State aid and property taxes are dropping simultaneously for the first time since 1980, while demand for government services continue to rise, according to a report published by the Pew Center on the States Friday.
In 2010, local governments lost 2.6% of their state aid and 2.5% of their property tax revenue from the previous year, totaling $25 billion, Pew said in the report, entitled “The Local Squeeze.” The center focused on 30 major metro areas and used Census Bureau data for the report.
State aid and property taxes often counterbalanced each other, the report noted. However, since 2006 the growth of both slowed relative to local spending and then dropped. By 2009, state aid and property taxes together covered a smaller share of local expenditures than at any time since the Census Bureau began tracking these funds in 1972.
Property taxes, which amount to 29% of local revenues, continue to shrink. In 2010, property tax revenues were $11.9 billion, or 2.5% lower than the year before — the first annual decline since the mid-1990s and the largest in decades. The taxes fell again in 2011 by another 3.1%, or $14.6 billion, and are expected to decrease further in 2012 and 2013, the report said.
At the same time, state aid fell by $12.6 billion, or 2.6%, from 2009 to 2010, the most recent year for which data is available. The decline occurred despite an infusion of federal stimulus funding. The trend has continued, with at least 26 states reporting cuts for fiscal year 2011 and at least 18 states for 2012.
“The local squeeze will be felt for years to come,” the report said. “The nation’s ongoing housing crisis and fragile economic recovery, the likelihood of additional cuts in federal and state aid, and greater demand for services all presage a rough road ahead for local governments.”
Since the financial crisis, the revenue declines have presented local governments with large hurdles. Some localities have raised taxes and fees to try to generate more revenues. Many have tackled budget pressures by slashing spending.
Despite the efforts, through a combination of layoffs, attrition, hiring freezes and furloughs, local governments shed 500,000 jobs or 3.4% of their overall workforce between 2008 and 2011. Half of those losses came from the education sector.