USCM report: Cities to remain in recession until next year

Federal assistance is now necessary to prevent economic conditions in the nation's major cities from deteriorating further, according to a report from the Washington-based U.S. Conference of Mayors (USCM). Sixty percent of 158 mayors surveyed in 41 states and Puerto Rico say a targeted program of fiscal assistance is needed to help prevent further drastic budget cuts that translate into losses of personnel and reductions in public services.

Two out of three mayors in cities of all sizes expect budget shortfalls this year, and four out of five project shortfalls for next year, according to USCM. In nearly 27 percent of the surveyed cities, this year's budget shortfalls amount to 10 percent or more of total (operating and capital) budgets, and in a few of the cities, the shortfalls range from 20 to 30 percent of total budgets.

While more than 86 percent of mayors reported receiving some funds from the American Recovery and Reinvestment Act (ARRA), more than half of the surveyed mayors said their cities' budget problems are affecting their ability to begin job-creating projects despite having received ARRA money. USCM also has tracked complaints by cities that they were short changed by their states' departments of transportation in the distribution of ARRA funding. "Mayors know that once ARRA is fully implemented, millions of jobs will be saved or created and lasting benefits will be realized," said USCM CEO and Executive Director Tom Cochran. "But, they also know that the American people are demanding that we save or create more jobs now. It is clear that when stimulus funds go directly to cities, they are put to work immediately and there is no delay in spending."

USCM has issued a call to action listing areas in which federal assistance is most needed. Read the entire survey and USCM's call to action on usmayors.org.

The effects of the recession will continue to drag down city budgets beyond 2010 as tax revenues continue to sag, according to a report by the Washington-based National League of Cities (NLC). To compensate, some cities are expecting to raise their tax rates and make further cuts to their budgets.

The report, “City Fiscal Conditions in 2009,” found that cities face significant budget gaps this year because of a 1.3 percent decline of income tax and a 3.8 percent decrease in sales tax collections. Property taxes, which make up the bulk of city revenue nationwide, grew only 1.6 percent as declining housing values drag down real property assessments. Because of delays in tax revenue, cities typically lag 18 months behind the rest of the economy in responding to changes.

After battling a budget shortfall of $190 million since the beginning of its fiscal year on Oct. 1, 2008, Dallas is getting ready for another hard year in 2010, says City Councilman Steve Salazar. The city will probably increase its property tax rate in 2010, a step it has so far avoided, Salazar says.

The city had expected to cut 800 jobs by Oct. 1, but an influx of money from the American Recovery and Reinvestment Act (ARRA) has allowed the city to retain about 600 of those employees. “But, we know that [ARRA money] may not be there next year,” Salazar says.

Phoenix, meanwhile, has had to cut 1,800 city jobs and trim $370 million from its budget, says City Manager Frank Fairbanks. Fairbanks also would not rule out a tax increase next year. “There is absolutely no evidence that the economy is turning around or has even found the bottom in Arizona,” Fairbanks says.

As the recession deepens most local governments face lower tax revenues and cuts in aid. Cities and counties are taking steps to better manage their money, but officials also will have to find other sources of revenue, says Chris Hoene, director of policy and research for the Washington-based National League of Cities (NLC).

Officials in South Kingstown, R.I., are cutting expenses in light of the economic slump, says Town Manager Stephen Alfred. "We must look at how long the recession may last," he says. "If it is one year, we can delay infrastructure projects and cut back on services. If it is multiple years, we must look at bonding projects, and determine what can be delayed. Can the infrastructure project wait? Can we continue to fund open space?"

While cost-cutting measures are not bad ideas, Hoene says, they are unlikely to help the bottom line in a crisis. Instead, he suggests lobbying at the state level to gain the authority to change revenue sources locally. "In New England, for example, the local government has authority over schools, and they are overly reliant on property taxes to pay for everything," he says. "If they could add a local sales tax or income tax, they could diversify their portfolios and be less reliant on one revenue source."

At the same time, Alfred says, officials must be sensitive to their residents. "In this economy, it is not a willingness to pay taxes, but an ability to pay," he says.

When looking for places to cut, Hoene says health savings accounts and retirement benefits must all be on the table. "As much as [officials] like to stay away from cuts here, it is where the money is," he says.

As a last resort, Hoene says municipalities that have been conservative about putting money away can use their reserve funds. "They can draw those down in hard times, though it will change their bond ratings," he says.