You know money's tight when police and fire have to fight for their share of general revenues. Just five years ago, state and local tax revenues experienced the largest single-year increase in 15 years; and National League of Cities members were least likely to cut public safety services to close a budget gap. Parks and recreation (surprise, surprise) was the first to go.
Today, those revenues are at their lowest level in 50 years; and virtually every organization that serves government — the National League of Cities, the National Association of Counties, the U.S. Conference of Mayors, the International City/County Management Association — reports that members are taking far more drastic measures to balance expenses to income: cutting jobs and services, and canceling or delaying capital improvements.
Now even police and fire departments are feeling the pinch, with cities like Milwaukee and Omaha, Neb., downsizing crews.
The picture isn't likely to improve soon, as history has shown.
It took 18 months to two years after the recessions of 1991 and 2001 for economic regrowth to begin rejuvenating government coffers in the form of higher property, sales, and income tax revenues, the three major sources of income for cities, counties, and states. Economists generally agree that the recession bottomed out last August — at 20 months, one of the longest downturns in recent memory.
So while housing prices are on the rise, city and county finance directors expect deeper budget shortfalls this year and next.
Unfortunately, home sales aren't the only thing creeping upward with a nascent recovery. Associated General Contractors of America Chief Economist Ken Simonson expects asphalt, concrete, and diesel prices to rise 6% to 8% this year. “All of these items had dropped in price compared to a year ago, but the declines have either bottomed out or reversed,” he says.
Meanwhile, the stimulus package hasn't jump-started enough growth to offset the impact of the state budget crisis on cities and counties.
Though states received one-third of the $787 billion made available by the American Recovery and Reinvestment Act of 2009, the Center on Budget and Policy Priorities reports that a record 48 face shortfalls this year. At least 41 states anticipate deficits for fiscal year 2011 as well; and they're cutting grants and passed-through revenues to make ends meet. Three-quarters of respondents to a U.S. Conference of Mayors survey say these reductions exacerbated their budget gaps, which in turn reduced their ability to launch projects even with stimulus funding.
Despite the emphasis on shovel-ready projects, stimulus payment is slow. Most National League of Counties members have received less than half their expected funds, which are coming mostly through the Energy Efficiency and Conservation Block Grant, Community Development Block Grant, and transportation programs. To continue providing services, they're renegotiating labor contracts and reorganizing fleets in addition to cutting jobs, programs, and services.