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| Cities Cut Services, Increase Fees to Confront Worsening Fiscal Squeeze |
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As a result of an increasing squeeze on municipal budgets, many cities and towns are
cutting staff and services and are increasing fees, according to survey of 328
cities by the National League of Cities. The 19th annual survey of city finances
found more than four out of five finance directors surveyed (81%) said their cities
were less able to meet financial needs compared with the previous year, the largest
proportion since 1990. Click here to download a copy of the briefing
Summary of
Survey Findings (NLC Research Brief).
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Spending increases outpaced revenue increases in cities' 2002-2003 fiscal year by
3.1 percent compared to the previous year. The gap in revenues and expenditures was
fueled by rising employee health care and pension costs, declines in sales, income
and tourist tax revenues, cuts in state aid, and increased demands for spending on
public safety and homeland security.
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City finance officers said the biggest negative factors affecting budgets were:
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- Costs of city workers' health benefits (cited by 63 percent),
- Costs of city workers' pensions (30 percent),
- Reduction in state aid (29 percent),
- The local economy (25 percent), and
- Infrastructure needs (25 percent)
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Cities are responding by cutting back personnel and government spending in areas
other than public safety, curtailing capital and infrastructure investment, raising
user fees and charges, and drawing down ending balances, or rainy day funds, which
cities set aside for emergencies.
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In response to the deteriorating fiscal condition of cities:
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- Nearly half (47 percent) of all cities increased fee rates in 2003,
- 30 percent reduced city employment,
- 29 percent imposed new fees or charges on services,
- 21 percent reduced actual levels of capital spending, and
- 11 percent reduced city service levels
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Cities have drawn down their ending balances, or rainy day funds, which cities set
aside for emergencies. Ending balances as a percentage of expenditures dropped to
17.9 percent, the lowest level in five years.
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National League of Cities President John DeStefano, Jr., mayor of New Haven, Conn.,
said the U.S. is under-investing in cities and towns and called for a stronger
federal-local partnership to fund programs that help build and preserve the middle
class in America. "Under-funded public schools, smaller police forces, deteriorating
transportation systems, expensive health care, sprawl - these are public choices
that increasingly subvert our American ideal, even as we fight for it overseas."
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While there are signs of an improving economy, the effects are unlikely to be felt
by cities and towns soon and city officials are anticipating that budgets will be
equally pinched next year."Even if the economy fully recovered tomorrow, cities
would still be facing increased fiscal stress over the next year," said Michael
Pagano, professor of Public Administration at the University of Illinois at Chicago.
"This is because of rising costs for cities and towns such as healthcare and
pensions, new responsibilities such as homeland security, cuts in state aid to cover
state shortfalls, and continued need to invest in infrastructure."
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More information: Summary of Survey Findings (NLC Research Brief).
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Michael Reinemer, National League of Cities
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League of Arizona Cities and Towns
1820 W. Washington St.
Phoenix, AZ 85007
Phone: 602-258-5786
Fax: 602-253-3874
http://www.azleague.org
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