WASHINGTON -- More city finance officers reported improved fiscal conditions in fiscal 2014 than in the 29-year history of the National League of Cities' city fiscal conditions survey. However, the cities are still not fully recovered from the economic recession, the NLC said in its report on the survey.
Eighty percent of 354 city finance officers that responded to the survey said their cities are more equipped to meet financial needs than they were in fiscal 2013. But NLC research director Christiana McFarland pointed out that this figure means that 80% of cities were worse off the previous year. "It's indicative of the magnitude of the recession as well as the depth to which cities sank during the recent recessionary period," she said at event about the report's release.
General fund revenues increased for the first time in fiscal 2013 since fiscal 2006, but revenue is expected to stay flat in fiscal 2014. Revenue in 2013 was only about 90% of what at the pre-recession peak, McFarland said.
Local property tax revenues are anticipated to increase in fiscal 2014 at 1.6% over the previous year, the first positive growth in five years. In fiscal 2013, property tax revenues declined 0.4% even though real estate markets were stabilizing in most parts of the country. Current property tax bills and collections generally reflect values of property from 18 months to several years prior to the collection, according to the report.
City finance officers project sales tax revenue growth at 3.6% for fiscal 2014, and city sales tax collections increased 4.6% from 2012 to 2013, the NLC said.
Driven primarily by income and wages, the income taxes revenues are projected to remain fairly flat with a 0.6% growth in fiscal 2014, compared to its 4.3% increase in the previous year. The gains can be attributed to employment improvements, according to the report.
More cities are increasing the size of municipal workforce for the first time since the 2008 financial crisis, the report found. Throughout the recessionary period, many cities enacted hiring freezes and layoffs and reduced health benefits. This year, however, 33% of cities reported an increase of their municipal workforce, while only 18% have a decrease in the part, suggesting a sign of recovery.
Cities usually maintain adequate levels of general fund ending balances, as reserves or "rainy day funds," to prepare for possible economic downturns. For fiscal 2013, final ending balances were reported at 21.8% of expenditures, suggesting cities were rebuilding these balances as they emerge from the recession. In fiscal 2014, the ending balances are projected to increase to 22.4% of expenditures, according to the report.
The three factors that city finance officers said were most negatively affecting their budgets were infrastructure needs and also health care and pension costs for employees and retirees. These factors are likely to hold budgets back from full recovery for a number of years, NLC said. The factors that officials said were having the greatest positive impact on budgets were the health of the local economy and the value of the city tax base.
Local governments are adding jobs at a faster pace than their state and federal counterparts, and are thus responsible for the government employment gains, according to the U.S. Bureau of Labor Statistics. But despite improvements, the unemployment numbers this August showed that the U.S. total local government employment is still around 500,000 jobs lower than the August 2008 level, the NLC said.
Jason Furman, chairman of the White House Council of Economic Advisers, said that one of the biggest factors that distinguish the current economic recovery from previous ones is that in this recovery, states and localities were so hard hit by the recession they initially contracted instead of expanding their employment and output. However, things are starting to turn around, as evidenced by recent hiring.
"This turnaround in local fiscal conditions has led to a turnaround in local investment. It's led to employment of teachers, of firefighters, of police officers," Furman said. "And all of that has made this important contribution to the overall strengthening of our national economy."
President Obama has proposed investing more in infrastructure. Furman said doing so is a "win-win," because investing in infrastructure creates jobs in the short-run and increases economic productivity in the medium and long-run.
NLC President and Mayor of St. Paul, Minn. Chris Coleman said, the group "supports a long-term, multi-modal transportation program that sends dollars directly to projects where people live."
Furman also said that Obama supports the Marketplace Fairness Act, which would allow states to compel online retailers to collect sales tax if the states simplify their sales tax laws. "It's something that's not just good for our cities, it's good for our small businesses and it's good for jobs," he said.
The MFA was approved by the Senate in May 2013, but the legislation has not yet been approved by the House. Coleman said he hopes that Congress can get the bill passed in the lame duck session after the midterm elections.
Houston City Controller Ronald Green said he supports the tax exemption for municipal bonds.
"I'm a huge proponent of keeping our municipal bonds tax free, because it is the opportunity for us to make those major investments," he said.
