Cities Face Budget Cuts as Fiscal Conditions Continue to Weaken, According to New Research

In 2011, the nation's city finance officers report that the fiscal condition of cities has continued to weaken and placed pressure on cities to cut spending on personnel, infrastructure investments and key services, according to a new research brief, City Fiscal Conditions Survey: 2011, from the National League of Cities (NLC). The results were taken from a survey of over 270 city finance officers from across the United States. The authors contend that sagging local and regional economies, characterized by struggling housing markets, slow consumer spending and high levels of unemployment, are driving the decline in city revenues necessitating the budget cuts. Several key findings from the 2011 survey include:

• Finance officers project declining revenues, with corresponding spending cutbacks in response to the economic downturn;
• The pace of decline in property tax revenues quickened in 2011, reflecting the inevitable and lagged impact of real estate market declines in recent years;
• Ending balances, or "reserves," while still at high levels, decreased for the third year in a row as cities used these balances to weather the effects of the downturn;
• The most significant fiscal pressures on cities include declining local economic health, infrastructure costs, employee-related costs (e.g., health care, pensions and wages) and cuts in state aid; and,
• Confronted with these pressures and conditions, cities are making personnel cuts, delaying or cancelling infrastructure projects and cutting local services — cuts that have implications for jobs and national economic recovery.

The authors also look at several "continuing and troubling trends" that could affect the fiscal condition of states across the country well into 2012 and possibly beyond. Due to a lag between the national economic cycle and city fiscal conditions, local economies only now are facing the full effects of the 2007-2009 recession and the corresponding recovery. Struggling housing markets, slow consumer spending and high levels of unemployment are predicted to lead to fiscal troubles that continue well into 2012. These fiscal realities will lead to a number of concerns:

• Real estate markets continue to struggle and tend to be slow to recover from downturns; projections indicate a very slow recovery of real estate values, meaning that cities will be confronted with declines or slow growth in future property tax collections well into 2012 and possibly 2013.
• Other economic conditions (e.g. consumer spending, unemployment and wages) will weigh heavily on future city sales and income tax revenues.
• Large state government budget shortfalls in 2011 and 2012 likely will be resolved through cuts in aid and transfers to many local governments.
• Two of the factors that city finance officers report as having the largest negative impact on their ability to meet needs are employee-related costs for healthcare coverage and pensions.
• Facing revenue and spending pressures, cities are likely to continue to make cuts in personnel and services and to draw down ending balances in order to balance budgets.

Read the report...

NLC Also Announces Economic Development Peer Network
NLC's Center for Research and Innovation also launched a new Economic Development Peer Network for local policymakers and practitioners. — an interactive forum to exchange lessons learned, strategies and advice on the economic development challenges facing communities. Network members will have regular audioconferences on themes selected by participants including creating a regional brand to attract investment and supporting high-growth entrepreneurs. Network members also will receive periodic e-mail updates and invitations to special conference calls, events and other opportunities to interact with peers and colleagues nationwide. The first audioconference will take place on Wednesday, November 2, 2011. Read the press release...