NLC report: Fiscal condition of U.S. cities is strengthening

City finance officers across the country report improved fiscal health, driven by better-than-anticipated general fund revenue growth and solid performance of ending balances, according to the “City Fiscal Conditions” report for 2016, released by the National League of Cities on Oct. 13.
 
City finance officers are confident that cities are in a better fiscal position this year than last. Eighty-one percent of city finance officers report that their cities are better able to meet the financial needs of their communities in 2016 than in 2015. This level of optimism among finance officers is similar to last year, indicative of continuing fiscal recovery in cities.
 
As of 2016, revenues have recovered to about 96 percent of pre-recession (2006) levels. The changes in general fund revenues tend to reflect the changing economic and fiscal environment within which cities operate.
 
Each year, the NLC (www.nlc.org) surveys city finance officers about actual and budgeted revenues and expenditures as well as policy actions and priorities. Taken together, their responses provide a snapshot of the “average city” within the municipal sector.
 
The findings of this year’s “City Fiscal Conditions” survey include the following:
 
• General fund revenues grew 3.73 percent in 2015 and are expected to grow 0.54 percent as cities close the books on 2016.
 
• Expenditures grew 3.57 percent in 2015 and are budgeted to increase 3.71 percent in 2016.
 
• Property tax revenue growth is returning to pre-recession levels, with a sizable increase of 3.77 percent in 2015 and anticipated growth of 2.6 percent in 2016.
 
• Sales tax revenues are continuing to post strong growth, with 5.49 percent in 2015 and 1.99 percent expected in 2016.
 
• Income tax revenues grew 5.82 percent in 2015 and are expected to grow 3.47 percent in 2016.
 
• Ending balances are returning to historic highs, standing at 24.5 percent of general fund expenditures in 2015 and budgeted for 21.67 percent of expenditures in 2016.
 
Despite improved fiscal stability for day-to-day operations, however, local budgets continue to confront mounting challenges. Infrastructure and employee- and retiree-related costs, matched with inequitable recovery in some local housing and labor markets, threaten longer-term fiscal sustainability, according to the report. These concerns are foremost on the minds of city leaders, some of whom are implementing pension reforms and leveraging fiscal planning tools.
 
These strategies are particularly important given that city revenues have not fully recovered from the Great Recession of 2007-2010. As a result, many may be operating with suppressed revenues when and if another recession emerges in the coming years.
 
For now, though, city fiscal conditions are showing signs of vitality, with local governments reinvesting in areas critical to growth and community quality of life, including infrastructure and public safety.
 
The NLC launched its annual “City Fiscal Conditions” report in 1986.