Oct 12, 2022 - Economy

Cities are "cautiously optimistic" about their finances — with a caveat

Illustration of a city skyline made of dollars.

Illustration: Brendan Lynch/Axios

Federal funds "helped save American cities" after the COVID-19 pandemic sapped their tax revenue, but inflation is tempering their financial health, the National League of Cities (NLC) said in a Wednesday report.

Why it matters: The American Rescue Plan Act (ARPA) and the new infrastructure law have been political footballs, but U.S. cities would be in a recession without them, according to the prominent lobby group.

  • An annual survey of municipal finance officers paints an "optimistic picture," said Clarence Anthony, CEO and executive director of the NLC.
  • "Municipal governments are enjoying a much stronger revenue stream and are feeling confident about their abilities to finance public services and resources" in 2022 and beyond, he said.
  • But "unusually high inflation is putting a lot of pressure on cities' budgets," he added.

Driving the news: The National League of Cities issued its 37th annual report on the fiscal health of U.S. cities, and the gist is that they're in good shape — "cautiously optimistic" about their ability to balance budgets.

  • "They've rebounded financially from the pandemic, thanks largely to ARPA funds," said Farhad Omeyr, an NLC program director and author of the City Fiscal Conditions report.
  • But high gas and energy prices are a big concern, as is the cost of borrowing money.
  • And "abnormally high inflation rates have nearly canceled out the tax revenues these governments gained in 2021," the report said.

Without ARPA, "governments would be in a really, really bad situation because the majority of them are not still ready to get back on their feet on their own," Omeyr said.

What they're saying: "The flexibility of the ARPA dollars was really helpful," said Andrew Zoeller, finance director for Billings, Montana.

  • Billings used its ARPA funds to upgrade its 911 dispatch system, while other communities used the money to pay firefighter and police salaries, address housing insecurity, assist local businesses, etc.
  • "I would like to see more federal assistance in terms of stormwater and sea level rise," said Kaitlyn James, budget administrator for Virginia Beach, Virginia, at an NLC news conference.

What's next: Cities are getting ready to apply for grants under the $1.2 trillion infrastructure law.

  • These projects "were, for the most part, postponed during the COVID-19 pandemic, as governments tried to direct most of their declining revenues toward their day-to-day operations," NLC said.
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