US cities’ finances stabilise but don’t soar, reveals new report

American cities are improving economically but municipal revenues have yet to return to pre-recession levels, according to a new report from the National League of Cities (NLC).

Marking three consecutive years of growth in US regions, the NLC’s 2015 City Fiscal Conditions report found that 82 percent of finance officers said their cities were better able to meet the financial needs of their communities this year compared with 2014.

General city fund expenditures increased 1.5 percent in 2014 with growth driven by investments in employee wages, public safety and capital projects and infrastructure. But city revenues increased by 1.3 percent last year, 0.2 percent less than expenditure.

The National League of Cities report reinforced that the fiscal effect of the 2007 recession was far more lasting than the downturns in the early 1990s and at the turn of the 21st century. The current revenue base is 91.6 percent of the 2006 base and estimates range from between 2020 and 2024 for when revenues will return to pre-recession levels.

“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,” said Clarence E. Anthony, National League of Cities CEO and Executive Director.

The NLC’s City Fiscal Conditions report began life 30 years ago as a report from the Joint Economic Committee in Congress and supplies an annual audit on the health of US cities. This year the report found that the three most constraining factors on city spending budgets were infrastructure demands (48 percent), pension costs (38 percent) and employee healthcare benefits (36 percent). The report recorded that property taxes experienced moderate growth, growing by 2.4 percent in 2014 and expected to rise by 1.2 percent in 2015 but the pace of growth in sales tax revenues has slowed with 2.3 percent growth expected in 2015.

“City budgets have been put to the test and are proving resilient even with limited fiscal tools and revenue raising capacity,” said Christiana McFarland, Research Director at the National League of Cities who also wrote the report. “Cities will continue to face major budget stresses like infrastructure, pensions and health care and will need to make tradeoffs to maintain a fiscal balance.”

Earlier this year the NLC released figures showing that economic conditions are improving in nearly all US cities but 64 percent of cities recorded a slight improvement, compared with 28 percent registering a ‘vast improvement’.

The City Fiscal Conditions report concluded that US municipalities face tough choices going forward: “Simply because they are able to manage under difficult circumstances does not mean that it will be easy or without consequence. In the years ahead as cities continue to navigate their roles as fiscal stewards, stronger state and federal partnerships will be critical to enabling the fiscal choices that will allow cities to grow, innovate and propel our economy forward.”