NLC Survey: City Fiscal Conditions Continue to Worsen

The unprecedented economic conditions facing the nation are increasingly straining the ability of cities to meet their financial needs. In a recently conducted survey of city finance officers by NLC, 84 percent reported facing fiscal difficulties, up from 64 percent only six months ago. This is the highest percentage in the history of NLC’s surveys, dating back to 1985.

Almost all cities responding expect the current economic hardship to continue well into 2009. Ninety-two percent of the cities surveyed expected to have trouble meeting their city needs during this year.

The unprecedented economic conditions facing the nation are increasingly straining the ability of cities to meet their financial needs. In a recently conducted survey of city finance officers by NLC, 84 percent reported facing fiscal difficulties, up from 64 percent only six months ago. This is the highest percentage in the history of NLC’s surveys, dating back to 1985.

Almost all cities responding expect the current economic hardship to continue well into 2009. Ninety-two percent of the cities surveyed expected to have trouble meeting their city needs during this year.

According to the report, cities are responding to the economic downturn mainly through service cuts. Four in five 83 percent) city finance officers report that their cities have already responded to the fiscal and economic ownturn by cutting expenditures and services. Similar numbers (80 percent) anticipate making further cuts in the next fiscal year.

In terms of the types of cuts, most reported instituting hiring freezes and/or staff layoffs (69 percent). Many (42 percent) also reported delaying or canceling outlays for capital infrastructure projects. One in five city finance officers reported across the board service cuts (22 percent) and cuts in services such as libraries, parks and recreation and special events (20 percent).

“Cities are responding as best they can,” said NLC Executive Director Donald J. Borut. “Their citizens have increasing needs for services just at the same time that revenues are declining. Cities are making very difficult decisions amid rapidly changing economic circumstances.”

Among those changing circumstances is the recent and ongoing turmoil in financial markets. Nearly one in two (46 percent) city finance officers reported difficulties in accessing credit and obtaining bond financing. Twenty-eight percent reported delayed or canceled municipal bond financing — financing that is most often used for capital infrastructure projects.

“It remains clear that cities and towns all over the country are no longer able to afford many important infrastructure projects and that federal action is needed to stimulate our nation’s economy and get people back to work,” said Carolyn Coleman, NLC federal relations director. “Getting the federal recovery package passed is vitally important for our communities.”
 
City finances tend to lag the overall economy by 12 to 24 months. The degrading economic conditions seen during the fall months will be felt by cities through 2009 and likely through most of 2010. This time lag means cities will face an increasingly more difficult proposition as the year progresses. “We must support our nation by recognizing that strong cities and towns serve as a backbone to economic growth,” said Borut. “If the nation is going to see economic recovery then we must support and promote the financial health of our local communities.”

The results are based on a national mail survey of finance officers in U.S. cities. Surveys were mailed to a sample of 530 cities. The survey was conducted in December 2008 and January 2009. Survey data are drawn from 156 responding city finance officers, for a response rate of 29 percent. To view the full report go to www.nlc.org.