U.S. Mayors See Few Recovery Signs as Cutbacks Pose Fresh Economic Risk

Little Rock, Arkansas, has stopped replacing aging police cars. Mesa, Arizona, is losing $5 million a year from thousands of vacant homes that aren’t paying utility bills. Providence, Rhode Island, closed schools, fired teachers and may cut almost a fifth of its police force.

“Even with all that, we’re still looking at a huge tax increase,” said Providence Mayor Angel Taveras, who proposed a $15 million boost in property levies. “Mayors are having to make difficult decisions. They are making them in Boston, New York, Newark, Detroit, all across the country.”

U.S. mayors gathered in Baltimore for their annual meeting this weekend say they are being squeezed by rising costs, tax collections below their peak and cuts from states and the federal government that threaten their nascent financial stability. While state governments are showing signs of emerging from the fiscal crisis caused by the recession, cities are still waiting for recovery, the mayors say.

“The big pieces aren’t coming back,” said Little Rock Mayor Mark Stodola. “They’re not coming back fast at all.”

Property-tax collection, a key revenue source for cities, dropped during the last three months of 2010 at the fastest pace since housing prices peaked as assessments were lowered, U.S. Census data show. Prices have dropped further this year.

New Blow

With businesses adding jobs in May at the slowest pace in eight months, an economic slowdown may deal a new blow to sales- and income-tax collections. Local governments have exerted their own drag on the economy, cutting payrolls to where they were in 2006. This month, brokerage MF Global Inc. told clients that local governments are facing their most challenging year in decades, a development that may stoke worries in the municipal bond market.

At the conference, which began yesterday, mayors voiced concern that the federal government and the states, seeking to rein in their own budget deficits, will only make cities’ struggles worse. For the next fiscal year, 42 states and the District of Columbia have closed, or are working to close, $103 billion in budget gaps, the Washington-based Center on Budget and Policy Priorities said yesterday.

President Barack Obama and Congress cut spending this year on community development funding as well as on grants for local fire departments and law enforcement. Philadelphia Mayor Michael Nutter said more cutbacks would only add pressure on the economy at a time when his city is stabilizing.

“These kinds of cuts negatively impact the economic recovery the president is trying to push forward,” he said in an interview.

Passing the Buck

Columbus, Ohio, is bracing for cutbacks by the state, Mayor Michael Coleman said.

“Our revenues are increasing and the economy is turning around, gradually,” he told reporters. “That’s the good news. Here’s the bad news: State governments continue to pass the buck when it comes to making budget cuts. Rather than making budget cuts at their level, they pass the buck to cities.”

Mesa, Arizona, Mayor Scott Smith said he’s seen no indication that the fiscal constraints have started to ease. If anything, he said, they are starting to hit the city in unforeseen ways.

He said the city’s revenue has slid by about one-fifth from its peak, hit by tumbling sales taxes and a smaller share of revenue from the cash-strapped state. It’s also losing about $5 million in revenue because its water utility is losing customers who are forced to leave their homes.

‘Shock’ to System

“We didn’t anticipate this kind of shock to our utility,” he said. “We’re just waiting to really be assured we hit bottom. We don’t have confidence we’ve hit that yet.”

Mayor Ron Littlefield of Chattanooga, Tennessee, said his city has fared better than most, thanks to investments by companies including Volkswagen AG (VOW) that have helped create jobs. Even so, he said the city’s finances are being aided by a real estate tax increase, which angered some voters so much he faced an effort to recall him.

“Without having done that, we would have been laying off police and firefighters,” he said.

In Little Rock, Stodola said he may seek to raise sales taxes. He said the city has used one-time funds to balance its budget, let jobs go unfilled and hasn’t replaced a police car in about three years. He said revenue is projected to rise 2 percent this year, though results from the first three months of the year are falling short of expectations.

“If we do not get the city sales tax passed in September, we will be looking at a radically different city,” he said. “There will be layoffs, there will be cuts.”

Taveras of Providence said he needs to raise real estate taxes because even his budget cuts weren’t enough to close the gap he faced.

“It’s a very kind of slow recovery,” he said. “We’ve got a lot more work to do.”

To contact the reporters on this story: William Selway in Washington at Wselway@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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