WASHINGTON -- Cities and towns are slogging through a third straight year of pronounced budgetary stress as spending continues to grow faster than revenues, says a report released yesterday by the National League of Cities.
"The numbers suggest that the high level of fiscal stress under which cities have operated throughout the past two years continues to hold," says the annual report, which is entitled "City Fiscal Conditions in 1993."
Over half of the municipalities anticipate spending more money from their general funds this year than they expect to put back from current sources of revenue, according to the report, which is based on a survey of 688 cities and towns.
If these expectations pan out, it would be the first time since such data were first collected in 1984 that over half of the municipalities spent more than they took in, the report says.
Consequently, "cities' ending balances, which act as cushions or shock absorbers when city revenues fall, are predicted to be drawn down this year in a majority of cities," the report says. An ending balance is the amount carried over from one year to the next in a city's general fund.
Ending balances are expected to be nearly 10% lower this year than last year, on a per capita basis, according to the report.
Per capita expenditures coming out of general funds are expected to grow by 2.2% this year on average, far outpacing the anticipated 0.8% gain in per capita revenues going back into general funds, the report says.
"The pantry cannot replenish itself -- something has got to give," said Randy Arndt, spokesman for the cities' group. "This report shows that things are tough and they're getting tougher. "
This year also marks the third straight year that municipalities expecting to incur a deficit of over 5% of their general funds outnumber those anticipating a surplus of over 5%, the report says.
Roughly one in five cities and towns this year expects a deficit exceeding 5%, compared to only 3.5% expecting a surplus of over 5%, according to the report.
In the two previous years, the number of cities and towns anticipating a greater than 5% deficit only slightly outnumbered municipalities expecting a greater than 5% general fund surplus, the report says.
Not surprisingly, nearly three-fourths of the cities and towns reported raising taxes or fees or imposing new fees in the past 12 months to cope with their fiscal distress, the report says.
Property taxes, which commonly supply the largest share of the general funds of small- and medium-sized municipalities, were increased on average by 3% this year, the report says. Other forms of local taxes, such as income and sales taxes, were increased by 4.2% during the last year, according to the report. Meanwhile, cities and towns hiked their fees and charges by 3.8% in the last year, the report says.
On the cost-cutting side, large numbers of cities and towns also reported eliminating or contracting out services, along with freezing or cutting municipal employment, the report says.
Notably, municipalities also anticipate reducing their long-term general obligation debt this year by 1.3% on average, compared with a 6.2% increase last year, according to the report. The largest cities, with populations over 300,000, anticipate a 7.1% reduction in 1993, the report says.
"It appears that investment in infrastructure lags because capital budgets are more responsive to economic downturns than are operating budgets," the report says.
However, cities and towns said they expect to increase the amount of revenue bonds they have outstanding by 1.2% this year, after a 8.5% surge last year, the report says. The largest cities expect to raise the amount of revenue bond debt they have outstanding by 3.9% this year, according to the report.
Survey respondents were also asked why their budgets are being stretched so tightly.
Officials at over half of the municipalities surveyed blamed soaring employee health-care costs, about one-third cited growing infrastructure needs, 29% cited unfunded state and federal mandates, and one-fourth blamed their local economies, according to the report.
The combined amount of federal and state aid going to municipalities this year is expected to be 5.3% lower than in 1991 and 19.4% less than in 1980, the report says. Gains in state aid have not quite kept pace with declines in federal aid in recent years, according to the report.
