Although mired in a tough economic environment, U.S. cities are deploying a wide-range of strategies designed to improve their finances, according to a report by the National League of Cities.
The report, “City Fiscal Conditions,” outlined the list of challenges which continue to confront U.S. cities.
Increased costs for infrastructure, health care and pensions, along with cuts in state and federal aid, continue to weigh heavily on cities. Property tax revenues are projected to decline for the third year in a row, and income tax revenues are expected to drop.
Encouraging signs
But there were indications in the 27th annual survey of city finance officers that municipalities are making the tough choices necessary to ensure they meet their budget requirements.
Almost half raised fee levels (43%) and shrunk their workforce (48%), and 21% reported cutting human services spending. A quarter of the cities reported a reduction in spending for services other than public safety and human services, such as parks, recreation and libraries.
Despite the weak overall environment, there are bright spots. Sales tax revenues, which began inching up last year, are projected to continue to rise by 2.4% in 2012.
Also encouraging, the report said 57% of the officials surveyed feel they’re better able to meet their fiscal needs in 2012 than they were in 2011, the third consecutive increase. In 2011, 43% felt similarly, a marked increase over 2010 (13%) and 2009 (12%).
“Cities have been making significant cuts to their budgets for several years now, and that trend will continue,” said Michael Pagano, a co-author of the report and Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. “These are serious times for cities and their residents. Difficult, but manageable, financial hurdles for cities will remain for the foreseeable future.”
That kind of assessment won’t make headlines. It lacks the alarmist narrative that sparks the shout fests on financial news shows. In fact, one can assume this report will be largely ignored.
For municipal bond investors, however, the report is instructive. Cities are feeling the pinch of a slow-growing national economy and are being forced to make difficult decisions. But by and large, they are responding to their challenges, successfully using the considerable tools at their disposal.
Though it won’t compete for TV ratings, the report is nevertheless welcome news for muni investors, who are often told the problems facing cities are intractable and the political will for change is nonexistent.