(The Wall Street Journal/September 1, 2009) The recession is finally hitting city budgets, with overall city revenues inching down in fiscal 2009 for the first time since 2002, according to a report to be released today by the National League of Cities.
Weak growth in property taxes, reflecting soft housing prices, did not counterbalance sharp declines in other sources of income, including sales taxes, income taxes and state aid, according to a survey of 379 league member cities.
Overall city revenues declined by 0.4%, even as expenses rose 2.5%, and city officials expect steep drops in tax collections in the next two years, making for the worst outlook in the 24 years the group has been surveying its members. Western cities were particularly downbeat.
The gloomy mood “is indicative of the depths of the downturn, that they have the worst ahead of them, and the fact that the recession is universally hitting their revenue sources,” said Chris Hoene, research director for the league.
Because employee wages, health care and pensions are a major component of municipal budgets, two-thirds of the cities reported hiring freezes or layoffs. Almost as many cities said they were postponing big construction projects.
While a quarter of the cities said they raised property tax rates, far more — 45% — raised fees on everything from garbage collection to overdue library books.
On average, property taxes make up a third of cities’ revenues, and have provided a stable source of funds, rising every year since 1995, even during and after the 2001 recession. But the housing bubble’s pop has started to show up in tax collections that — depending on local tax-assessment practices — can take 18 months or more to reflect changing real-estate values.
In fiscal 2009, which for many cities ended in June, property tax collections inched up just 1.7%, far behind 2008’s 6.9% rise. The league is expecting property-tax collections to turn negative in fiscal 2010 and remain in the red in 2011 and 2012.
Close to half of the cities surveyed also levy a sales tax, and those revenues have dwindled as consumers have retrenched during the recession, with major impact on cities like Phoenix and Las Vegas. On average, sales tax collections fell 3.8% in fiscal 2009.
Some cities, including New York and Kansas City, also collect income taxes. Those levies dropped on average by 1.3%, according to the survey.
