American cities continue to face falling revenues

A new report shows that American cities continue to face falling revenues, leading to changes in city budgets and governments:

Belt-tightening continued in cities across the United States in 2011, as fiscal crunches forced local governments to cut back. City revenue is projected to decline 2.3 percent by the end of 2011, according to a new report from the National League of Cities released Tuesday, marking the fifth straight year of declines.

One of the main factors contributing to the decline in revenue is a drop in property tax collections, which are projected to fall by 3.7 percent in 2011, the second straight year of declines. Last year’s drop of 2.0 percent was the first year-over-year decline in city property tax revenue in 15 years. To make up for the shortfalls, cities cut jobs, canceled infrastructure projects, cuts services such as libraries and parks and recreation programs and modified health care benefits for employees.

Hiring freezes were the most common personnel-related cuts made in 2011. Half of cities reported salary reductions or freezes and nearly one in three reported laying off employees or reducing health care benefits. Other actions included early retirements and furloughs.

Even in good times, cities are often concerned with boosting property and sales tax revenues. Commercial and residential development proposals are often scrutinized to see how much they might bring into local coffers versus how they might require in new services. But in times of economic crisis, municipalities and residents, worried about possible rises in property taxes, look even more closely at this issue. Additionally, it is more difficult to obtain federal or state monies when those governments have their own budget concerns.

The belt-tightening will continue unless the economy posts a remarkable reversal. In the meantime, cities big and small, from the size of Chicago and a looming $600 million budget shortfall to smaller suburbs, will continue to look for ways to maximize revenues. In many places, this will lead to some interesting conversations about whether the local government should dig itself out of the mess or whether the residents should help makeup some of the loss of revenues.

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