Despite the historic bankruptcy crisis in Detroit, the fiscal condition of cities more generally is improving markedly, even as they continue to confront the prolonged effects of the Great Recession, according to a new study.
Nearly three quarters of city financial officers say their municipalities were better able to meet their financial needs in 2013 than in the previous year, according to a survey by the National League of Cities. And as they look to the end of the current fiscal year, many of those officials are projecting the first year-over-year increase in their cities’ general revenue funds since 2006.
“City officials are clearly feeling better about how their local economies are doing,” said Marie Lopez Rogers, president of the NLC and mayor of Avondale, Ariz. “But city officials are still making difficult and critical decisions regarding the types of community investments they need to make on behalf of the families they serve. Local officials must be vigilant as the economy continues its painfully slow recovery.”
While property tax collections continue to decline as a residual effect of the housing crisis, sales tax revenues and local income tax revenues increased over 2012 levels and are projected to continue to rise next year, according to the report.
Perhaps most heartening for many local officials is that their ending balances increased in 2012 as cities began to rebuild reserve funds that were exhausted in the aftermath of the Great Recession.
Despite the ongoing challenges of rebounding from the worst economic crisis of modern times, many cities are maintaining local services while continuing to reduce personnel costs for wages, pensions, and other benefits.
Yet there are pockets of concern that could still pose problems, the report noted. The pace and scope of the economic recovery to date is not sufficient to help cities fully recover from what had been a deep and sustained downturn, the report concludes. Its projections also suggest that cities are confronting little growth in the near future. And nearly one in two finance officers express concern over the uncertainty in federal and state budgets and cuts in aids and transfers, in the wake of the sequester and the current federal government shutdown.
“This recovery could be overwhelmed by the inability of the federal government to put its house in order,” said Clarence Anthony, NLC’s Executive Director. “Cities will feel the impact of the current government shutdown and will certainly feel the consequences of the nation not raising the debt ceiling on time.”
Among the factors that could further brighten the picture: an improving real estate market that will bolster property taxes and improving consumer confidence in the economy. The continued downside to this picture: Cities increasingly are struggling with the mounting cost of employee and retiree-related costs for health care coverage and pensions.
The major outlier, of course, is the city of Detroit, which is wrestling with an estimated $18 billion of debt as part of the largest municipal bankruptcy filing in the nation’s history. Emergency Manager Kevyn Orr reiterated recently that “everything is on the table” regarding assets – including the city’s vaunted art collection -- as he works to repair the financial state of the city.
“I have a fiduciary obligation to account for all of the assets of the city of Detroit. I’ve got to rationalize pensions and health care because of conduct that occurred before I came to this city,” Orr said. “There’s got to be a balance,” he added, in reference to the potential sale of artwork. “In bankruptcy, everything has to be on the table. It’s very personal.”
As it struggles with its financial crisis, Detroit has already been billed more than $19.1 million by firms retained to sort through that debt, according to The New York Times. City officials offer no estimate for a final tab, but some bankruptcy experts say the collapse could ultimately cost Detroit taxpayers as much as $100 million.