Grim Fiscal Outlook for Cities Expected Through 2010

Anticipated declines in property tax, local sales tax and local income taxes combined with increased expenditures for energy and fuel, infrastructure, and employee-related costs have city finance officers anticipating worsening fiscal conditions over the next two years.

Released this month by the National League of Cities (NLC), the City Fiscal Conditions in 2008 survey finds that in 2008, nearly two in three city finance officers reported that their cities are less able to meet fiscal needs compared to last year, particularly those cities that rely heavily upon property taxes. Moreover, nearly 80 percent of fiscal officers forecast even more troubling times ahead for 2009.

Findings of the survey reveal that the fall out in the housing market, the weakening of consumer spending, and declines in jobs and income are negatively impacting city fiscal conditions. Additionally, the survey finds:

• At the close of 2008, finance officers predict that revenues and spending will decline in inflation-adjusted terms, with revenues decreasing by 4.3 percent and spending decreasing by 1.5 percent;
• Property tax revenues increased by 6.3 percent in 2007, but are expected to decline by 3.6 percent by the close of 2008;
• 74 percent of finance officers in the West reported their cities are worse off in 2008, compared to 64 percent in the Midwest, 61 percent in the Northeast, and 53 percent in the South; and
• Together, city finance officers' projections for 2008 revenue and spending point to a budget gap of 2.8 percent in constant dollars.

Because cities often lag in feeling the effects of a national economic downturn, they are likely to remain burdened with the negative impact well into future years, the survey states. When asked about specific revenue and spending actions taken in 2008, finance officers reported increasing the level of fees for services as the most common action to boost city revenue.

In coming years, city officials are likely to tap into ending balance levels, which are currently at historically high levels, according to NLC. Further cuts in services, increased taxes and workforce reductions are often unfavorable but viable options to offset the declining fiscal conditions.

Download a copy of City Fiscal Conditions in 2008 at: http://www.nlc.org/articles/articleItems/NCW91508/fiscalreport2008.aspx