Cities Face Rising Costs as Revenue Declines

More than half, fifty-seven percent, of all municipal officials have reported that finances in fiscal 2011 were worse than in 2010, according to a survey by the National League of Cities. Inflation-adjusted revenue is headed for its fifth consecutive annual decline, while worker health-care and pension costs rose for more than 80%, and state aid has declined for roughly half.

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On a more positive note, the number of city officials saying their communities were worse off this year than last declined from 87% in 2010, while the number indicating that things had improved rose to 43% this year from just 13% in 2010. “We’re in a situation where they don’t see it getting worse, but it’s not getting any better,” said Christopher W. Hoene, research director for the NLC in Washington.

With local officials cutting spending in order to deal with decreased tax revenue and reduced assistance from states dealing with their own budget deficits, more than half of a million jobs been cut from municipal payrolls in the last three years. States have cut 1.3 million positions since August 2008.

With home prices down by almost a third from their July 2006 peak, properties levies are also down, and declining consumer confidence has resulted in less spending, curbing retail sales-tax collections by municipalities. Meanwhile, medical-care expenses for workers have been rising.

Local governments have only recently begun to feel the full impact of the housing market’s drop, as values used for taxes lag behind markets by 18 months or more, according to the NLC. Receipts are likely to decline in fiscal 2012 and again in 2013 for that reason. Also, the financial strains on cities have investors afraid that cities might default on municipal bonds, causing many to pull out of their local government investments.

However, as of September 22, about $1.18 billion of municipal debt had entered default this year, compared to almost $3.61 billion in 2010. Cities have been paying their bills and balancing their budgets by eliminating jobs, charging more for services, and generally spending less.

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Some 550,000 municipal jobs have been cut since September 2008, while roughly half of all cities cut or froze employee pay, 31% fired workers, and 30% cut health-care benefits. Roughly three-fifths of all municipalities delayed or canceled “capital infrastructure projects,” while mayors and city councils looked to increase revenue. Forty-one percent of cities raised fees charged to residents, while 23% imposed new charges, and 20% raised property-tax rates.