The Big Squeeze: Cities Face Declines in Taxes and Aid (Fall 2012 Trust Magazine Briefly Noted)

Source Organization: American Cities Project

Author: Daniel LeDuc


09/25/2012 - The nation’s cities, counties and school districts are facing a double whammy: For the first time since 1980, there have been simultaneous drops in state aid and property tax revenue, leaving local officials to make painful cuts even as demand for services increases.

This fiscal crunch is documented in The Local Squeeze, the first report from a new Pew research project on America’s cities.

State aid on average accounts for nearly a third of local government budgets. It fell by $12.6 billion, or 2.6 percent, in fiscal year 2010, the most recent year for which comparative data are available, the study found.

Property taxes, which amount to 29 percent of local government revenues, also have shrunk because of the drop in real estate prices during the recession, according to the analysis. In 2010, revenues were $11.9 billion, or 2.5 percent, lower than the year before, the first annual decline since the mid-1990s and the largest in decades. They fell again in 2011, by another 3.1 percent, or $14.6 billion.

Expectations are bleak for 2012 and 2013 as well, reflecting how the current economic downturn has been different from past recessions, when home values and property tax revenues remained relatively stable.

The response to these declines has varied around the country, the report found. Some cities have raised taxes and fees, but most have resorted to budget cuts, while others have attempted to privatize services or other innovations.

“The local squeeze will be felt for years to come,” the study said. “The nation’s ongoing housing crisis and fragile economic recovery, the likelihood of additional cuts in federal and state aid, and greater demand for services all presage a rough road ahead for local governments.”

It was that prognosis that led Pew to look more deeply at cities now.

“The project will help leaders of big cities understand shared challenges and address pressing policy issues,” said the project’s director, Alyssa Lee. “We’re also going to work with policy makers at all levels of government to raise awareness about the impact federal and state decisions have on localities.”

She said the project will look at three main topics: how local governments are coping with the fiscal pressures from the recession, how cities vary in the delivery of services and the key factors that will affect them in the coming years, such as changing demographics and the transition from a manufacturing-based economy to a service-oriented one.

The new project will primarily focus on the most populous city in each of the country’s 30 largest metropolitan areas. Together, those cities are home to 34 million people, more than one in 10 Americans.

“Most Americans either reside or work in cities, and the policies, programs and services delivered by local governments directly touch them every day,” Lee said. “Whether cities succeed or fail will have a real impact on the nation’s economic recovery and long-term prosperity.”

To read the report and learn more about the project go to
www.pewstates.org/cities.

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