Is Fiscal Growth Slowing in Cities?

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When the Great Recession hit in America, city governments felt the effects acutely. Growth in municipal budgets contracted noticeably as hiring freezes, service changes, and even bankruptcies rolled across the country.

Now, that continuous fiscal growth may be slowing, according to a new report.

NLC’s 2017 City Fiscal Conditions, a survey of city finance officers, reveals the start of fiscal contraction in the municipal sector following several years of post-recession growth. Several major findings taken together signal a slowdown on the horizon, including waning confidence of city finance officers, slowing local revenue and spending trends and insufficient post-recession revenue recovery.

Our research found:

  • General Fund revenues are slowing. General Fund revenues grew by 2.61% in 2016, and revenues are projected to stagnate with just 0.9% growth in 2017.
  • Property tax revenue growth is budgeted much lower than in 2016. Finance officers have budgeted for 1.6% growth in property tax revenues in 2017, compared to 4.3% in 2016.
  • Finance officers project a decline in sales and income tax revenues for 2017. Both sales and income tax revenues grew in 2016 (by 3.7% and 2.4%, respectively), but finance officers project a decline in 2017 (by 0.2% and 2.7%, respectively).
  • Confidence of municipal finance officers has waned. Although the majority of finance officers (69%) are confident in the fiscal position of their cities, widespread optimism hit its peak in 2015.

These indicators of slowing local fiscal growth come on the heels of continued national economic expansion. Divergence between fiscal conditions and national economic indicators calls into question the alignment between city fiscal structures and the drivers of the economy, as well as the sustainability of the continued patchwork of solutions to cities’ most pressing issues—namely, infrastructure.

Although the majority of city finance officers are confident in the fiscal position of their cities, a downward trend is beginning to emerge. Sixty-nine percent of city finance officers report that their cities are better able to meet the financial needs of their communities in 2017 than in 2016. Last year, 81% reported “better able,” and in 2015, the most widespread level of optimism in the history of the survey, 82% made the same assertion.

Although this is a simple perception indicator, it represents the informed opinion of those who manage budgets year-round. Finance officers see firsthand the fluctuations in revenues and expenditures and the impacts that budget decisions have on residents.

Their response to “ability to meet fiscal needs” has historically tracked well with more quantitative fiscal measures. This year’s results point to the potential start of a contraction in the municipal sector after optimism about growth hit a peak in 2015.

Find the full 2017 City Fiscal Conditions report at nlc.org/CFC.

About the author: Christiana K. McFarland is NLC’s research director. Follow Christy on Twitter at @ckmcfarland.

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