Cities Register Dire Effects of National Economic Downturn

Often overshadowed in the media by state budget deficit reporting, city fiscal conditions are rapidly declining and expected to worsen through 2010 and beyond, finds the National League of Cities (NLC) annual survey. Additionally, pessimism about the ability to meet city fiscal needs is at its highest level in the history of NLC's 24-year survey on city fiscal conditions.

Because of a typical time lag of 18 months to several years before economic shifts have an impact on city conditions, many cities just now are registering the effects of the national economic downturn, according to the report. It is expected that the deeper effects of the recession likely will be experienced and reported by cities beyond 2009, with the leanest years likely to be 2010 and 2011.

City finance officers responding to the survey reported a cumulative 2009 budget gap of 2.9 percent mostly due to decline of income and sales tax collections and the rising costs of providing services. Some of the key findings of the survey include:

• Final numbers for 2008 reveal that city expenditure growth (4.9 percent) outpaced city revenue growth (3.4 percent);
• Looking to the end of FY 2009, finance officers predict revenues will decline by .4 percent while spending will increase by 2.5 percent;
• Property tax revenues increased by 6.2 percent in 2008, reflecting rising housing values in previous years, but are expected to slow to 1.6 percent growth by the close of 2009;
• Finance officers in the West slightly are more likely to say that their cities are worse off in 2009 than their peers in other regions; and,
• City finance officers are projecting no growth or actual declines in all three major revenue sources for cities in 2009 mainly because unemployment often lags other economic indicators and the effects of high unemployment on wages and compensation likely will intensify in future years.

While there are several negative factors impacting city budgets, respondents listed the following factors as having increased the most over the previous year: employee wage costs, employee health benefit costs, employee pension costs, infrastructure and public safety, and prices that impact the cost of delivering services.

To balance city budgets, most finance officers reported increasing the level of fees for services in 2009. Other actions included raising taxes and cutting services. For example, 25 percent of cities have increased property tax rates, 5 percent of cities have increased sales tax rates, and 1 percent of cities have increased income tax rates. 

NLC's City Fiscal Conditions in 2009 survey was conducted from April to June 2009 with data drawn from 379 responding cities. The report is available at: http://www.nlc.org/ASSETS/E0A769A03B464963A81410F40A0529BF/CityFiscalConditions_09%20%282%29.pdf.