Cities’ fiscal stability and optimism continued a gradual upward trend this year. But the fallout from an inequitable post-recession recovery and growing costs related to employees, retirees and aging infrastructure threaten to destabilize city finances in the long-term, according to the National League of Cities’ new 2016 City Fiscal Conditions report.
On a good note, more than 80 percent of city finance officers reported that their cities are better able to meet their financial needs in 2016 than the year before. Rates were similar in 2015 and 2014, with 82 and 80 percent of finance officers, respectively, reporting the same.
Contrast that with 2009, when 12 percent of finance officers felt their cities could better meet financial needs than the year before, and 88 percent felt less able, and it’s clear that cities have come a long way since the Great Recession. Still, revenues haven’t reached pre-recession levels. Ten years out, cities’ general fund revenue is at 96.3 percent of 2006 levels.
Although revenue is growing, it’s doing so more slowly this year than last. In 2015, general fund revenues grew 3.7 percent over 2014. In 2016, growth is projected at just 0.5 percent over the year before. Revenue from property, sales and income taxes all grew more slowly in 2016 than the year before, even though median household incomes increased in 2015 for the first time since the recession.
Expenditures are expected to grow too, a projected 3.7 percent in 2016, compared to 3.6 percent in 2015. Most cities increased expenditures on employee wages (84 percent), public safety (79 percent), and infrastructure (71 percent). All in all, general fund ending balances hit a historic high in 2015, at 24 percent of expenditures. Ending balances are projected at 22 percent of expenditures in 2016.
These same three factors were also cited as among those with the biggest negative impact on 2016 budgets along with retiree health benefits and pensions. These issues aren’t new, but the NLC notes that the “confluence of a slow recovery and growing need are exacerbating the impact of these challenges on local budgets.” When it comes to infrastructure, “underfunding maintenance has reached critical proportions. The need for new and expanded infrastructure is also growing as residents and businesses move back to cities.”
As tax revenue, state and federal aid continue to decrease, cities have continued to increase fees charged for services. Two in five finance officers reported that their city raised fee levels this year, with one in five cities increasing the number of fees applied to city services.
Overall, the NLC concludes that despite short-term signs of stability, cities should be wary of longer-term economic cycles that threaten future budgets. As low housing inventory and rising prices deplete the country’s affordable housing stock, property tax collection grows more uncertain, particularly if workers move further from city centers seeking lower rents. Unequal wage growth also threatens income and sales tax revenue.
Then there’s the ever-present concerns about pension liabilities and employee healthcare costs. The urgency of this problem varies city to city, but the report predicts it will continue to contribute to tension as cities make difficult choices about scarce resources.
Jen Kinney is a freelance writer and documentary photographer. Her work has also appeared in Philadelphia Magazine, High Country News online, and the Anchorage Press. She is currently a student of radio production at the Salt Institute of Documentary Studies. See her work at jakinney.com.