Recent Research: Cities' Fiscal Condition Improves, But at Cost

Despite overall signs of improving fiscal health in 2005, half of the nation’s cities have been forced to raise new revenues to address gaps created by rising employee health care and pension costs, as well as increases in public safety and infrastructure needs, according to a National League of Cities (NLC) survey released last week.

Results from City Fiscal Conditions in 2005 show that nearly half (48 percent) of the cities surveyed increased fees and charges for city services in order to balance budgets in 2005. Only 26 percent say they relied on increases in property taxes, while even smaller numbers increased sales tax rates, income tax rates and other tax rates.

For the first time since 2001, city fiscal conditions are showing improvements. But ongoing revenue constraints and concerns over potential declines in property tax revenues resulting from slowing real estate markets leave many city officials cautious as they draw up their budgets for 2006.

Findings from the survey include:

• More than three in five city officials say their cities were better able to meet financial needs in 2005 than in previous years.
• Nine in 10 city finance officers cited employee health benefits and employee wages as the top factors affecting city budgets in 2005. Increases in employee health care and wages, public safety needs and pension costs were cited as having the most negative impact on the ability of cities to meet their fiscal demands in 2005. Reductions in state aid also were cited as having a negative effect.
• Finance officers in cities that rely on sales taxes or income taxes were more likely to report improved conditions for 2005 than those cities that rely exclusively on property taxes.
• Looking ahead to 2006, finance officers in cities that rely more on sales taxes were most likely to predict improving conditions for 2006, compared to those that rely on property taxes and income taxes.
• Finance officers in the largest cities were less optimistic for 2006 than those in other-sized cities, with finance officers in the South more hopeful than those in the Northeast, West and Midwest.

City Fiscal Conditions in 2005 is a national mail survey of finance officers in U.S. cities. Survey data was drawn from 276 cities, with a representative sampling across city size. This is the 21st year that NLC has conducted the survey.

The eight-page report is available at: http://www.nlc.org/content/Files/RMPctyfiscalcondbrf05.pdf

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