U.S. Cities Grapple with Finances

October 29, 2013

Buffeted by steep drops in state aid, rising pension and health-care costs and sluggish property-tax revenue, many urban centers are struggling even several years after the financial crisis.

Local officials hasten to distinguish their cities from Detroit, which this summer became the largest-ever U.S. municipal bankruptcy case.  But an analysis by The Wall Street Journal of financial data from the nation's largest cities shows that many of them are wrestling with the same types of issues that sank Detroit. The data, provided by Merritt Research Services LLC, found.

  • Of 250 of the largest cities, more than half still have reserves below their 2007 levels.
  • They also have taken on more debt: 114 cities saw overall debt loads increase from 2007 to 2012.
  • The real-estate markets in 100 cities are still worse than they were in 2007, an acute problem for governments that rely on property taxes as a top source of revenue.

Improvements in the housing market aren't yet offering significant relief. On average, collections of local property-tax revenues trail changes in home prices by three years, according to the Congressional Budget Office.

Cities are also reeling from the loss of another significant source of cash: state aid. States turned off the tap when income- and sales-tax revenue began to dry up during the recession. They cut municipal assistance by $31 billion, or 6.2%, between 2009 and 2011, according to the most recent data available from research nonprofit Pew Charitable Trusts.

To absorb drops in revenue, local governments have cut employees and services. Infrastructure has deteriorated:

  • In Syracuse, N.Y., 284 water mains have burst this year, a number on pace with recent years, city figures show.
  • The city spent 46% of its 2012 main operating budget on pensions and health-care benefits, one of the highest rates in the nation, Merritt data show.

Years of generous retirement benefits in some cities combined with investment losses in the financial meltdown have left many public-employee funds scrambling to meet their obligations.

  • About two-thirds of the 250 largest cities saw their unfunded pension liabilities grow between 2007 and 2011, the latest and most comprehensive pension data available, according to the Merritt statistics.

Cities have had to dig deeper to fund retirement systems. Of the 250 cities examined, 158 put more of their general fund toward pensions in 2012 than 2007. A general fund is the main pot of cash a city relies on to pay employees and provide day-to-day services. Some cities are still putting off the day of reckoning: 61 put less cash into pension funds in 2012 than what actuaries recommended, Merritt data show.

Source:  Jeannette Neumann, "U.S. Cities Grapple with Finances," Wall Street Journal, October 27, 2013.

 

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