FINANCIAL MANAGEMENT/Survey examines fiscal practices
Aided by a strong national economy and increased tax and fee rates, municipal fiscal conditions have strengthened steadily for nearly a decade. As a result, many cities have been able to transfer current-year revenues to surplus accounts, accelerate spending on infrastructure projects, carry funds to the next fiscal year or, in some cases, lower tax rates.
That trend could be slowing, however. Results of an annual survey by the Washington, D.C.-based National League of Cities show that the rate of fiscal growth began leveling off last year.
Nevertheless, cities remain optimistic about their fiscal health. Of the more than 350 cities that responded to the NLC survey, nearly three-quarters indicated that their financial situation in FY 2000 was better than it was in FY 1999. Furthermore, 63 percent predicted that they would be better able to meet their financial demands in FY 2001 than they were in the previous year.
(The results of the survey have been published by NLC as “City Fiscal Conditions in 2000.” The report presents data gathered from 353 cities, all with populations exceeding 10,000 and half with populations exceeding 100,000.)
According to respondents, general fund revenue (in constant dollars) grew 1.98 percent in 1999, compared to 2.51 percent the previous year. Spending, on the other hand, rose 2.96 percent, compared to 1.68 percent in 1998.
Several items were cited frequently for their effects on local budgets. For example, more than 80 percent of respondents noted that they had increased public safety spending in the last fiscal year. More than 67 percent increased capital spending; nearly one-half increased their workforce; and 49 percent increased human services spending. Only 16 percent of respondents reported increased spending for education-related activities, marking a substantial decrease from 33 percent last year.
Few cities have reduced actual levels of capital spending or the growth rate in operating spending; however, many are controlling spending in other ways. For example, 47 percent of respondents cited “increased productivity” as a means for controlling expenditures, while 28 percent contracted out for new services and 23 percent entered interlocal agreements.
During the recessionary period of 1990-1992, the most popular methods for cities to raise revenue were (1) increasing the rate of user fees/charges and (2) increasing the number of activities to which user fees/charges could be applied. At that time, 80 percent of NLC survey respondents claimed to be increasing existing fees/charges to enhance revenue.
By 2000, 30 percent of respondents made that claim. (The decrease belies the fact that fees/charges remain the most popular income-enhancing tool for cities.)
By manipulating fee rates and charges, or by imposing new ones, the surveyed cities expected to increase net fee revenue by an estimated $110 million over the last year. Similarly, they expected to increase net tax revenue by $165 million.
Survey results show that one in five cities raised the property tax rate in FY 2000. Furthermore, of the cities author-ized to levy a sales tax, 3.7 percent did so in FY 2000, compared to 9.8 percent in FY 1999.
Economic growth is expected to generate more revenue growth for cities with access to sales tax than it is for cities with access to property tax. From 1998-1999, the average growth in aggregate sales tax collections was 5.5 percent, compared to 4.7 percent for property tax. During the same period, the average growth in ag-gregate collection for income tax was 4 percent.
