The number and scope of investment projects will decrease for state and local governments if a federal limit is placed on tax-exemption for municipal bonds, the National League of Cities warned in a survey released Thursday.

The group's third annual "Local Economic Conditions Survey," gauges the performance and fiscal health of local, regional and state economies based on city officials' assessments, is based on the responses of officials in 1,127 cities who responded to a series of questions. "Despite improvements, cities are still struggling in significant ways, signaling that growth is not keeping pace at a level that is needed for a sustained recovery," the six-page report stated. "Even worse, economic indicators that reflect the condition of cities' most vulnerable populations have resisted even a modest rebound in the face of broader national recovery."

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