Oct 23, 2019

The growing budget gap in big cities

Data: National League of Cities City Fiscal Conditions Report; Chart: Axios Visuals
Data: National League of Cities City Fiscal Conditions Report; Chart: Axios Visuals

In fiscal year 2018, total general fund revenues increased less than 1% for cities surveyed by the National League of Cities, representing their lowest annual growth rate since 2013.

Why it matters: General fund revenue changes reflect local economic conditions. When revenues coming in can't cover the expenditures going out, city officials have to make hard choices to balance their budgets.

  • Finance officers across the country estimate their fiscal year 2019 general fund revenue will drop by about 1%, while spending will grow to about 2.3%, according to NLC's annual City Fiscal Conditions report.

Where the money comes from: Property and sales taxes usually make up the bulk of a city's general fund revenue. Some cities also tax income. Money also comes from utility and other user fees. General fund expenditures, on average, account for more than half of total city spending.

Where the money goes: Infrastructure costs were the top negative budget factor reported, followed by public safety needs and the cost of pensions.

  • In addition, local government's purchasing power is weakening when compared to other areas of the economy.

Between the lines: Spending increased the fastest in big cities, the survey showed, and larger midsized cities showed the slowest revenue growth. That may explain why larger cities reported the gloomiest recession predictions.

  • 63% of financial officers in big cities and 49% of financial officers in larger midsized cities predict a recession within the next one to two years.
  • (Note: General fund trend data in the chart above is based on aggregated fiscal data across all responding cities, which means cities with larger budgets have more influence on the trends.)

What to watch: Chicago may be a litmus test for how older cities are dealing with legacy pension costs and dwindling populations. Chicago has an $838 million budget gap, and Mayor Lori Lightfoot plans to deliver her first budget to the city council today, per the WSJ.

Go deeper ... Exclusive: Cities see signs of recession on the horizon

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