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Local Aid and Finance NLC report depicts bleak fiscal climate for cities
A new report from the National League of Cities finds a troubling combination of developments that will likely affect the financial health of communities over the next several years.
A 3.6 percent decline in property tax revenue from 2007 to 2008 (after adjusting for inflation), along with declines in other local revenues, has local officials concerned about the fiscal health of their communities, according to the report, released on Sept. 15.
Unlike the previous economic downturn in 2001, when property tax revenues were able to buffer the effects of declining income and sales tax receipts, the weak housing market, according to the report, is likely to affect city budgets until 2010.
The report, “City Fiscal Conditions in 2008,” documents a downward trend in other local revenue sources nationwide, including a 4.2 percent decline in sales tax receipts and a 3.3 percent drop in income tax revenue from 2007 to 2008, after adjusting for inflation.
As a result, 64 percent of city finance officers surveyed expect cities to have a harder time meeting fiscal needs in 2008, and 79 percent forecast even bigger problems ahead in 2009.
“Even if economic conditions improved immediately, the nation’s cities are likely to be realizing the effects of the current downturn through 2010,” said Michael Pagano, co-author of the report and dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. “The sharp decline in property tax receipts erodes a critical buffer that has helped cities through economic downturns for the last three decades.”
On the spending side, increases of 3 percent in 2007 were met with flat or declining revenues, according to the report. City finance officers project a budget gap of 2.8 percent in 2008, with revenues declining by 4.3 percent from 2007 and spending declining by 1.5 percent in inflation-adjusted dollars.
Local officials cited a number of budget-busters, including energy prices, infrastructure and public safety costs, and employee-related costs for wages, health care, and pensions.
To meet budget shortfalls, 49 percent of responding cities have increased fees, while 28 percent have increased the number or types of fees, and 23 percent have increased the level of impact and development fees.
Finance officers in cities that rely on the property tax were most likely to say their cities are worse off (75 percent), compared to cities that have a mix of sales and property taxes (60 percent), or cities with a mix that includes a local income tax (52 percent).
“Cities have implemented creative solutions for making do with less,” said NLC Executive Director Donald Borut. “There is, however, only so much cities can do when faced with … a housing market in crisis, flat revenues, and soaring health care and energy costs.”
• Download NLC City Fiscal Conditions report (800K PDF)
Local Aid and Finance NLC report depicts bleak fiscal climate for cities
NLC report depicts bleak fiscal climate for cities
A new report from the National League of Cities finds a troubling combination of developments that will likely affect the financial health of communities over the next several years.
A 3.6 percent decline in property tax revenue from 2007 to 2008 (after adjusting for inflation), along with declines in other local revenues, has local officials concerned about the fiscal health of their communities, according to the report, released on Sept. 15.
Unlike the previous economic downturn in 2001, when property tax revenues were able to buffer the effects of declining income and sales tax receipts, the weak housing market, according to the report, is likely to affect city budgets until 2010.
The report, “City Fiscal Conditions in 2008,” documents a downward trend in other local revenue sources nationwide, including a 4.2 percent decline in sales tax receipts and a 3.3 percent drop in income tax revenue from 2007 to 2008, after adjusting for inflation.
As a result, 64 percent of city finance officers surveyed expect cities to have a harder time meeting fiscal needs in 2008, and 79 percent forecast even bigger problems ahead in 2009.
“Even if economic conditions improved immediately, the nation’s cities are likely to be realizing the effects of the current downturn through 2010,” said Michael Pagano, co-author of the report and dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. “The sharp decline in property tax receipts erodes a critical buffer that has helped cities through economic downturns for the last three decades.”
On the spending side, increases of 3 percent in 2007 were met with flat or declining revenues, according to the report. City finance officers project a budget gap of 2.8 percent in 2008, with revenues declining by 4.3 percent from 2007 and spending declining by 1.5 percent in inflation-adjusted dollars.
Local officials cited a number of budget-busters, including energy prices, infrastructure and public safety costs, and employee-related costs for wages, health care, and pensions.
To meet budget shortfalls, 49 percent of responding cities have increased fees, while 28 percent have increased the number or types of fees, and 23 percent have increased the level of impact and development fees.
Finance officers in cities that rely on the property tax were most likely to say their cities are worse off (75 percent), compared to cities that have a mix of sales and property taxes (60 percent), or cities with a mix that includes a local income tax (52 percent).
“Cities have implemented creative solutions for making do with less,” said NLC Executive Director Donald Borut. “There is, however, only so much cities can do when faced with … a housing market in crisis, flat revenues, and soaring health care and energy costs.”
• Download NLC City Fiscal Conditions report (800K PDF)
Written by MMA Associate Editor Mitch Evich
