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The State of the Cities in 2012: Fiscal Challenges and Improvement

March 21, 2012

This is the third in a seven-part series about mayors’ 2012 State of the City speeches.

As the country slowly claws its way out of the deep recessionary hole left in the wake of the Great Recession, the fiscal challenges facing cities continue to be daunting. In many cities, tax revenue figures continue to fall short of projections, and budgets continue to be cut. Because of this, cities have continually been forced to make many hard choices regarding the delivery of vital city services, staff levels, and wages; decisions that have been the norm over the last couple years. And while the economic climate could still be deemed precarious, it seems as though the economy is currently on a path to recovery, albeit on a less than solid foundation, as evidenced by NLC’s recent Local Economic Conditions Survey.

These themes are reflected in the state of the city speeches that NLC analyzed to gain a better understanding of cities’ achievements and challenges. To state the obvious, some cities are still struggling to make ends meet. At the beginning of FY 2011, Providence, RI, was facing a $110 million deficit. While Providence impressively managed to cut its deficit to $22 million, annual pension payments are slated to grow by nearly 70% in the next ten years. Pasadena, CA, is facing its fourth budget in a row with revenue shortfalls and a shrinking tax base. Personnel costs make up 75% of Pasadena’s operating budget to which Mayor Bill Bogaard frankly stated, “Fiscal challenges will color every decision the Council makes this year.” Allentown, PA, has also faced fiscal challenges due to escalating unfunded liabilities. It is at its lowest staff levels in 40 years and according to Mayor Ed Pawlowski, the city has been left with two difficult options: increase taxes on citizens or reduce or eliminate unfunded liabilities.

Much of the financial struggle that cities are experiencing is due to the devastating effects of the recession on revenue collection, which in many cities hasn’t returned to pre-recession levels. This has forced cities to rethink the sources of their revenue streams and has led them to look outside traditional funding mechanisms to raise money. Providence is calling on its tax-exempt institutions to pitch in to help close the city’s fiscal gap. Pasadena is dealing with the dissolution of California’s redevelopment agencies, estimating that it will cost the city around $30 million per year in lost revenue. And many communities are doing their best not to raise taxes amid depressed property tax revenues. Because of the dire fiscal situation in many of our nation’s cities, it is imperative that the small amount of funding that does exist is preserved and the opportunities to bolster city budgets are pursued. To that end, NLC is working with federal legislators to preserve direct federal funding in the form of Community Development Block Grants (CDBGs) and also supports legislative efforts that would enable cities and states to collect sales tax revenue from online retail purchases.

Make no mistake, there’s some bad news out there, but it’s not all doom and gloom.  Rogers, AR’s, sales tax revenue beat projections by 5.2% and recorded its larges sales tax collection in history. Columbus, GA’s, sales tax receipts were up 5.4%, the budget was balanced, and the city did not have to make any payroll deductions or force employee furloughs. And New Haven, CT, recorded its 17th audited budget surplus in the last 18 years. So even though the beginning of this post took a slightly pessimistic tone, many mayors described fiscal improvement in their state of the city speeches; their cities were turning the corner and heading toward fiscal sustainability.

The Great Recession left an indelible mark on the financial well-being of cities around the country. According to the Mayors’ speeches, the important take away from this unwelcome economic shake-up is that instead of dwelling on the hardships of today, cities and their citizens have an opportunity to change the status quo for a brighter future. This speaks to the practicality of cities, city leaders, and local governance. Their boots-on-the ground commitment to better communities has been tremendous while Washington has been at a standstill. Perhaps Mayor Kitty Piercy of Eugene, OR, said it best in her state of the city address: “We must step beyond the political rancor, step beyond the confines of difficulty and pettiness, to stay focused on having a community that’s good for all of us – left, right, and all points in between.” Cleaning up cities’ fiscal situations will not be without ups and downs, but finding sustainable solutions, as well as ensuring revenue sources, will make the future easier to manage.

Read about this project in more detail in The State of the Cities in 2012 on Citiesspeak.org. Don’t forget to check back over the next several weeks for more discussion on the State of the Cities in 2012.

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