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Majority of Cities Foresee Bleak Fiscal Future
Cities predict a stressful future for their budgets, which have been hurt by the economic downturn and the surge in local homeland security spending, according to the annual survey of city finance officers conducted by the National League of Cities (NLC).
For the first time since 1993, a majority (55 percent) of the surveyed finance officers said that their cities are less able to meet their city’s financial needs compared to the previous year (2001). The increased pessimism is based on slower-than-expected growth in revenue from sales, income, and tourist-related taxes combined with new responsibilities on homeland security, rising healthcare costs, and increased spending on infrastructure. Also, state budget woes — the National Conference of State Legislatures projects a $57.8 billion gap in revenues for the states — have exacerbated cities’ fiscal plight as states reduce funding to municipalities.
Finance officers reported that sales, tourist, and income tax collections fell below budgeted levels in the two quarters following September 11, 2001 (October-December 2001 and January-March 2002). Sales tax collections were 8 percent lower than expected. Tourist-related tax receipts were hardest hit, falling 18 percent below projections. Income tax revenues fell 11 percent below projections in October-December 2001.
Two-thirds (67 percent) of the surveyed city officials think the problem will only worsen, saying they will be less able to meet city financial needs in 2003.
Despite the bleak forecast, cities’ ending balances or reserves remained steady at the close of FY 2001. The ending balances in 2001 were 19 percent, compared to 18.3 percent in 2000. One bright spot was property tax revenue, which rose by more than 5 percent over the previous year. However, the close of FY 2001, for many cities, occurred prior to or just after the terrorist attacks of September 11, 2001.
The economic and fiscal impacts of those attacks, in combination with the declining economy, will challenge ending balances in 2002 and 2003.
More information is available at: http://www.nlc.org