Forecast gloomy for local economies dealing with recession, report finds

By Michael A. Fletcher
Washington Post Staff Writer
Wednesday, October 6, 2010; 10:18 PM

The fiscal condition of the nation's cities is growing more dire this year as local governments continue to grapple with the fallout from the recession, according to a report released Wednesday by the National League of Cities.

The report, which is based on surveys of 338 cities, found concern at the highest levels in a quarter-century among budget officers asked about the fiscal health of cities.

With property tax revenue declining after years of growth fueled by the housing boom, and with sales taxes also in decline, cities are implementing a wide range of cuts and drawing on dwindling funding reserves to stay financially afloat.

Nearly four out of five cities cut personnel costs in the past fiscal year. The cuts included hiring freezes, wage reductions and freezes, and layoffs. Nearly seven in 10 delayed capital projects, one-quarter implemented public-safety and across-the-board service cuts, 23 percent renegotiated debt and 22 percent modified pension benefits for employees, the survey found.

"The short-term economic situation has exposed long-term liabilities," Christopher Hoene, the National League of Cities director for research and innovation, said of the pension cuts.

The fiscal crunch, which is affecting cities even as the national economy creeps toward recovery, reflects the lag between national and local economic conditions. The NLC said the delay could be as long as several years, mainly because property tax collections, a backbone of city finances, takes years to adjust to declining housing values.

"Struggling housing markets, slow consumer spending, and high levels of unemployment are driving declines in city revenues," the report said.

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