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This is an archived article published in December 2003
US cities cut civic services and
staff to confront financial crisis

As a result of an increasing squeeze on municipal budgets, many US cities and towns are cutting staff and services and increasing fees, according to survey of 328 cities by the National League of Cities (NLC), the oldest and largest organization representing US cities.

The NLC’s 19th annual survey of city finances found more than four out of five finance directors surveyed (81%) said their cities were less able to meet financial needs compared with the previous year, the largest proportion since 1990.

Spending increases outpaced revenue increases in cities’ 2002-2003 fiscal year by 3.1 per cent compared with the previous year. The gap in revenues and expenditures was fuelled by rising employee health care and pension costs, declines in sales, income and tourist tax revenues, cuts in state aid, and increased demands for spending on public safety and homeland security.

US city finance officers said the biggest negative factors affecting budgets were:
• Costs of city workers’ health benefits (cited by 63 per cent),
• Costs of city workers’ pensions (30 per cent),
• Reduction in state aid (29 per cent),
• The local economy (25 per cent), and
• Infrastructure needs (25 per cent).

American cities are responding by cutting back personnel and government spending in areas other than public safety, curtailing capital and infrastructure investment, raising user fees and charges, and drawing down ending balances, or rainy day funds, which cities set aside for emergencies.

In response to the deteriorating fiscal condition of cities:
• Nearly half (47 per cent) of all cities increased fee rates in 2003,
• 30 per cent reduced city employment,
• 29 per cent imposed new fees or charges on services,
• 21 per cent reduced actual levels of capital spending, and
• 11 per cent reduced city service levels.

Many US Cities have drawn down their ending balances, or rainy day funds, which cities set aside for emergencies. Ending balances as a percentage of expenditures dropped to 17.9 per cent, the lowest level in five years.

In November 2003, National League of Cities President John DeStefano, Mayor of New Haven, Connecticut, said the US was under-investing in cities and towns and called for a stronger federal-local partnership to fund programs that help build and preserve the middle class in America. “Under-funded public schools, smaller police forces, deteriorating transportation systems, expensive health care, sprawl — these are public choices that increasingly subvert our American ideal, even as we fight for it overseas,” Mr DeStefano stressed.

While there are signs of an improving economy, the effects are unlikely to be felt by cities and towns soon and city officials are anticipating that budgets will be equally pinched in 2004.

Michael Pagano, Professor of Public Administration at the University of Illinois at Chicago, said that even if the economy fully recovered tomorrow, cities would still be facing increased fiscal stress over the next year. He added: “This is because of rising costs for cities and towns such as healthcare and pensions, new responsibilities such as homeland security, cuts in state aid to cover state shortfalls, and continued need to invest in infrastructure.”
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