Cities forecasting revenue decline

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The nation’s cities anticipate a decline in revenue for the first time in seven years as they close the books on fiscal year 2019.

Northeast cities have budgeted for an average revenue decline of 2.78% and a spending decline of 1.53%, according to a new survey by the National League of Cities.

Their counterparts in the West have planned for a 1.48% drop in revenue while expecting a 4.71% increase in spending.

Cities elsewhere on average have budgeted for what the NLC described as “nominal” revenue growth of one half of a percentage point or less.

Revenue growth plateaued in fiscal 2018, the National League of Cities’ 2019 City Fiscal Conditions survey found. The results are based on responses by 554 cities with populations greater than 10,000, including 55 with a population over 300,000.

The survey covered general fund accounts that average about 55% of city spending. It did not cover capital funds or special expenditures.

The $63 billion in the general fund of New York City also was not included in the data because it would have skewed the results.

Given that one major exception, the respondents’ overall fiscal 2018 revenue growth slowed to 0.6% as sales tax revenue growth remained flat 1.9%, property tax revenue increased at a slower 1.8% rate from 2017 and income tax revenue grew by only 0.6%.

General fund accounts also returned, for the first time, to the levels they were prior to the Great Recession.

Property tax revenues increased the fastest in large cities at 2.83%, reflecting “the rise in housing prices over recent years that has led to an affordability problem in many places. Property value assessments can also occur more frequently in large cities than smaller ones and therefore might reflect changes in the market sooner.”

The sole region where property tax revenue declined was the Midwest, where a 0.56% drop was primarily attributed to Detroit. Collections there fell by 8% in 2018 in what the NLC described as “a multi-year trend in that city as it struggles to collect all of the taxes it’s owed.”

“For fiscal year 2019, the Midwest and South are each expecting just under 3.2% growth in property tax collections, while Northeastern cities have budgeted growth of 2.09%,” the report said. “The West is expecting anemic property tax growth of just 0.1%.”

Meanwhile, expenditures increased an average of 1.8% in 2018 at the national level and are expected to climb by 2.3% in fiscal 2019.

The Midwest is bearing the brunt of declining conditions, as general fund revenues in cities there dipped by an average of 4.4% in fiscal year 2018. That decline was driven by large cities, with Chicago reporting an 11.7% drop and Minneapolis revenues falling 9.6% in fiscal 2018.

“While some places are doing incredibly well, others are edging towards the next downturn,” said Clarence Anthony, executive director and CEO of the National League of Cities.

Nationally, general fund revenue grew the most in mid-sized cities with them averaging 1.07%. Small cities averaged an uptick of 0.66% and large cities averaged 0.63% in revenue growth. Larger mid-sized cities had the slowest revenue growth with an average of 0.28%.

Spending increased the fastest in large cities, with a 2.89% rise while larger mid-sized cities kept spending essentially flat.

Three out of four finance officers across the country remain confident in the ability of their local government to address expenditures and meet the financial needs of their communities.

However, nearly two in three finance officers in large cities predict a recession in the next year or two.

“We are not predicting a recession in our economic forecasts,” said New York City Budget Director Melanie Hartzog, adding that her office is seeing a year over year slowdown.

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Budgets Munis Sales tax Property taxes Economy NLC Washington DC