New State of the Cities Report shows the recession is taking a toll on cities

The nation’s economic recession, the decline in the housing market, and the recent crisis in the financial market have negatively affected city finances in a variety of ways, according to a new study released last week by the League of Minnesota Cities (LMC).

The State of the Cities Report 2009 shows that all of these trends have hampered the ability of Minnesota cities to fund and provide basic services to residents and businesses. The report includes findings from the League’s sixth annual fiscal conditions survey.

The share of cities reporting improved fiscal conditions plummeted from 40 percent in 2007 to just over 25 percent in 2008. Some of the factors causing concern among cities include increasing health care costs, employee wages and salaries, uncertainty surrounding local government aid, and the overall economy. Just one in 10 cities predicted they will be better able to meet financial needs in 2009.

More than half of cities reported shortfalls in property taxes. Cities reported an increase in delinquent property tax payments due to foreclosures and the decline in the overall economy. Cities identified a variety of budget-balancing strategies used in 2008, including revenue increases, spending decreases, and new efficiencies such as cooperative agreements with other local governments. The share reporting service cuts, workforce cuts, and increased use of reserve funds all grew over 2007.

The economic recession, the decline in the housing market, and the recent crisis in the financial market have affected cities in many ways. The most frequently identified problems in cities stemming from the recession are an increase in unpaid utility bills, an increase in unemployment among residents, a decline in building permit revenues, and an increase in unpaid property taxes.

Foreclosures also continue to add to the challenges cities face. Cities reported foreclosure-related problems, including delinquent payments on utility service fees and taxes, delinquent property taxes, property maintenance issues, and declining property values.

As these challenges strain city budgets, cities must continue to deliver services such as street maintenance and repair. The majority of cities identified repair, reconstruction, or other maintenance needs for their streets over the next year. The property tax and special assessments have over time become a larger share of the dollars used for street projects in most cities.

Copies of the report will soon be mailed to the mayor and top administrative official of each city. The report is also available on the LMC web site.