Cities' Revenue Keeps Shrinking

September 19, 2012

U.S. cities' revenue keeps falling because of the delayed effect of weaker property values now weighing on municipal finances, says the Wall Street Journal.

It typically takes cities 18 months to feel the effects of the broader economy, which means that many cities are now starting to feel the impact of the recession.

  • Cities expect revenues to decline an average of 3.9 percent in 2012, the sixth straight year of revenue declines.
  • As a result, many cities have had to reduce the number of workers, slash spending and delay infrastructure projects.
  • But sales tax revenues rose 2.4 percent in 2012.
  • However, it was not enough to offset the 2.1 percent drop in property taxes and the 0.8 percent fall in income taxes.

Most importantly, the rising costs of pensions and health care are making it increasingly difficult for states to maintain their budgets without making any cuts.

  • Out of 324 cities that were surveyed, 77 percent said pension costs increased in 2012 from the previous year.
  • Eighty-one percent said the same of health care costs.

In San Jose, California, Mayor Chuck Reed has attempted a solution to the city's pension problem by requiring workers to either contribute more to their pension or face fewer benefits. His measure was approved by the public and as a result the city's revenues are on the rise.

Source: Vauhini Vara, "Cities' Revenue Keeps Shrinking," Wall Street Journal, September 13, 2012.

 

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