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City Fiscal Conditions Report May Reflect a “New Normal”

November 29, 2011 · Print · Email

When the National League of Cities released its 26th annual City Fiscal Conditions Report last month, it contained few surprises.

“General city revenues are continuing to fall, with a projected -2.3% decrease by the end of 2011,” according to the report.  “This is the fifth straight year of declines in revenue, with probable further declines in 2012.”

In response to declining revenue, almost three out of every four cities are cutting personnel.  Other reactions include delaying infrastructure projects, increasing service fees, and modifying employee health care benefits.

Michael Pagano, Ph.D., Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, has helped conduct the annual survey and author the report since 1991.

Pagano points to another response by cities.  “The silver lining - if it could be called that - is that cities now understand that the depth of the recession is such that they might find it in their best interests to re-think their fiscal architecture."

As revenue sources continue to be strained, cities might have to face some hard truths, namely that the systems and services they provide to residents may need to be supported in new or modified ways - if they are to be continued at all. 

“Cities may need to think more clearly about linking their fiscal tools to the growth engines of their local economies,” says Pagano. 

“The silver lining - if it could be called that - is that cities now understand that the depth of the recession is such that they might find it in their best interests to re-think their fiscal architecture."

They might also consider linking more closely the consumption of city-provided services to the people who pay for those services, he suggests.  Cities with large daytime populations, for example, need to employ a larger police force, provide greater fire protection services, and offer more transportation options during the day than they do at night.   Cities that impose a commuter tax - whether a politically popular strategy or not - are, in essence, asking those people who use these services to contribute to their costs, even though their property tax dollars might go to support those same services provided by the outlying cities or suburbs in which they live.   

Desperate times call for desperate measures, and while not all cities are operating in crisis mode, many need to reconsider which services are “essential,” and at what level they can continue to provide them.  During more prosperous times, cities may have been able to provide certain services - free transit rides for seniors or elaborate fireworks displays, for example - that they may no longer be able to afford. 

Rather than eliminating services, some cities are making concessions, shortening public swimming pool hours, reducing landscaping services for local parks, or scaling back public holiday decorations. 

What will it take to reverse this downward trend?  “A strong rebound in the private sector could provide some relief for strained city fiscal conditions; however, the improvement would likely lag by 12-18 months, due to the fact that property tax receipts refer to property values in approximately that prior time period,” Pagano explains.

Using a catchphrase that seems to characterize today’s economic squeeze, Pagano says that this year’s City Fiscal Conditions report may well provide evidence of “a new normal.”

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