Most big U.S. cities have struggled to restore revenue to pre-recession peaks amid lagging property-tax receipts and cuts in state and federal funds, according to a report from the Pew Charitable Trusts.
Pew analyzed financial statements for the central cities of the 30 most-populous metropolitan areas and found that as of 2012 a majority still hadn’t recovered from the recession that ended in June 2009. Revenue of 18 municipalities declined in 2012 after adjusting for inflation, with eight logging the lowest collections since the economic slump started in 2007, a report showed.
Even with fiscal gains since 2012 from a growing national economy and rallying stocks, the governments are straining to balance costs for services such as police and fire protection with the expense of obligations to retirees. In Houston, the biggest increase in the proposed 2015 budget is a 21 percent boost in pension contributions, eclipsing spending on libraries, parks, trash and courts combined, Pew said.
“Cities are not out of the woods yet,” Mary Murphy, a Pew officer and one of the report’s authors, said in a conference call with reporters. “In spite of an ongoing national recovery, serious financial concerns remain for local leaders in many of the nation’s cities.”
Uneven Distress
For Atlanta, Dallas, Detroit, Las Vegas, Phoenix, Pittsburgh and San Antonio, revenue declines in 2012 from 2011 were the largest since the recession began, Pew said.
“The recovery hasn’t been evenly felt across the country, and these pockets of distress remain,” Murphy said in an interview from Washington.
Researchers blamed a drop in property-tax collections, generally a city’s largest source of financing, and reduced funding by states and the federal government, for most of the revenue declines. Both categories fell by an average of 4 percent in 2012, the report said.
While the national housing market has begun to rebound, municipal real-estate levy collections trail increases to assessments by at least a year, Pew said. Twenty-four cities reported declines in receipts from 2011.
Cities that rely on charges, fees and taxes on income and sales — such as Boston, Minneapolis and New York — bucked the trend and exceeded pre-recession revenue peaks in 2012, the report said. Those sources tend to respond more quickly to an improving economy.
Spending Drop
Even as spending rose in 2012 for 17 of the 30 communities, eight municipalities still made cuts to six-year lows, Pew said.
Half reduced spending in public safety, researchers found. The cities also faced $225 billion in unfunded pension and health-care liabilities as of 2010, according to Pew. The following year in Atlanta, officials replaced fixed pension payments for new hires with a 401(k)-style plan, the report said.
The tally of obligations combines unpaid commitments of $121 billion for pensions and $104 billion for retiree health care, Pew said. Unfunded pension liabilities swelled from $67 billion in 2007, the organization said.
While a record-setting run in stocks has helped fill that hole, cities are still catching up: Chicago’s $19.2 billion shortfall across its four pension funds as of year-end 2013 compared with estimated 2014 operating revenue of about $3.3 billion, city reports show.
Rebound Signs
There are encouraging signs, Murphy said. City finance officers expect property-tax collections to climb this year by 1.6 percent, the first growth in five years, according to a survey by the National League of Cities.
Moody’s Investors Service revised its 2014 outlook for U.S. local governments to stable from negative in December, saying most have reduced costs and expectations to deal with limited resources.
Pew’s report showed cities are starting to devote more funds to public works and transportation, with the expenditure rising 3.6 percent in 2012 after a more than 7 percent average decline the previous year, according to the report. The outlays were primarily for maintenance and operations, and officials complained about being unable to meet infrastructure needs, Murphy said.
The spending included $900 million in street and storm-drain maintenance in San Diego, and work on a regional rail-bus system in Denver, the report said.
“You did start to see some cautious investments in spending areas that cities had cut substantially during the recession,” Murphy said.
Purse Strings
The American Society of Civil Engineers estimates that the U.S. requires $3.6 trillion in infrastructure investment by the end of the decade.
The Nov. 4 elections signaled that voters are willing to spend, with six states passing ballot measures to fund infrastructure, the engineering group said. Sixty percent of public-transit initiatives, totaling $6 billion of investment in local communities, passed last week, according to the American Public Transportation Association.
Cities are moving to replenish reserves after tapping the funds to manage revenue shortfalls, Murphy said. Two-thirds of municipalities had smaller fund balances in 2012 than they did heading into the recession, she said.
Even with improving finances, “the effects of the Great Recession are still being felt in some cities as of 2014,” Pew said.
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