Fiscal Challenges Facing Cities

The Brookings Institution has released a 16-page report on Fiscal Challenges Facing Cities: Implications for Recovery.

As the Executive Summary of the report observes, “America’s current economic crisis is not only a national crisis. It is also a metropolitan crisis, and it will soon become a local government fiscal crisis.

“Coping with the worst economic downturn in 50 years, U.S. cities face sizable budget shortfalls for 2009 that are expected to grow much more severe and widespread in 2010 and 2011.

“With the pace of recovery still sluggish, local government budget tightening and spending cuts over the next two years could well impose a significant drag on the nation’s economic performance just as the extraordinary interventions of the $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) trail off.

“It could be that a deepening local government fiscal crisis—less remarked upon than the one challenging state governments—could hobble the nation’s incipient recovery with several years of layoffs, cancelled contracts with vendors, and reduced services.”

That the impact of this impending fiscal crisis may be of substantial significance is evidenced by the fact that “cities and their surrounding suburbs are important economic agents that not only provide services important to the functioning of regional economies, but also serve as major employers in many metros. Across the 100 largest U.S. metros, for example, local government accounts for some 10 percent of total non-farm metro employment.” And local governments have grown more, not less important as a source of jobs and wages during recent years.

The Brookings analysts summarize the state of affairs by noting that “nearly nine in 10 city finance officers recently surveyed by the National League of Cities (NLC) report difficulties meeting fiscal needs in 2009. In aggregate, these cities face nearly 3 percent budget shortfalls on average this year. And the sense of trepidation is ubiquitous across a diverse range of metros, regardless of which aspect of the national crisis impacts them the most: declining consumption rates and increased property foreclosures; job losses in manufacturing or financial services; or record state budget shortfalls. Yet this is only the beginning of what will likely be a slow-moving crisis. That’s because while income and sales taxes are typically the earliest sources of city revenue to decline as job losses in a community increase and consumer purchases slow, property tax collections — which make up the bulk of city revenue nationwide — decline much more slowly as real property assessments are adjusted to reflect declining housing values. These have only just begun to slump, meaning that cities and other localities will be contending with increasing budget pressure for the next several years.”

Those interested in the implications of this situation will find this report invaluable for their purposes. And while the report quite naturally concentrates attention upon larger metropolitan areas, the implications clearly apply no less to cities as small as Haysville.

For a very quick overview of the report’s substance, see the Executive Summary at the beginning of the report, or review the initial press release for the report from Brookings.

For more information on the National League of Cities survey noted above, see this press release. For more information upon cities’ implementation of the American Recovery and Reinvestment Act, see this Brookings document.

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Published in: on November 27, 2009 at 5:18 pm  Leave a Comment  

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