City Finances Rebound, But They’re Not Out of the Woods

10.17.2013 | Things are looking up for cities. More than 70 percent of those surveyed in the annual National League of Cities survey said that they were better able to pay their bills and keep services operating in 2013 than in the previous year. That’s up from 43 percent in 2010. Cities are also building up their reserves once again.

Interestingly, the level of optimism is just a notch shy of what it was during the boom years of the late 1990s. But some dark clouds still loom.

Illustration / The New York Times

City residents are slowing shaking off the gloom of job loss and housing value declines and are beginning to earn and spend more. That’s good for city coffers. The “City Fiscal Conditions Survey” showed that income tax revenue rose 4.4 percent and sales tax revenue rose 6.2 percent in the past year. Property taxes dipped slightly, by 0.4 percent.

Like airlines, cities are tuning in to the benefit of fees to raise revenue. Everything from bike-sharing rentals to plastic bag fees to “transfer stamp” fees when closing on a new home, city residents are forking over a dollar here and a dollar there at seemingly every turn. Maybe cities are learning from that sly marketing ploy of micropayments like the 99¢ app or the $1.99 song on iTunes. In the end, though, it all adds up, and some of the revenue at least ends up in city coffers.

Now we just need to ensure transparency in government so we know that the fees are going to city services and not to people like Kwame Kilpatrick.

The city of Huntington, West Virginia (pop. 50,000) aligns almost perfectly with what the NLC report finds—it realized a gain but needs to pay attention to infrastructure (paving roads and managing storm water, in its case), as well as healthcare and pension costs. They have also turned to a 1 percent tax they can charge under home rule into a boon. The revenue exceeded all expectations.

As an editorial in the local paper notes:

The city of Huntington ended its 2012-13 fiscal year this summer with a carryover of $3.4 million. Mayor Steve Williams was quick to point out that most of those funds already are committed to shoring up underfunded obligations and other authorized expenditures, such as the city’s much-needed annual paving program.

But the carryover does reflect a remarkable turnaround from the previous year, when the city ended its fiscal year more than $1 million in the red. The key change has been the 1 percent city sales tax, which was implemented in 2012 under the state’s Municipal Home Rule Pilot Program.

If the strong performance continues, Williams has suggested creating a capital improvement budget and dedicating a portion of the revenues for specific infrastructure projects. The city has a long list of pressing needs, particularly an aging stormwater system that leads to regular street flooding.

While cities like Huntington can breath a small sigh of relief this year, not all is rosy. Infrastructure costs, public safety costs, and health and pension costs are continuing pressures, along with the steady cuts in state and federal aid. Cities have cut back on personnel and trimmed the size of government to reduce spending. That might cheer the “smaller government is better” folks, but in cities, those jobs are local, and the ripple effect is felt keenly.

And the gridlock in DC will always be a big unknown for many cities. “God knows what will happen with the shutdown now,” Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, told the Times.

Bruce Katz and Jennifer Bradley in “The Metropolitan Revolution” would argue that this is the very reason that cities need to cut the cord to the federal albatross and draw on their rich set of resources to make their own future. Imagine a nation of city-states and you’re closing in on Katz and Bradley’s vision.

In many ways, the examples in their book prove that this new order is well underway. Cities are inverting the hierarchy of power in the US. No longer content to wait for their handout from the federal government, they’re designing their own futures. Metropolitan areas are forging new partnerships between university, business, philanthropy, and local government to capitalize on their unique strengths, build their own infrastructure, and respond more nimbly to local conditions and demands. They’re still facing serious fiscal constraints, but at least they won’t be a beholden to the madness in Washington.

Perhaps, as Katz argues, the recession was not as much a setback for cities (although it was that) as a turning point. It was “a brutal wake-up call,” Katz and Bradley write, “that revealed the failure of a growth model that exalted consumption over production, speculation over investment, and waste over sustainability. A new growth model and economic vision is emerging from the rubble of the recession, a next economy where we export more and waste less, innovate in what matters, produce and deploy more of what we invent, and build an economy that works for working families.”

And cities, not the federal government (clearly), are leading the charge.

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