WASHINGTON -- Municipal budgets are strengthening for a second straight year, and many officials anticipate further gains in 1995, said a report released yesterday by the National League of Cities.
"Some signs of improvement can be found not only in actual 1993 ending balances and projected real growth in 1994 revenue forecasts, but also in city finance officers' optimism," said the group's annual survey of fiscal conditions in more than 500 cities.
"We are getting some stability back into the municipal budget process," Sharpe James, the group's president and mayor of Newark, said at a news conference held here yesterday.
However, the report said, many cities still face considerable financial distress.
"Cities in some parts of the country are still reeling from defense and high-tech industry reductions," the report said. "In short, general observations about cities' fiscal conditions blur important differences among cities, differences that make each one unique."
The report is based on a survey of 551 cities conducted last spring that includes 43 of the 51 largest cities, including New York, Los Angeles, and Chicago, and nearly three in five of larger cities.
The survey, which includes actual numbers for calendar 1993 and estimates for the current year, collected spending and revenue information on cities' general funds, which account for roughly half of total city budgets.
After three years of relative distress, city balance sheets on average perked up last year as general fund revenues grew 4.3%, outpacing a 3.1% growth in spending, the report said.
In addition, the proportion of cities running a general fund deficit fell to a four-year low last year. About 33% of cities surveyed spent more from their genral funds than they took in last year -- a sharp drop from the roughly 47% in 1992, according to the report.
As for this year, over half of the city budget officers surveyed said they expected their cities' fiscal health to continue improving. About 54% of officials "felt they were better able to meet their cities' fiscal needs in 1994 compared to 1993," the report said.
However, very preliminary projections for this year tell a different story. General fund spending on average is projected to grow by 4.7% this year, outpacing projected 2.6% growth in revenue, the report said.
Consequently, general fund ending balances this year are projected to deteriorate slightly, after inching up last year, the report said.
But the report noted that municipal budget projections tend to be overly pessimistic because budget officers tend to make unrealistically conservative projections -- underestimating revenues and overestimating spending -- and cities adjust to shortfalls as a year unfolds.
"As a result, the budgeted revenue-expenditure imbalances for 1994 in reality will not be as severe as preliminary budgetary data suggest," the report said.
For example, based on preliminary estimates, 17% of surveyed cities expect to run a general fund deficit of more than 5% this year, compared with only 8% last year, the report said. But Donald Borut, executive director of the group, said 1994 is likely to look a lot like 1993 when final budget numbers are tabulated.
"This always happens -- city fiscal officers tend to be very conservative early in the year," Borut said during a press conference in Washington yesterday. "So we're not so concerned about those numbers now."
He noted that cities must balance their budgets each year, so if ecpenditures exceed revenues in a given year, a city must dip into reserves to make up the difference.
The report did not provide specific budget estimates for next year. But about half of the officials surveyed indicated they anticipate their cities' budgets would continue to strengthen in 1995, the report said.
In addition, declining interest rates last year prompted cities on average to significantly increase their bond issues, but that trend is expected to all but halt this year, according to the report.
"After increasing general obligation debt outstanding by 7% and revenue debt outstanding by 5.9% in 1993, cities expect very little change in their outstanding debt in 1994," the report said.
The report noted that cities tended to use lower interest rates to reduce their debt service costs rather than increase capital spending, "a point that may be borne out by fiscal officers' identification of infrastructure needs as one of the top three city needs nationwide."
About 70% of cities surveyed indicated they raised either taxes or fees this year, generating an estimated $1.5 billion in additional revenue, down from legislated gains in the three previous years, the report said.
