NLC survey shows cities to be cautiously optimistic

Washington, D.C. – Careful budgeting, a generally favorable economic climate and a growing array of productivity improvements are helping improve the fiscal health of most U.S. cities and towns, according to the National League of Cities’ (NLC’s) 1996 Survey of City Fiscal Conditions. The survey found a trend of steady but slow growth since 1993 in general fund balances and a prevalence of optimism in the fiscal outlook for cities. Most of the 381 cities responding to the survey are maintaining service levels, and more than one-quarter said they are increasing services, especially in the area of public safety.

Over the past two years, however, more than one-quarter of the respondents said their expenditures outpaced revenues and even more are projecting shortfalls this year.

An overall assessment of constant-dollar changes in local budgets revealed that both revenues and expenditures have grown at an annual rate of less than 1 percent over past three years.

Keeping up with infrastructure needs has become a major concern for 56 percent of the cities, and 31 percent cited the high cost of providing employee health benefits and paying for costly environmental mandates as pressure points on their budgets. Two analyses of federal and state fiscal actions included in the survey report also raise concerns about the potential for shifting responsibilities and the impacts on local budgets.

“The leaders of America’s cities and towns have demonstrated a tremendous degree of leadership, perseverance, collaboration and innovation in managing the resources and meeting the needs of their communities,” says NLC President Greg Lashutka, mayor of Columbus, Ohio. “They are using new techniques to find savings and improve performance, and they are using those skills to carry out the old-fashioned responsibilities of public service: to do what’s right, to do what’s necessary, to make do with what you’ve got, and to get everyone into a bipartisan process for making it happen. And if you think there’s a message in what I just said, I think you’re right, and I hope it gets heard.”

The NLC report used ad analysis of year-end general fund carry-overs, or balances, to develop an overall profile of the financial health of the nation’s cities and towns over the past 10 years. Cities maintain a general fund balance as a financial reserve to manage cash flow, to maintain a sound credit rating and to deal with unforeseen revenue or expenditure variations. The analysis examined the year-end carry-over as a percentage of general fund expenditures in that particular year. This year’s survey and data from earlier years showed steady growth of ending balances from 1993 through 1996 after three years of declining balances.

Several findings in this year’s NLC report offer additional insights about ways that local governments responded to those fiscal pressures. Two significant survey responses dealt with infrastructure needs and capital spending, which often bear the brunt of budget austerity.

The percentage of cities reporting lower levels of capital spending declined for the fourth consecutive year, which indicates that most cities are now increasing – or at least maintaining – their allocation of resources for community upkeep.

“This is not done easily, however,” Lashutka says. “In the assessment of pressure points in local budgets, infrastructure and capital needs led the list of unfavorable able factors, mentioned by 56 percent of the cities.”

Other adverse factors mentioned most often included environmental mandates, the cost of public employee health benefits, changes in the local economy and costs associated with crime and criminal justice.

Among the 27 percent of the cities that increased service levels during the past year, public safety activities dominated the examples provided by survey respondents.

Examples of productivity improvements described by survey respondents this year included privatization of investment management services in Naperville, Ill., which yielded savings of $600,000 and enabled city staff to handle other duties; a reconfigured emergency medical services program in Gresham, Ore., that provided better services and a savings of $279,000 and revision of the billing cycle for water and sewer bills in Raleigh, N.C., which generated $300,000 in administrative cost savings.

Additionally, Milwaukee reorganized its public works department and saved an estimated $2.5 million through better coordination of activities, Philadelphia’s “productivity bank,” which keeps track of initiatives taken throughout city government to improve delivery of services, has accumulated overall savings of $19.8 million since 1994; and interlocal agreements and joint activities have helped West-minster, Colo; Avondale, Ariz.; Greenville, S.C.; and Grand Prairie, Tex., provide better services and save money.

“These kinds of initiatives are bottom-line proof of the power of positive thinking in municipal government,” said NLC Executive Director Donald J. Borut. “These efforts are also helping to instill a growing sense of confidence in the fiscal capacity of our cities. Two out of three respondents – 65 percent – said they felt better able to meet their cities’ fiscal needs in 1996 than they were in 1995.”

And because they have to be fiscally accountable for their actions, municipal leaders also enacted a number of increases in taxes and user fees to keep the ledgers balanced.

Borut also pointed out several potentially troubling findings in this year’s survey.

“Although most cities have seen a general recovery and are keeping revenues ahead of expenditures, more than one in four cities are spending more than they collect,” he says. “That was the experience in both 1994 and 1995, and more than half of the cities said it could happen this year in the absence of corrective actions. This should alert us that not all cities are in an upturn and that structural economic and fiscal problems may also he present.”

Another caution signal appeared in a constant-dollar analysis of revenues and expenditures in this year’s survey. Municipal revenues have grown at an average annual rate of 0.7 percent over the past three years, well below the annual growth rates of 2.6 percent recorded between 1986-89, and even below the 1.7 percent growth rate during the recessionary period of 1990-92. Expenditure growth measured in constant dollars fell even more sharply to an annual rate of 0.3 percent over the past three years.

The NLC survey was conducted by Michael Pagano, professor of political science at Miami University, Oxford, Ohio, who also wrote the report. The university’s Center for Public Management and Regional Affairs carried out the data management tasks. Herbert Green, NLC’s research manager, coordinated the work done in the survey project. The 381 cities in the survey included 31 of the 51 largest U.S. cities, 45 percent of the cities with populations above 100,000, and 35 percent of the cities with populations between 50,000 and 100,000.

The survey was also sent to a random sample of cities and towns with populations between 10,000 and 50,000, from which 164 responses were received.