities, and state governments looking not to devolve fiscal crises to local governments should broaden tax bases and enable cities to diversify revenue portfolios. Local governments, NLC states, "should borrow now, invest in infrastructure expansion, and pay off the costs later."

To take a more active posture toward addressing the fiscal crisis facing cities and towns, NLC convened top economists and federal fiscal analysts on May 27. The three-hour roundtable discussion held at the National Press Club in Washington D.C. included former Congressional Budget Office (CBO) and Office of Management and Budget Director Alice Rivlin, CBO Deputy Director Barry Anderson, and other analysts and local elected officials. Participants presented their views on the federal tax and budget policies that should be sought in light of current projections of U.S. spending in Iraq, federal budget deficits, tax cuts, and state and local needs.

NLC serves as a resource and advocate for 18,000 cities, towns and villages that collectively serve 225 million people. To access the NLC survey, visit http://www.nlc.org.