Cities reaching limits of fiscal expansion

Although more city finance officers are optimistic about the fiscal capacity of their cities than last year, that optimism is tempered by the fact that tax revenue growth is experiencing a year-over-year slowdown, with growth in service costs and other expenditure outpacing it. That, taken together with other results of the 2018 City Fiscal Conditions survey, suggests that cities are reaching the limits of fiscal expansion, according to the National League of Cities (NLC).

In its 33^rd annual survey, NLC found that general fund expenditures are outpacing revenues and they expect that trend to continue into next year. All major tax sources grew slower in FY 2017 than in FY 2016 and are expected to grow less than 1 percent in FY 2018. NLC notes that although cities’ fiscal health “is not yet declining, these conditions echo several cautionary signals from previous economic downturns.”

The survey also showed that the most common actions cities took to boost revenues has been to increase service fee prices (41 percent) and property tax rates (28 percent). NLC also found that fewer cities are instituting new types of fees — 18 percent this year versus 26 percent last year. The full report is available here.