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Funding Shortfalls Bring Times Tough to Nation's Cities
WASHINGTON -- America's cities were less able to meet their financial needs in 2004, and expectations for 2005 are equally grim, finds a new report released today by the National League of Cities. Revenues are not keeping pace with increases in spending for public safety and infrastructure, and growing costs of employee health benefits, pensions and wages, according to the report, City Fiscal Conditions in 2004. The survey of city finance directors, released at a news conference this morning, found that more than three in five said their cities were less able to meet their fiscal obligations, regardless of population size, region or taxing authority.Cities that rely on income taxes -- 83% of those polled -- were more likely to report worsening conditions, compared to 58% of those relying exclusively on property taxes or 52% relying on the sales tax, the survey found."This is the third year in a row where we've seen these types of revenue declines," said James C. Hunt, vice president of the National League of Cities and a member of the Clarksburg (W.Va.) City Council."As elected officials, we can only stretch our resources so far, tighten our belts so much. We have huge responsibilities we must address and simply not enough resources to support them."Michael A. Pagano, senior fellow at the Great Cities Institute at the University of Illinois at Chicago and author of the report, said the critical problems facing local governments center on increased costs for public safety, homeland security and other federal mandates coupled with reductions in state aid. "Many towns and cities that rely on the income tax are in worse shape in 2004 than in 2003," said Pagano. "Sales tax revenues have also declined in the past several years, with only slight increases in 2003 and 2004. The one bright spot is that in those cities relying on property tax revenues, the continued strength of the real estate and property markets have provided a lifeline for those city finances."The executive director of the National League of Cities, Don Borut, pointed out that unlike the federal government, cities are legally required to balance their budgets. In 2004, overall city revenues were expected to grow by 2.6% while expenditures increased by 3.6%. "This gap means that cities will have to make additional cuts in services or raise taxes and fees to balance their budgets this year," Borut said.Adjusting for inflation, 2004 marks an unprecedented third straight year when revenues declined, the survey found. As a result, 54% of cities are reporting that they have increased fees and charges for services, another 25% opted for increasing property taxes, and 22% increased impact or development fees. "As elected officials, raising taxes or imposing user fees are the last actions we want to take," said Hunt. "So cities are trying to make do with less. The survey clearly shows that cities are working hard to get the best for the taxpayer's dollars by improving the productivity of city employees, reducing the city workforce, increasing contracting out, and cutting spending. But the economy is against us, at least in the short term."According to Hunt, most cities have to generate at least 80% of their revenues from local sources. "In the past, we were able to look to the state and federal governments for help, but these sources are drying up, particularly in the past two years." he said. "This one-two punch has really caused us problems. So we have had to rely on our ingenuity and our management skills to make up the difference. And after a few years of this, it gets pretty tough." The survey found that 32% of cities reduced the size of their workforces while 40% reported an increase in productivity of their workers, allowing them to do more with the same size staff. Growing health insurance costs, contributions to employee pension plans and cost of living increases all were cited as factors negatively affecting city budgets. The increased pessimism of the cities' finance officers was most pronounced in the West and Midwest with 75% and 74%, respectively, reporting deteriorating conditions, compared to 59% in the Northeast and 43% in the South. Southerners were most optimistic about 2005, with 52% indicating that they felt their cities' conditions would improve over 2004, compared to 41% in the Northeast, 33% in the West and 32% in the Midwest.The national mail survey of finance officers was conducted by Michael A. Pagano on behalf of the National League of Cities. Survey data are drawn from 288 responding cities, with a representative sampling across city size. The National League of Cities, the oldest and largest national organization representing cities in the U.S..Copies of the report, City Fiscal Conditions in 2004, are available online at www.nlc.org."