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Study Shows Cities’ Finances Continue to Weaken

October 20, 2011

WASHINGTON - The nation's cities are cutting personnel and infrastructure projects as the economic downturn continues to take its toll on city finances according to the National League of Cities' (NLC) 26th annual City Fiscal Conditions report.

The report reveals that general city revenues are continuing to fall, with a projected -2.3 percent decrease by the end of 2011. This is the fifth straight year of declines in revenue with probable further declines in 2012, according to the report.

The revenue decline is mainly due to the suppressed property market that is negatively impacting property tax revenue. Property tax collections are expected to decline by -3.7 percent, with further declines likely in 2012 and 2013

Income tax receipts are also experiencing a decrease of -1.6 percent. Sales tax receipts remained largely flat, but this is at last year's level which saw the worst decrease in sales tax revenue in 15 years.

Cities are responding by cutting personnel (72 percent), delaying infrastructure projects (60 percent) and increasing service fees (41 percent). One in three (36 percent) cities report modifications to employee health care benefits.

National indicators in the property markets and consumer spending point to continued economic struggles at the local level. Cities will have a difficult time in raising additional revenue for the immediate future.

"The biggest question for cities lies in the uncertainty about the health of the national economy, which is driven by a collection of city-regional economies," said Christopher Hoene, director of the Center for Research and Innovation at NLC. He continued, "If regional housing markets, unemployment, and consumer confidence struggle, city revenues will continue to lag, city leaders will face more cuts, and those decisions will act as a drag on the national economy."

Cities have also been forced to contend with significant decreases in state aid, adding to the pressures facing cities. Since 2009, cities report cuts in general aid (50 percent), shared revenues (49 percent), and reductions in reimbursements and other transfers (32 percent). As states make these cuts to balance their budgets, it puts greater budgetary pressure on local governments that must balance their budgets as well.

Confronted with revenue shortfalls, budget cuts, and state aid cuts, 57 percent of city finance officers report that their cities are less able to meet financial needs in 2011 than in 2010, according to the study.

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