Cities See First Fiscal Gains After U.S. Recession, Report Says

U.S. cities are recovering from the recession even as they continue to face pressure from sliding property tax revenue, state budget cuts and rising employee costs, according to a report.

Fifty-seven percent of cities say they were “better able to meet financial needs” this year than in 2011, according to an annual survey by the National League of Cities released today. It is the first time that most reported an improvement since before the 18-month recession began in 2007, which was the longest contraction since the Great Depression.

The fiscal strains on cities hurt the nation’s economic recovery, with local governments eliminating 549,000 jobs over the last four years as tumbling home prices hurt real-estate tax collections. Property taxes continued to slide in 2012, according to the survey, and cities may face fresh financial setbacks should the economy falter.

“There are signs that we may have passed the low point, but it’s still pretty precarious,” said Chris Hoene, a research director with the Washington-based league who worked on the report. “It wouldn’t take much of a dent in the national economy to prolong the depth of this downturn for cities or to turn things back in the other direction entirely.”

The report doesn’t specify how cities are better able to meet their financial needs. Still, the survey’s findings “suggest” cities may have passed the worst effects of the recession, according to the report.

Slower Than States

Cities are recovering more slowly than states, whose tax collections have risen over the past two years and are now higher than they were at their previous peak in 2008, according to the Nelson A. Rockefeller Institute of Government in Albany, New York.

While city officials say their finances are improving, tax collections aren’t keeping pace with rising costs. Cities anticipate revenue will slide 3.9 percent this year, when adjusted for inflation, after slipping 2.3 percent in 2011.

Spending is expected to rise 0.3 percent on that basis, the first increase since 2009. Still, one in three cities report delaying or scuttling public works projects.

“We’re clearly not out of the woods at the city level yet,” Hoene said.

Strain on Cities

The years-long strains have pushed some cities to the breaking point. Stockton, California this year became the biggest to seek bankruptcy protection, and San Bernardino, California later followed. Scranton, Pennsylvania temporarily cut employee pay to minimum wage during a brush with insolvency.

The report, which is based on a survey of 324 cities, found that officials continue to face financial pressure from rising employee health-care costs and pension benefits, as well as costs for roads and other infrastructure. Half said declines in state or federal aid are a hindrance on their recovery. And the report said the housing prices will continue to leave cities with either declining or slow growing tax collections.

Fewer city workers are losing their jobs. The survey found that 18 percent are firing employees in the current year, down from 31 percent in 2011 and 35 percent in 2010.

“It’s a sign that maybe we’re headed back up the other side of the curve,” said Hoene.

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

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net;

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