City Budgets Strained by Economic Downturn

Dec. 1, 2010

I noted with interest that the US EPA issued its Clean Water and Drinking Water Infrastructure Sustainability Policy at about the same time the National League of Cities was releasing data on the sad state of municipal budgets in the United States.

EPA acknowledged that its goal of increasing the sustainability of water and wastewater infrastructure in the United States comes at a time when communities across the country are facing the worst financial crisis in recent memory. At the same time, the hope for any significant federal aid is fading away with the last of the stimulus funding. Given the mood in Congress and the recent elections, I don't see much hope for more than the standard SRF appropriations in the near future.

Meanwhile city financial officers across the country reported the largest spending cuts and loss of revenue in the 25-year history of the National League's annual survey of city fiscal conditions.

In the research brief, "City Fiscal Conditions in 2010", 87% of city finance officers report their cities are worse off financially than in 2009. City revenues - as generated in property, sales, and income taxes - will decline 3.2% in inflation-adjusted dollars according to finance officers. To compensate, city officials are cutting back spending, with expenditures declining by 2.3%. These are the largest cutbacks in spending in the history of the survey and the fourth year in a row that revenue declined.

Financial pressures are forcing cities to lay off workers (79%), delay or cancel capital infrastructure projects (69%), and modify health benefits (34%). There were also significant increases in the number of officers reporting across-the-board services cuts (25%) and public safety cuts (25%). Public safety is usually reduced only as a last resort option.

"This historic recession has forced city officials to make difficult decisions that impact the social and economic fabric of their communities," said Ronald O. Loveridge, mayor of Riverside, CA, and president of NLC.

The ongoing weakness in the housing market, along with poor retail sales, has reduced the available revenue by significant margins. Because most tax revenue is collected at specific points during the year, and since it takes time for housing assessments to catch up to current values, cities will still be feeling the full effect of the downturn in 2011. The national economy's slow recovery to date also means the recession's effects will potentially linger in cities for several more years, the League reported.

"While certain segments of the economy may be under recovery, cities as a whole are not yet experiencing growth," said co-author Michael A. Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago.

The League's report does not directly address water infrastructure. Still, the fact that nearly 70% are delaying or canceling infrastructure projects is troubling. That statistic also tracks with a slowdown in design projects being reported by engineers and consultants serving the water market.

I do believe the economy has turned around and there is reason for optimism. However, I am also very aware that municipal budgets tend to lag the national economy by 12-18 months, which in my mind translates to tough times ahead for 2011.

You can read a more detailed report on the NLC report at the League's website, www.nlc.org.