Cities Struggling to Make Ends Meet, According to League of Cities Report
America’s cities were less able to meet their financial needs in 2004, and expectations for 2005 are equally grim, according to a new report released by the National League of Cities (NLC).  Revenues are not keeping pace with increases in spending for public safety and infrastructure and growing costs of employee health benefits, pensions and wages, according to City Fiscal Conditions in 2004. 

In the latest survey of city finance directors, more than three in five said their cities were less able to meet their fiscal obligations, regardless of population size, region or taxing authority.  Cities that rely on income taxes—83 percent of those polled—were more likely to report worsening conditions, compared to 58 percent of those relying exclusively on property taxes or 52 percent relying on the sales tax.

Adjusting for inflation, 2004 marks an unprecedented third straight year when revenues declined. As a result, 54 percent of cities are reporting that they have increased fees and charges for services, another 25 percent opted for increasing property taxes, and 22 percent increased impact or development fees.

Michael A. Pagano, Ph.D., senior fellow at the Great Cities Institute at the University of Illinois at Chicago and author of the report, cited the combined fiscal pressures of increased costs for public safety, Homeland Security and other federal mandates coupled with reductions in state aid to local governments as critical problems facing local governments.  “Many towns and cities that rely on the income tax are in worse shape in 2004 than in 2003,” said Pagano.  “Sales tax revenues have also declined in the past several years, with only slight increases in 2003 and 2004.  The one bright spot is that in those cities relying on property tax revenues, the continued strength of the real estate and property markets have provided a lifeline for those city finances.”

The survey found that 32 percent of cities reduced the size of their city workforce while 40 percent reported an increase in productivity of their workers, allowing them to do more with the same size staff.  Growing health insurance costs, contributions to employee pension plans and cost of living increases all were cited as factors negatively affecting city budgets.

The increased pessimism of the cities' finance officers was most pronounced in the West and Midwest with 75 percent and 74 percent respectively reporting deteriorating conditions, compared to 59 percent in the Northeast and 43 percent in the South.  In fact, Southerners were most optimistic about 2005, with 52 percent indicating that they felt their cities' conditions would improve over 2004, compared to 41 percent in the Northeast, 33 percent in the West and 32 percent in the Midwest.

The City Fiscal Conditions in 2004 Survey is a national mail survey of finance officers in U.S. cities conducted by Michael A. Pagano on behalf of NLC.  Survey data are drawn from 288 responding cities, with a representative sampling across city size.

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