Cities Confront Tough Choices as Fiscal Conditions Decline

By Brennan, Christiana | Nation's Cities Weekly, May 26, 2003 | Go to article overview

Cities Confront Tough Choices as Fiscal Conditions Decline


Brennan, Christiana, Nation's Cities Weekly


America's city officials face tough choices as fiscal conditions decline across the nation. The outlook is that the situation will worsen in the near future, according to a new report by Michael Pagano and Chris Hoene published by NLC.

A struggling economy, compounded by lack of support from state and federal government and new spending pressures--resulting mainly from unfunded homeland security mandates--has forced local governments to reevaluate their budgets and spending priorities.

As choices are made about how to weather the crisis--through cuts in services, fee and tax increases or deferring costs to later years--prospects for economic recovery are threatened.

The report, based upon a survey of 330 city finance officers, was conducted in February 2003, and will be released at an NLC-sponsored roundtable on the effect of federal policy on the state and local fiscal crises in Washington, D.C., on May 27.

Key findings include:

* City revenues are declining and city spending pressures are increasing, driven by homeland security and public safety spending.

* State aid to cities is expected to decline by 2 percent in 2003 and nearly half (45 percent) of city finance officers say their states are taking actions to further reduce state aid levels.

* Four in five (79 percent) city finance officers say their city is less able to meet financial needs in 2003 than in 2002, and a similar percentage (78 percent) predict that conditions will further worsen in 2004.

* City policy makers are responding by raising user fees for services, drawing down reserves, laying off city staff and dramatically cutting investment in infrastructure and maintenance.

* Declining fiscal conditions threaten to undermine the quality of life of city residents--40 percent of city officials say that the quality of life of their residents has already been negatively impacted.

Revenue Spending and Pressures

Cities are currently experiencing the largest disparity in growth between revenues and expenditures over the last decade.

General-fund budgets for 2003 increased spending 2.9 percent in constant dollars, due mainly to increasing homeland security and traditional public safety concerns, higher health insurance costs, increasing human services needs, among other city needs. Meanwhile, constant dollar revenues are actually declining by 1 percent in 2003.

State Actions

Decreases in state aid were listed by nearly 40 percent of city budget officers as the change in revenues having the largest impact on city budgets, followed by decreases in sales tax (23 percent) and federal aid (19 percent). In addition to state aid to cities, "other state decisions are already negatively impacting city budgets, and will likely worsen in the near future, including reduced transfers to cover city costs of providing state-mandated services, the imposition of state mandates requiring additional spending at the city level, and cuts in supports for state programs that result in people going to cities for assistance. …

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Cities Confront Tough Choices as Fiscal Conditions Decline
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