Local governments face a slow, uphill battle for recession turnaround
Expanding on a 2013 publication, Pew Charitable Trusts has released a report exploring local governments' slow recovery from the Great Recession. According to the report, Recovering From Volatile Times, more than half of the 30 major U.S. cities reviewed saw governmental revenue decline from 2011 to 2012, double the number from 2010 to 2011. Although nine cities had surpassed their pre-downturn revenue peak in 2011, four of them fell back below that level again in 2012.
Decreased property values has had a staggering impact on these numbers, as many localities face collecting lower property taxes. Many cities saw property tax revenues hit their low point several years after the housing crisis, as the process for valuing homes, assessing taxes owed, and then collecting them takes time.
As many federal assistance programs hit their expiration date, cities face the road to recovery with decreasing support. State funding also has scaled back dramatically, placing a higher burden on local governments, which are already tightening their belts. In Phoenix, for example, a $201 million loss in intergovernmental aid amounted to 10 percent of the city's total revenue in 2012.
Not all cities saw year-over-year losses from 2011 to 2012 though, as Boston, Cincinnati, Minneapolis, New York and Seattle exceed their prerecession revenue peaks mostly due to gains in sales and income taxes as well as increased charges and fees. Minneapolis was able to gain benefit from large construction projects - the city approving $1 billion in residential and commercial projects in 2012. Cities that collected sales and income taxes saw an average rise in sales tax of four percent from 2011 to 2012 and an income tax increase of three percent.
Spending cuts and cautious investments were also a theme from 2011 to 2012. Overall spending fell in nearly half of the 30 major cities reviewed, and those that did increase only did so by an average of two percent. With weak revenues forcing low levels of spending, some critical services remain in jeopardy. Half of the cities cut public safety spending, with six reporting the lowest level of spending in that category in six years.
While the report focuses on 2012, many cities are still struggling to reach prerecession levels for both spending and revenue. The effects of the weak national recovery are still impacting local governments, but with the housing market on the rise and declining rates of unemployment, there just might be a light at the end of the tunnel.