Pew Report Examines How Cities Are Balancing Budgets

A new study from The Pew Charitable Trusts' Philadelphia Research Initiative looks at how 13 major cities are coping with the recession and finds that most are facing significant budget gaps and are cutting services and personnel in response. 

The report, Tough Decisions and Limited Options: How Philadelphia and Other Cities are Balancing Budgets in a Time of Recession, examines the budget decisions that have been proposed or enacted in Atlanta, Baltimore, Boston, Chicago, Columbus (OH), Detroit, Kansas City (MO), Los Angeles, New York, Philadelphia, Phoenix, Pittsburgh and Seattle.

Four of the cities studied are planning major tax hikes, with New York looking at two tax increases, in property and sales. Philadelphia is planning a five-year, one percentage point increase in the sales tax; Atlanta has a property tax increase on the table; and Columbus is considering a higher income tax. 

In some cities, including Boston and Los Angeles, major tax hikes are all but impossible to enact—the result of state laws, ballot initiatives and constitutional restrictions.

“We found that almost every city we studied has a significant budget problem on its hands, largely due to falling tax revenues, decreased state aid and weakened pension funds,” says Larry Eichel, project director of Pew's Philadelphia Research Initiative. “But the size of the problem varies dramatically from place to place, as do the strategies for dealing with it.”

Taking into account the wide variation in the size of city budgets, the study compares the one-year budget gaps in the cities in percentage terms, with Seattle and Baltimore appearing to be in the best fiscal situation. Alone among the cities studied, Pittsburgh has a modest surplus (1 percent) for the current budget year. Among the others, Philadelphia, with a one-year budget gap of about 11 percent, is roughly in the middle, with some cities, including Detroit, facing gaps of about 20 percent.

The study examines the causes of city-budget gaps and the various ways communities are reducing expenditures and generating revenue. Among the findings: 

• Declines in consumer spending, job losses and a flagging real estate market have caused dwindling city tax revenues. On top of this, losses in the stock market have weakened city pension funds, forcing cities to increase contributions to those funds.
  
• Rather than raise broad-based taxes, most of the cities studied are emphasizing service cuts and coupling those cuts with furloughs and freezes on salaries. Every city with a budget gap is seeking to reduce the size of its workforce and/or its personnel costs one way or another—through attrition, early retirements or layoffs.
  
  For example, to make ends meet during the current fiscal year, Atlanta cut the hours and pay of most employees by 10 percent, including police officers and firefighters; the proposed increase in the property tax would end those furloughs. Detroit's budget for the year ahead would lay off 334 people from a workforce that has shrunk by more than a third during this decade.
  
• Proposed service cuts are mostly targeting libraries, recreation facilities and aspects of trash collection. (While no city is currently pursuing library branch closures, many cities are cutting funding and hours.) In a number of cities, fire departments are shrinking. Police departments, typically the largest city agencies, remain relatively unaffected, at least for now.
  
• In the search for additional revenue, many cities are focusing on fees rather than taxes—Los Angeles, for example, has increased its residential trash fee, while Phoenix is raising fees for after-school programs. Other cities, like Detroit and Chicago, want to lease city assets.
  
• In some cities—including Boston, Los Angeles and Chicago—mayors are demanding substantial wage and benefit concessions from municipal unions, warning of big layoffs if such concessions are not forthcoming. 
  
• An unusual situation has developed in Phoenix: At budget hearings, citizens offered to pay more for the services they value, inquired about volunteer opportunities and even asked how to contribute funds to the city coffers. As a result, the city developed a special Web page where citizens can sign up for these opportunities.   
  
• Philadelphia's situation stands out in ways that help explain why it is relying more than others on a tax increase—which is slated to be temporary—to help solve its fiscal problems, city officials say. Only Philadelphia must present a credibly-balanced, five-year plan for approval to a state-appointed agency, the Pennsylvania Intergovernmental Cooperation Authority (PICA), although New York is required to take a four-year look at its revenue and spending plans. 

View the full report: Tough Decisions and Limited Options: How Philadelphia and Other Cities are Balancing Budgets in a Time of Recession (PDF).

About the Report
The cities covered in this study were selected in order to provide a broad demographic and geographic mix. There also was an emphasis on cities that are on the same budget cycle as Philadelphia—with fiscal years beginning July 1. Since most of the cities studied are in the process of approving budgets for the coming fiscal year, the final budgets may look different than the mayoral proposals now under consideration.  

To prepare this report, researchers at the Philadelphia Research Initiative spent two months studying city budget documents from the selected cities, reading mayoral speeches, interviewing budget officials, and talking to journalists and independent analysts. It was written by Claire Shubik, senior associate at the Initiative, with research associate Laura Horwitz and project manager Thomas Ginsberg.

About the Philadelphia Research Initiative
The Philadelphia Research Initiative (www.pewtrusts.org/philaresearch) was created by Pew in fall 2008 to study critical issues facing Philadelphia and provide impartial research and analysis for the benefit of decision makers, the news media and the public. The initiative conducts public opinion polling, produces in-depth reports, and publishes briefs that illuminate front-and-center issues.