WASHINGTON - City finance officers are more pessimistic than they have been for at least 20 years about whether they can meet their cities' financial needs, according to a National League of Cities annual survey that will be released today.
The actions that most cities are taking in response to their fiscal conditions could lead to lower debt issuance, according to Christopher W. Hoene, research director for the NLC.
Almost nine out of 10 officials surveyed said they are less able to meet their cities' financial needs this year than last year - nearly 30 times more than responded similarly in 2007. That perception stems partly from another finding in the survey: city revenues failed to keep up with spending increases in 2008.
The NLC said cities are resorting to hiring freezes and layoffs and are canceling or delaying infrastructure projects in order to sustain their budgets as revenues fail to meet spending rates.
In addition, the spending-over-revenue trend is expected to endure through the end of the year for most of the 379 cities in the survey.
Most of the spending pressures are from growing public safety, infrastructure, pension, and employee health care costs, as well as from a general malaise in local economies, the NLC survey found.
To patch up their shortfalls - and maintain general fund reserve levels that will keep debt costs low and bond ratings high - 62% of finance officials reported their cities have delayed or canceled capital projects.
There is "some reconsideration of where they might have been two or three years ago" about capital projects that were likely funded with bonds, Hoene said. Twelve percent reported they tried renegotiating their debt.
Cities see two obstacles to debt issuance - the negative impact on their budgets and the difficulty of obtaining financing right now - that are likely related to cutting projects, he said.
Looking ahead, federal funds included in the American Recovery and Reinvestment Act for cities will begin to appear in 2010, Hoene said.
On the revenue side, the picture is likely to become worse. Cities reported tax revenues that were not uniformly grim, but there is typically a lag between economic downturns and city fiscal downturns.
Property tax revenue grew by 6.2% in 2008. However, those will slow to 1.6% growth by the end of this year as revenue starts to reflect drastic declines in property values in many cities.
Sales tax revenue dropped 3.8% and income tax revenue fell 1.3% in 2008. They are predicted to continue their downward slope through the end of 2009, according to the NLC. "Deeper effects of the economic recession will likely be experienced ... by cities beyond 2009, with the leanest years likely to be 2010 and 2011," it said.
Not all cities started the year with a rough financial outlook. Baton Rouge, La., and Oklahoma City were among the 12% of respondents that did not report more fiscal difficulty in 2009.
Baton Rouge Mayor-President Melvin "Kip" Holden said sales tax revenue is down 2.06%, but a "conservative approach" to budgeting allowed it to complete all planned projects, he said.
Rating agencies that gave Baton Rouge upgrades last summer cited the large petrochemical industry, higher education, and governmental institutions in Baton Rouge as positive credit factors.
Oklahoma City's bond rating was raised to AAA during the fiscal year, and a strong first half helped ameliorate a weak second half, according to Mayor Mick Cornett. "We were very late to be impacted by the national recession," he said.
But sales tax revenues were 5% or 6% lower this summer than last summer, he said. "We've got really good momentum - knock on wood."