New Report Finds Improving City Fiscal Outlook, But Pension & Healthcare Costs Loom

After six straight years of declining general fund revenues, a new report from the National League of Cities finds that American cities are projecting a slight increase in general fund revenues in 2013. While property tax revenues are expected to continue their multi-year slide this year, sales and local income taxes are up. Further, two in five (39%) cities raised fee levels for various services, while 22% of cities increased the number of fees applied to city services, and 19% of cities increased local property taxes in 2013.

Still, there are significant fiscal headwinds. The NLC report notes, “While conditions are no longer deteriorating, the capacity of city budgets remains weakened coming out of the Great Recession.” According to the report, factors putting pressure on city budgets include infrastructure costs; public safety costs; employee-related costs for health care, pensions, and wages; and cuts in state and federal aid.

Some other interesting findings of the report include:

  • “Leading the list of factors that finance officers say have increased over the previous year are health benefit costs (84%) and pension costs (80%).” (p. 5)
  • “When asked about the positive or negative impact of each factor on city finances in 2013, at least seven in ten city finance officers cited health benefit costs (80%), pension costs (75%), and infrastructure demands (73%) as negatively effecting city budgets.” (p. 5)
  • “Two of the factors that city finance officers report as having the largest negative impact on their ability to meet needs are employee- and retiree-related costs for health care coverage and pensions. Pension and health care costs will persist as a challenge to city budgets for years to come[.]” (p. 9)
  • “Confronting a gradual economic recovery following a deep recession, cities are likely to continue to operate with reduced workforces and service levels, and city leaders will likely continue to be cautious about making significant infrastructure investments[.]” (p. 9)

The full report is available here.

Given the current and future pension funding cost challenges cited in the report, city leaders interested in reforming their pension systems in the interest of fiscal sustainability should consider signing up for Reason’s two remaining (and free) Pension Reform Webinars this Wednesday and next Tuesday. More details and registration info are available here.

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