The National League of Cities recently released its City Fiscal Conditions 2015 report, which surveys 100 large U.S. cities about the state of their finances. According to the report, there is a renewed optimism among finance officials about their cities, despite actual numbers suggesting the contrary.
The NLC—which partners with more than 19,000 U.S. municipalities—has released the report annually since 1986, using data accrued from surveys with officials and Comprehensive Annual Financial Reports. The main positive from this year is that officials seem more confident about their cities' direction. 82% said their city was "better able" to meet its financial needs, up from 57% in 2012, and 12% in 2009, during the recession.
"This level of optimism among finance officers," writes study authors Christiana McFarland and Michael A. Pagano, "is the highest since the inception of the survey."
But the numbers themselves say something different. In the past two years, general fund revenues have dropped by 2%. After crashing from 2006-2010, they had been ticking upwards, but are down again, meaning cities are now operating at 91.6% of their 2006 revenues. This is due to cities experiencing irregular sales, property and income tax receipts.
At the same time, expenditures have continued moving up. As the chart below shows, there have been widespread spending increases since 2010, most notably on employee wages, public safety, infrastructure, and health and pension benefits. It might seem odd, given many cities' requirements to balance their budgets, that spending would increase even as revenues decline. But, as the chart also suggests, cities have made up the difference by charging more fees. In the last year, 42% of cities increased their fee revenues, while only 2% decreased them.
When asked about the biggest negative impacts on the budget, officials' five most common answers were, in this order, infrastructure, employee pensions, employee health benefits, public safety, and existing employee wages. Such answers grant insight into the financial tug-of-war occurring in many cities. On one hand, cities are struggling to fund basic services that will help their economic present and future--aka infrastructure and policing. But employee expenses--which often cover the past work of retirees, and are thus irrelevant to a city's ongoing needs--consume much of the potential revenue for this.
The NLC report used banal language that avoided making harsh, honest declarations about these trends. But it at least mentioned Chicago, which epitomizes urban America's broader financial problems. The city has massive pension debt, which has forced neglect of basic services, huge tax and fee increases, and continued deficits. Other cities may soon follow this path, if they haven't already. According to State Budget Solutions, the total unfunded pension liability for state governments--many of which manage local employees' plans--is now $4.7 trillion. Nearly half of this debt is tied up in the 25 largest systems, such as Calpers and the New York State and Local Employee Retirement System. If this doesn't change, future NLC reports may look worse.
