States Cut $2.3B in Aid to Cities, NLC Says

States cut aid to cities and towns by a total of $2.3 billion in the current fiscal year, according to a new report from the National League of Cities (NLC). Comparing 2004 to 2003 figures, the $2.3 billion in state cuts represents a 9.2 percent decline in state revenues for cities.

NLC released its report, Fiscal Crisis Trickles Down as States Cut Aid to Cities, at a roundtable held on Tuesday at the National Press Club in Washington, D.C. City leaders believe shifts in federal policy are weakening the federal role in the nation’s inter-governmental system, NLC states. They also are concerned that the fundamental changes in the federal-state-local partnership will hurt state and local governments and, ultimately, the people they serve. NLC offers these findings in its analysis:

• Cuts in state revenues for cities were reported in 24 states in 2003 and 2004.
• In 13 of the 16 states where revenues for cities were not cut, revenues grew marginally, at rates of less than 3 percent.
• Between 1992 and 1997, state aid to cities increased an average of 4.6 percent per year.
• Over the same period, state aid to cities grew slower than state aid to non-municipal local — counties, school districts and special districts (6.5 percent).
• Since 1977, federal revenues as a share of total city revenues have declined from 15 percent to 5 percent. And,
• Between 1972 and 1997, cities' share of federal aid to local governments declined from just over 50 percent to 41 percent.

Among those states making the most severe cuts in state aid was California, which cut about $1.1 billion in aid to cities. California's decline represents a 59.7 percent decrease over its FY 2003 total and nearly 52 percent of the nation's total cuts in FY 2004. Massachusetts, Florida and Minnesota also experienced significant declines.

The new NLC report expands upon an earlier survey in which respondents said they expect revenues traditionally returned to cities and towns by states to decline by an average of 2.1 percent during 2003 (see the May 30, 2003 issue of the Digest). In that survey, cities already were said to be facing a 4 percent gap between revenue and spending — the highest in more than a decade. NLC argues the decline in state revenues in 2004 not only goes against fiscal and historical trends but presents a trend that "threatens to undermine government's ability to deliver the good and services Americans need."

To lessen the effect of the current fiscal crisis, NLC suggests the federal government should provide counter-cyclical relief to cities and remove barriers to state and local fiscal capacity. States, for their part, should allow cities to exercise greater fiscal authority, and cities should use the funds they receive to upgrade infrastructure and personnel.

NLC serves as a resource and advocate for 18,000 cities, towns and villages that collectively serve 225 million people. Fiscal Crisis Trickles Down as States Cut Aid to Cities includes a state-by-state table showing the percent change in state revenues for cities between FY 2003 and FY 2004. To access the report, visit NLC at http://www.nlc.org.