WASHINGTON — Large U.S. cities continue to face fiscal challenges four years after the Great Recession officially ended, according to a report from the Pew Charitable Trusts.
"Many will continue to deal with the aftermath of the nation's recent housing woes and a slow economic recovery," the report said. "In addition, cuts in federal and state aid and greater demand for services portend a challenging road ahead for America's cities."
The Pew Charitable Trusts looked at the 30 cities at the center of the country's most populous metropolitan areas and examined the cities' comprehensive annual financial reports from fiscal years 2007 to 2011, the most recent year for which complete data was available. Dollar values in the cities' reports were generally adjusted for inflation.
Although the recession officially ended in June 2009, 20 of the large cities did not hit their lowest revenue until fiscal 2010 or 2011, the report found. Property-tax revenues, which tend to have a late response to economic swings, generally were strong until 2010.
By fiscal 2011, only nine of the 30 cities had recovered to or above their previous revenue peaks. These cities, including Portland, Ore. and Washington, relied heavily on aid from other governments for revenue recovery. Dependence on intergovernmental aid could mean that their recoveries are not secure, the report said.
Five of the cities that had not rebounded by 2011 were close to their peaks. Increase in property tax collection and non-tax revenue contributed to the cities' revenue growth but weren't necessarily the main reason behind the recovery.
The remaining 16 cities, including Detroit and Miami, were close to their revenue low points or still had declining revenue in fiscal 2011. Many of these cities received infusions of aid from other governments in 2008 and 2009 that subsequently declined, the report said.
The majority of the cities' revenue losses during and after the recession were driven by declines in intergovernmental aid or in smaller revenue sources like investment income, charges and fees and smaller taxes, according to the report.
Reduction in aid from other governments — including the federal government, state and county governments and other localities — was the primary driver of falling revenue for nine of the cities, including Philadelphia, Phoenix and Washington.
Overall revenue declines in these cities tended to be more severe than they were in cities that depended less on aid from other governments. "This is because heavy reliance on aid from other governments leaves cities vulnerable to the policy decisions and economic circumstances of those other governments and with fewer internal options for generating revenue," the report said. Stimulus money from the American Recovery and Reinvestment Act ran out before revenue from many cities' own sources recovered, and state aid to local governments started declining in 2010 and continued through 2012.
Smaller collection amounts of non-tax and smaller tax revenue sources was the leading cause of revenue decline for 13 of the cities Pew studied. For example, revenue losses in Dallas and Kansas City, Mo., were led by nontax revenue such as investment income, and declines in receipts from a municipally-owned energy utility contributed to San Antonio's revenue declines.
Declines in revenue from sales and income taxes were the largest driver of revenue losses in five cities, including Cincinnati and New York. Several cities increased sales tax rates in response to lower consumer spending during the recession, the report said.
Declines in property-tax collections was the main factor behind declines in revenue in the three Florida cities Pew studied — Tampa, Miami and Orlando — in part because of a state law passed in 2007.
Cities addressed the recession by rasing taxes, using reserves to compensate for shortfalls and cutting spending and reducing staff.
Going forward, "fiscal austerity at all levels of government will likely continue to affect municipal budgets," the report said. Cities are likely to continue to be concerned about property tax collections and will have to deal with their unpaid commitments for pensions and other retiree benefits. Additionally, the report said, many cities' reserve funds shrank as a result of the recession and will face choices been spending money on immediate demands or replenishing their reserves.
