Municipal fiscal woes can lag behind national economic downturns by as much as several years, as periodic property value assessments reduce property values and drag down property tax revenues. So for municipalities across the United States, recession-mindedness is still standard operating procedure. Some U.S. cities have already finalized their fiscal year 2012 budgets, and many others are still moving through that process. But nearly all municipalities have found that the fiscal woes continue, and are forced to make hard choices.
A vast majority of U.S. cities have dealt with or are dealing with sharply reduced resources in their 2011-12 budgets, according to Chris Hoene, director of research at the National League of Cities, an organization that advocates for cities and towns in Washington. "The depth of the recession has affected nearly every city. It's all just a matter of scale," says Hoene. "The main sources of local revenue are property and sales taxes, and the housing market crash is having a dramatic impact on local property tax revenues. And retail activity around the country, people consuming, is still fairly stagnant, so we're not seeing much growth in sales tax revenues," he adds.
Unlike the federal government, which is allowed to run deficits year after year, most U.S. cities are required to balance their budgets. This is determined by state law, and the only state that doesn't require a balanced budget is Vermont, according to the National Conference of State Legislatures (though other sources count Wyoming, North Dakota, and Alaska in this group as well).
Here is a look at 10 U.S. cities facing fiscal challenges, as well as the myriad ways they are keeping afloat despite sizable budget gaps.
With his recently passed fiscal year 2012 budget, Albuquerque Mayor Richard Berry closed a projected $40 million shortfall. The most recent budget did not increase taxes; rather, the budget cut costs in numerous other ways, including the permanent elimination of 149 vacant positions. Also, by renegotiating health care services and awarding those services to a single provider, the city saved over $4 million for fiscal year 2011-12.
On his first day on the job in May, Mayor Rahm Emanuel authorized $75 million in spending cuts. Currently, the Windy City faces a $31 million deficit. Just this week, Emanuel sent a letter to city employees explaining that his office had identified $20 million in savings, and that the remaining gap could be addressed with workplace reforms, like increasing the work week from 35 to 40 hours and reducing overtime pay from double to time-and-a-half. However, the mayor and labor unions have not been able to agree on those reforms, and the letter placed the blame squarely on unions: "By adopting these workplace reforms we can save jobs but reforms have not been agreed upon. Thus, I must begin the process of laying off up to 625 city workers."
When Detroit Mayor TK Bing presented his budget proposal in April, the city faced an accumulated budget gap of $208 million. The $3.1 billion budget that passed, including $1.2 billion in general fund spending, went into effect on July 1 and cut the city's accumulated deficit by $50 million, using equal parts revenue increases and spending cuts. One way the city aims to increase revenue is to work with the state to identify businesses that had not been paying the city income tax, an initiative with the potential to generate $49.5 million over the next five years.
Houston's fiscal year 2012 budget went into effect on July 1 and included layoffs of more than 700 of the city's 21,000 workers as part of closing a budget deficit that had been projected at $130 million. Budget cuts also slashed the police department's fuel budget by 75 percent, meaning police helicopter operations have been reduced from 20 or more hours daily to three.
With his $6.9 billion fiscal year 2011-12 budget, which the city council passed in May, Mayor Antonio Villaraigosa closed a $336 million shortfall, with large cuts coming from the police and fire departments. The budget also cut $19 million from the Recreation and Parks Department and reduced funding to homelessness programs by 10 percent.
The city faces a possible deficit of $50 million for its $500 million fiscal year 2012 budget, which must be approved by September 30. As Mayor Tomas Regalado tells U.S. News, the city is planning to counteract this problem by cutting property taxes in an attempt to spur investment. "Last year, when we also faced a budget deficit, we did not increase property taxes, and we have seen a lot of investment in the city of Miami in the past 12 months." By cutting taxes, Regalado hopes to accelerate that pattern. But Miami is expecting increased revenue elsewhere, including $2 million via increased fees at the city's marinas, plus another $2 million expected to come from cameras that catch motorists who run red lights.
New York City
In June, Mayor Michael Bloomberg and the New York City Council agreed on a budget they touted for not increasing taxes. The city's 2012 budget shortfall had been projected at $3.26 billion, but the mayor worked over the course of the last year on a program he called PEG, or the Program to Eliminate the Gap. Along with the use of funds from its reserves, New York City was able to achieve a balanced budget for fiscal year 2012. However, more fiscal wrangling likely awaits, as a nearly $5 billion deficit has been projected for next year.
The city's most recent financial outlook report, released in February, projected its general fund budget shortfall for fiscal year 2012 at around $56.7 million. To balance this year's $1.13 billion general fund budget, the city has proposed 6 percent pay cuts for employees, and has eliminated the equivalent of 120 full-time positions, some of which were already vacant.
On June 1, San Francisco Interim Mayor Edwin Lee presented a $6.8 billion budget proposal that aims to close a projected $306 million shortfall. That shortfall is driven by growth in employee benefit costs as well as a loss of revenues from both the state of California and the federal government. One way the city is saving money is by forgoing scheduled pay increases for city employees, at a savings of $20.2 million. The city has also instituted a hiring freeze, to generate savings on salaries as older employees retire.
The District of Columbia faced a projected $322.1 million shortfall for fiscal year 2012, which it closed with a roughly 60-40 ratio of spending cuts to revenue increases. But the nation's capital faced some unique challenges in closing that gap, according to a spokesman for the mayor's office. For example, as the capital of the United States, the city cannot choose to impose a commuter tax. The city council has considered attempting such a move on numerous occasions, despite the fact that in 2005, a federal court ruling stated that the district is subject to the will of Congress, and thus cannot impose such a tax itself. The city instead increased its parking garage taxes in the 2012 budget. Mayor Vincent Gray also proposed a 0.5 percent income tax increase on all residents earning $250,000 or more, a plan that the city council shot down.