Cities and Their Deficits: Staring into the Abyss

Publication: The Economist

05/28/2009 - Chicago's skyline may be glorious, but the city’s big shoulders are slumped. In November the city passed a budget to close a $469m shortfall. But in the first four months of 2009 a gap opened again, of $96m. By the end of the year, the city expects it to be about $300m.

A recent report by the Philadelphia Research Initiative, an arm of the Pew Charitable Trusts, looks at how 13 cities are dealing with budget problems. All but one have deficits, thanks to the fall in property taxes, the dramatic drop in consumer spending, high unemployment and the subsequent decrease in income tax revenues. Budgeting, usually a headache endured annually, has become a chronic migraine for many city governments. Even pessimistic revenue projections have had to be revised.

Most cities are cutting services. Hiring freezes are the norm. Employee-related costs—payroll, pensions and health benefits—make up the largest part of any city budget, generally 60-75% (and more than 80% of Chicago’s). Richard Daley, Chicago’s mayor, recently proposed that the city’s 3,600 non-unionised workers should take 16 days of unpaid holiday by December 31st. New York City is preparing to cut 3,800 municipal jobs. Atlanta, meanwhile, is imposing a 36-hour work week for almost all its city workers, including the police. This has saved “the Big Peach” $11.5m.

Read the full article Cities and Their Deficits: Staring into the Abyss on the Economist's Web site.

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