A new report from the National League of Cities (NLC) reveals that municipal finances have stabilized in the wake of the Great Recession, but the recession's effects are still evident in city budgets across the nation. The 30th annual City Fiscal Conditions
report found that fiscal impacts of the 2007 recession are much more substantial when compared to similar downturns in 1990 and 2001. However, modest improvements in city fiscal conditions, including an expansion in general fund revenues, led 82 percent of city finance officers to report their cities are better able to meet their financial needs.
"From its start 30 years ago as a report from the Joint Economic Committee in Congress, the City Fiscal Conditions
report has served a critical role to provide a window into the fiscal health of the nation's cities," said National League of Cities CEO and Executive Director Clarence E. Anthony. "This year's report shows that cities are continuing-if incrementally-along the road to fiscal recovery after the lingering impacts of the Great Recession."
With 30 years of historical data, the report surveys city finance officers on their cities' abilities to meet fiscal needs, factors impacting budgets, tax receipts, and revenue and spending trends and provides a context for how current fiscal conditions compare with previous recession and recovery periods.
Highlights from the Report
General Fund Revenues and Expenditures
Trends in general fund revenues tend to reflect the changing economic and fiscal environment of their cities. General fund expenditures increased 1.5 percent in 2014, with continued growth anticipated into 2015. This was driven largely by investments in employee wages, public safety, and capital projects and infrastructure.
Trends in tax receipts provide an understanding of the impacts of the broader economy on city revenues.
Budget Impact Factors
- Property tax revenues: Severely impacted by the recession, property taxes registered their first post-recession gains in 2013, and experienced moderate growth in 2014 (2.4 percent) with 1.2 percent growth expected to continue into 2015.
- Sales tax revenues: Sales taxes respond more quickly to economic conditions than property taxes, and showed their first signs of post-recession growth in 2011. Sales tax receipts have grown every year since, but the pace of growth has slowed, with 2.3 percent growth expected in 2015.
- Income tax revenues: Income taxes have been the most volatile tax source during the recovery period, but only about 10 percent of cities have access to income tax. Income tax revenue growth reached a post-recession high in 2012, and is expected to grow by 3.6 percent in 2015.
A number of factors combine to impact the ability of cities to meet their financial needs. The most impactful factors on city budgets were the value of the local tax base (70 percent), health of the local economy (63 percent) and gas and oil prices (24 percent). Infrastructure needs (48 percent), pension costs (38 percent) and health benefit costs (36 percent) were the most negative impacts on city budgets.
"City budgets have been put to the test, and are proving resilient even with limited fiscal tools and revenue raising capacity," said National League of Cities Research Director Christiana McFarland, the report's author. "Looking to the future, cities will continue to face of major budget stressors like infrastructure, pensions and healthcare, and will need to make tradeoffs to maintain a fiscal balance."