City Fiscal Conditions in 2009
By Christopher W. Hoene
and Michael A. Pagano
September 2009
About the Survey
• The City Fiscal Conditions Survey is a national mail survey of
finance officers in U.S. cities.
• Surveys were mailed to a sample of 1,055 cities, including all
cities with populations greater than 50,000.
• The survey was conducted from April to June 2009.
• The 2009 survey data are drawn from 379 responding cities, for a
response rate of 36.0 percent. The responses received allow us to
generalize about all cities with populations of 10,000 or more.
City Fiscal Conditions in 2009
• The nation’s city finance officers report that city fiscal conditions
continue to weaken in 2009 due to:
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National economic recession
Declining housing values
Restrictive credit markets
Slowed consumer spending
Rising unemployment
Meeting Fiscal Needs
• 88 percent of city finance officers say their cities will be less
able to meet fiscal needs in 2009, compared to 2008 when 64
percent said they were less able to meet fiscal needs than in
2007.
• This is the worst change in the 24-year history of the survey.
Regional Fiscal Outlook
• Finance officers in the West (93 percent) say their cities are
worse off in 2009 than cities in other regions.
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Western Cities – 93 percent
Southern Cities – 84 percent
Midwest Cities – 88 percent
Northeast Cities – 85 percent
Revenue and Spending Trends
• For 2009, finance officers predict revenues will decrease by -0.4
percent, while expenditures will increase by 2.5 percent.
• This means that cities face a budget gap of 2.1 percent.
Tax Revenues
• This budget gap is the result of slowing property tax revenues
(1.6 percent), combined with sales and income tax declines.
• Property tax revenues increased by 6.2 percent in 2008, due to
recent housing price increases, but this will slow to 1.6 percent by
the end of 2009.
• City sales tax revenues (-3.8 percent) and income tax revenues
(-1.3 percent) are predicted to decline through the end of 2009.
Factors Influencing City Budgets
• City budgets are facing spending pressures from a number of
sources:
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Decline of the local economy
Rising cost of providing services
Public safety and infrastructure costs
Employee-related costs for health care, pensions and wages
Fiscal Actions – Revenue
• Cities are responding by finding new revenue and increasing:
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Level of fees for services (45 percent)
Number of fees (27 percent)
Level of impact and development fees (19 percent)
Property tax rates (25 percent)
Sales tax rates (5 percent)
Income tax rates (1 percent)
Other tax rates (6 percent)
Fiscal Actions – Spending
• Cities are taking a number of steps to cover budget shortfalls.
Some cities are decreasing the overall operation spending (49
percent), while some are decreasing spending on municipal
workforce (49 percent).
Spending Cuts
& Responses to Shortfalls
• To cover budget shortfalls and balance annual budgets, 91 percent
of cities are making spending cuts in 2009, while 81 percent
predict they will make further cuts in 2010.
• These cuts are coming from:
– Hiring freezes/layoffs (67 percent)
– Delaying/cancelling capital
infrastructure projects (62 percent)
Beyond 2009
• City fiscal conditions tend to lag behind national fiscal
conditions because of the time it takes for reported tax
revenues to reflect changes in the economy.
• Since national economic forecasts are not predicting
immediate and substantial improvements, city finances will be
affected in 2010, 2011 and beyond.
Beyond 2009 (cont’d)
• The concerns expressed by city finance officers for the next
year include:
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Slow recovery of the real estate market
State government budget shortfalls
Employee-related health care, pensions and wages
Tightened credit markets
Drawing down ending balances
Political constraints on local authority, limiting tools to offset economic
downturn
– Consumer spending, unemployment and wages
The Lag Between Economic
& City Fiscal Conditions
• The “lag” refers to the gap between when national economic
conditions change and when that impacts city economic conditions.
• Typically anywhere from 18 months to several years, the lag is
largely related to property tax collections, since a downturn in real
estate prices may not be noticed for several years.
• There is also some lag due to sales and income tax collection and
administration issues.
About the National League of Cities
The National League of Cities is the nation’s oldest and largest
organization devoted to strengthening and promoting cities as
centers of opportunity, leadership and governance. NLC is a
resource and advocate for more 1,600 member cities and the 49
state municipal leagues, representing 19,000 cities and towns and
more than 218 million Americans.
Through its Center for Research and Innovation, NLC provides an
applied think tank capacity by developing, conducting, and
reporting research on issues affecting cities and towns.
Some Internet Resources
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Alliance for Innovation Navigating the Fiscal Crisis site:
http://www.transformgov.org/FiscalCrisis.aspx?id=2128
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GFOA Fiscal First Aid site:
http://www.gfoa.org/index.php?option=com_content&task=view&id=
937&Itemid=416
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ICMA Economic Crisis main page: http://icma.org/economiccrisis
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ICMA Resource Center economic crisis page:
http://icma.org/main/topic.asp?tpid=16&stid=151&hsid=10
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NLC Research Reports:
http://www.nlc.org/resources_for_cities/publications/1637.aspx