Cities Struggling to Make Ends Meet, According to League of Cities Report - 11/8/2004 - Mortgage Loan Refinance Debt Equity

Cities Struggling to Make Ends Meet, According to League of Cities Report

More than three in five of the city finance directors who were surveyed said their cities this year have been less able to meet their fiscal obligations, regardless of population size, region or taxing authority. Cities that rely on income taxes — 83% of those polled — were more likely to report deteriorating fiscal health, compared to 58% of those relying exclusively on property taxes and 52% relying on the sales tax.

Adjusting for inflation, 2004 marks an unprecedented third straight year of revenue declines for the cities. As a result, 54% of them reported that they have increased fees and charges for services, another 25% have opted for increasing property taxes and 22% have increased impact or development fees.

Michael A. Pagano, 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 has provided a lifeline for those city finances.”

The survey found that 32% of cities have reduced the size of their employees, and 40% reported that they have increased worker productivity, which has enabled them to accomplish more with the same 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, where 75% and 74% respectively reported deteriorating conditions, compared to 59% in the Northeast and 43% in the South. In fact, Southerners were most optimistic about 2005, with 52% indicating that they felt their cities' finances would improve over 2004, compared to 41% in the Northeast, 33% in the West and 32% in the Midwest.

Survey findings were based on responses from 288 cities across the country.