Cities Report Continuing Fiscal Distress in 2011

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September 27, 2011; Source: New York Times | In the coverage of the various levels of budget crises affecting nonprofits, the press has focused on the states and the federal government, but not so much on the problems facing municipal governments. Cities and towns are affected much like nonprofits, called on by their constituents to deliver basic services notwithstanding a raging recession, and they are expected to respond regardless of the revenue picture. 

The National League of Cities (NLC) has just issued a report that takes the pulse of municipal fiscal conditions in 2011. Local government finances are hurting. According to the NLC report, cities will be laying off staff, cutting services, and increasing fees as they face a second straight year of declining property tax revenues and a potential decline in municipal income tax payments. Specific findings include:

  • More than half of city finance officers report that their cities are in worse fiscal shape in 2011 than in 2010. 
  • Cities reliant on the property tax were in worse fiscal shape than those reliant on the sales tax.
  • Finance officers predicted a 2.3 percent decline in revenues and a 1.9 percent decline in expenditures, the fifth straight year of municipal spending retrenchment.
  • Two out of five finance officers reported that their cities had increased what they charge as fees for services, one-fourth created new fees for services, and one-fifth reported increasing property tax rates. 
  • The most common city responses to these fiscal conditions were laying off staff (reported by three-fourths of the finance officers) and delaying or canceling major capital projects.

What does this mean for nonprofits? It’s all bad news. Not only will municipal contracts and grants for nonprofits dry up, but municipalities might aim to keep in-house federal and state pass-through funds—such as Community Development Block Grants—that they would ordinarily regrant to nonprofit service providers and community developers. 

It’s hard to believe that the economy has turned around in any way at all, but even if it is on the upswing, the negative impacts on cities and nonprofits look like they will persist for a long time to come.—Rick Cohen