Report: Recession hit midsize cities harder this time

By Reuters
Posted Oct. 6, 2010 at 9:06 a.m.

U.S. cities suffered more harm to their fiscal condition in the latest recession than during any other economic decline in nearly a quarter of a century, a survey released by the National League of Cities on Wednesday found.

And cities are just beginning to see the effect of the downturn that began at the end of 2007 on property taxes, though the recession officially ended in June 2009. Property taxes, a key revenue generator for cities, fell 1.8 percent in 2010 from 2009, according to the survey.

“The full weight of the decline in housing values has yet to hit the budgets of many cities, and property tax revenues will likely decline further in 2011 and 2012,” the survey of 338 cities with populations between 10,000 and 50,000 found.

Nearly nine in 10 city finance officers in the survey said their cities have been less able to meet fiscal needs in 2010 than in the previous year. Those cities that participated in the survey, conducted from April to June, are laying off workers, delaying or canceling infrastructure projects, or cutting basic services.

“In comparison to previous periods, the most recent decade, with recessions in 2001 and 2008-09, was one characterized by little stability in city fiscal conditions, and the effects of the current downturn are already more significant for city budgets than for the previous recessions tracked in NLC’s survey,” according to the survey, which the association of city leaders has been conducting since 1986.

Four out of five of the city finance officers in the survey said employee health benefit costs were having a negative impact on their budgets. Almost three quarters said they were impacted by infrastructure costs and more than half said they were dealing with cuts in aid from states.

The most common spending cut was a hiring freeze, while the most typical revenue generator was increasing the levels of fees for services.

As the new year begins, cities are worried about struggling real estate markets, consumer spending and unemployment. They are also concerned that states will respond to falling revenues by further cutting their aid to local governments.

City officials also expect to wrestle with underfunded pension and health care for years to come.

“Confronted with these issues, 80 percent of city finance officers forecast that their cities will be less able to meet needs in 2011 than they were in 2010,” the survey said.

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