The NLC report, City Fiscal Conditions in 2007, found that when adjusted for inflation, city revenues grew only 1.1 percent from 2005 to 2006, while expenditures grew by 1.2 percent. Looking at 2007, revenue growth is expected to be less than one percent while expenditures are increasing by 3.5 percent, creating a revenue gap of 3.1 percent that cities would have to close by cutting services or raising revenue.
"City officials are going to be facing difficult choices in the coming years - both to plan for the future and to fill gaps in revenue and spending levels," said NLC Executive Director, Donald J. Borut. "The purchasing power of cities and towns is under tremendous pressure - with increasing costs for such staples as public safety and infrastructure as well as increases in health insurance and pensions for public employees. Cities are doing the people's business - getting commuters to work, picking up the trash, keeping libraries open, making sure their streets are safe. And city leaders are being innovators. But it's getting more difficult every year in the face of increased demands for more services from their constituents."
Given the gap between revenues and expenditures, nearly half (45 percent) of all responding city finance officers reported they have increased fees and charges for services. Twenty-nine percent reported that their city opted for increasing property tax rates, while 17 percent reported reducing property tax rates. Increases in sales tax, income tax, and other tax rates have been much less frequent.
Overall, sales tax receipts improved in 2006 over previous year receipts, increasing by 3 percent, adjusted for inflation. Property tax revenues increased in 2006 by 4 percent when adjusted for inflation, and projections for 2007 indicate that they will continue to grow by 5.5 percent, reflecting historical highs and the recent strong real estate market. The current housing downturn, however, will likely affect cities' revenue collections in the next few years as assessments catch up with market changes.
On the spending side, three in four city finance officers report increases in public safety spending in 2007, while 59 percent are increasing spending for infrastructure or capital projects, 52 percent are increasing the growth rate in their operating budgets to support a variety of new and existing services, and 39 percent report increases in human services spending, often referred to as social services programs.
Eight in ten city finance officers cite prices and inflation, employee wages, and the cost of employee health benefits as having negative impacts on their budgets. Rising costs for public safety, infrastructure, and employee pensions are also affecting their bottom line. One in four city finance officers also say that changes in the amount of federal and state aid to cities are having a negative impact on city budgets.
According to the survey of city financial officers conducted between April and June 2007, the generally positive financial picture was reported by cities regardless of whether they relied on property, sales or income taxes or what size they were. Officials in the Midwest (51 percent), however, were less likely to say their cities were better off in 2007 than city officials in the South (79 percent), Northeast (74 percent), and West (73 percent).
