Large U.S. Cities Struggle With High Fixed Costs

Cities across the U.S. often feel the same pinch—trying to manage the typical costs of running a city, such as picking up trash and filling potholes, on top of ballooning retirement obligations and outstanding debts. Several major cities are struggling to keep up.

The culprit: As employees age and retire, cities are on the hook for funding more pensions and health-care benefits. In 2016, local governments faced a pension investment gap of $3.7 trillion, according to Moody’s Investors Service. Their predicament only worsens when cities fall behind in making those payments or their investments lag.

When you measure those fixed costs against a city’s operating budget, no major city is as embattled as Jacksonville, Florida. In the city of 881,000 people, fixed costs are 31.4 percent of expenses, according to data compiled by Bloomberg. That’s driven by pensions, which made up almost 18 percent of expenses in fiscal 2016.

Percentage of city spending that goes toward fixed costs*

23.3%

>25%

>27%

>29%

31.4%

City operating costs

$7.5B

$3B

$300M

Portland

Chicago

Atlanta

Los Angeles

Jacksonville

Houston

City operating costs

23.3%

>25%

>27%

>29%

31.4%

$7.5B

$3B

$300M

Portland

Milwaukee

Buffalo

Detroit

Philadelphia

Madison

Omaha

Oakland

San Jose

Pittsburgh

Los Angeles

Chicago

Indianapolis

Las Vegas

Charlotte

Memphis

Riverside

Lubbock

Dallas

Mesa

Chula

Vista

Atlanta

Arlington

Jacksonville

Houston

El Paso

Austin

City operating costs

23.3%

>25%

>27%

>29%

31.4%

$7.5B

$3B

$300M

Portland

Buffalo

Milwaukee

Detroit

Philadelphia

Madison

Omaha

Oakland

Pittsburgh

San Jose

Los Angeles

Chicago

Indianapolis

Las Vegas

Charlotte

Memphis

Riverside

Lubbock

Dallas

Chula

Vista

Mesa

Atlanta

Arlington

Jacksonville

Houston

El Paso

Austin

* Map shows cities with populations of more than 250,000 and fixed-cost ratios greater than 23%.

Twenty-six other U.S. cities with populations of more than 250,000 have fixed cost ratios above 23 percent. They include Los Angeles and Houston, which could also be on the hook to pay Hurricane Harvey recovery costs that federal funds don’t cover.

Smaller cities aren’t necessarily immune. City leaders in Hartford, Connecticut, where fixed costs are 27 percent of expenses, warned last month that the city wouldn’t be able to meet its financial obligations without additional help from the state. State lawmakers passed a budget with additional aid to the capital city on Thursday.

Relief may not be around the corner for other areas. City revenues are expected to stagnate in 2017, on average, while expenditures are forecast to rise 2.1 percent, according to a Sept. 12 survey of 261 U.S. city finance officers by the National League of Cities.

City
Population (in thousands)
End of fiscal year (2016)
Total Operating Expenses ($M)
Debt Service on Bond Principal ($M)
Debt Service on Bond Interest ($M)
Pension ($M)
OPEB ($M)
Fixed-Cost Ratio
Jacksonville, Fla.
880.6
Sept. 30
1,459.7
104.4
90.6
258.3
5.5
31.4%
Pittsburgh
303.6
Dec. 31
609.3
63.8
24.6
73.1
25.3
30.7%
Milwaukee
595.0
Dec. 31
1,380.1
292.7
36.9
60.0
31.8
30.5%
Riverside, Calif.
324.7
June 30
363.5
52.0
16.5
39.5
1.0
30.0%
San Jose, Calif.
1,025.3
June 30
1,415.7
53.4
59.0
257.4
50.1
29.7%
Los Angeles
3,976.3
June 30
7,520.7
465.1
139.0
1,281.3
340.1
29.6%
Mesa, Ariz.
484.6
June 30
662.8
107.4
18.9
49.8
17.9
29.3%
Atlanta
472.5
June 30
913.5
82.3
44.4
96.1
43.7
29.2%
Memphis, Tenn.
652.7
June 30
1,003.6
93.8
65.4
73.4
59.8
29.1%
Chula Vista, Calif.
267.2
June 30
227.3
35.0
6.4
24.1
0.4
29.0%
Arlington, Texas
392.8
Sept. 30
421.8
60.5
24.1
24.6
6.9
27.5%
El Paso, Texas
683.1
Aug. 31
577.2
45.9
59.1
48.9
4.2
27.4%
Houston
2,303.5
June 30
3,195.3
290.8
151.3
391.6
38.5
27.3%
Omaha, Neb.
447.0
Dec. 31
580.8
55.2
30.7
56.0
16.4
27.2%
Detroit
672.8
June 30
1,146.3
60.8
77.6
169.7
0.1
26.9%
Lubbock, Texas
252.5
Sept. 30
257.9
26.3
13.7
23.4
5.0
26.5%
Philadelphia
1,567.9
June 30
3,858.0
139.5
107.5
660.2
107.2
26.3%
Indianapolis
855.2
Dec. 31
864.8
72.8
49.8
100.0
1.7
25.9%
Las Vegas
632.9
June 30
745.3
81.5
38.9
66.0
2.5
25.4%
Dallas
1,317.9
Sept. 30
1,783.0
165.2
93.1
175.5
15.5
25.2%
Austin, Texas
947.9
Sept. 30
1,351.4
80.9
61.4
154.9
39.3
24.9%
Chicago
2,705.0
Dec. 31
7,416.6
660.0
483.5
590.3
89.7
24.6%
Portland, Ore.
639.9
June 30
1,236.7
107.6
43.5
147.8
4.9
24.6%
Madison, Wis.
252.6
Dec. 31
386.3
59.7
11.5
15.9
3.9
23.6%
Buffalo, N.Y.
256.9
June 30
562.7
37.1
12.6
33.3
49.6
23.6%
Charlotte, N.C.
842.1
June 30
975.4
112.0
66.6
38.2
12.8
23.5%
Oakland, Calif.
420.0
June 30
998.0
48.9
51.6
111.7
20.5
23.3%