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
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.