WASHINGTON — Many major U.S. cities still suffer from the fiscal crisis, despite rising housing prices and the falling national jobless rate, according to a report released Tuesday by the Pew Charitable Trusts.
"In some major cities revenue declines continued into 2012 — a full three years after the national recession ended," the report said.
The Pew Charitable Trusts reviewed data from 30 major U.S. cities, which it chose by identifying the 30 largest metropolitan areas and then focusing on the central cities in each, said Mary Murphy, an officer with the American Cities Project at Pew, in a webinar.
"American cities have a significant impact on the economies and long term prosperity of states and the nation," said Murphy. "For example, these 30 cities and their surrounding metropolitan areas account for 49% of the nation's total gross domestic products."
The report found governmental revenues declined for 18 of the 30 rom 2011 to 2012. The review expanded on Pew's previous analysis on the same 30 cities from 2007 to 2011. Among the 18, eight reported their lowest revenues since the recession started in 2007.
Both declining property tax revenues and intergovernmental aid appeared to be significant factors contributing to the cities' revenue downturn. Both categories dropped an average of 4% across the 30 cities between 2011 and 2012, Pew found. Over the six-year collection of data, 2012 saw the largest number of cities with both lower property collections and declines in state and federal aid.
Generally, property taxes are a city's largest and most stable revenue sources, but the crisis in the housing markets broke the stability. In 2008, after the crisis started, only eight cities reported losses in property collections. In 2012, the number expanded to 24 cities. Atlanta, Dallas, Detroit, Las Vegas, Phoenix, Pittsburgh and San Antonio had larger revenue drops between 2011 and 2012 than any prior year. Atlanta, for example, saw a 12% decline in its property tax collections, accounting for more than two-thirds of its revenue losses.
Intergovernmental aid helped with cities' revenue in 2009 and 2010, but fell as austerity measures took hold, the report said. Since The Budget Control Act and the American Recovery and Reinvestment Act took effect, seven out of 10 big cities analyzed by Pew showed year-over-year reductions in federal aid in 2012, compared with only one city in 2012 and two cities 2011.
In New York, for example, intergovernmental aid dropped by more than $2 billion between 2010 and 2012. In Phoenix, the $201 million loss in intergovernmental aid accounted for 10% of the city's total revenue in 2012.
"The recovery still feels like a recession," Federal Reserve Chair Janet Yellen said, according to the Pew report.
Not all cities were worse off in 2012 than before. Boston, Cincinnati, Minneapolis, New York, and Seattle exceeded their pre-recession revenue peaks in 2012, mostly because of gains in sales and income taxes, as well as charges and fees. However, these improvements were still not enough to overcome the losses in property tax revenues and intergovernmental aid for most other cities.
Nearly half of the 30 cities saw declines in overall spending between 2011 and 2012, Pew reported. Among the 17 cities where spending went up, the average increase was 2% -- only half the average increase in those cities between 2007 and 2008. In addition, replenished reserves still fell short of the pre-recession peak. Reserves of 20 cities remained lower than previous levels and for ten of those cities the reduction was more than 5 percent. Cautious investments led by both insufficient spending and reserves did not help the cities' fiscal conditions.
"While some more recent surveys suggest that property tax will increase in coming years, because the housing market recovery continues to be sluggish, I think many of these cities' revenue challenges will persist," Murphy said regarding the report's implications for 2014.
