U.S. Cities See First Increase in Revenue Since ’06, Survey Says

(Bloomberg) -- U.S. cities are projecting their first increase in revenue since 2006, though they say it’s not enough to keep pace with spending as pension and health-care costs increase.By the end of 2013, collections from taxes, fees and federal and state aid are expected to rise by 0.1 percent as spending grows by 1.5 percent, according to an annual survey released today by the Washington-based National League of Cities.A revenue boost would be a boon to cities that haven’t recovered from the 18-month recession that ended in 2009.“Cities are starting to see improvement, but we know that it’s tenuous,” Christiana McFarland, one of the survey’s authors, said in an interview. “Given the climate at the federal level, cities have reason to be cautious going forward.”A partial U.S. government shutdown threatens to decrease cities’ revenue projections, she said. On Oct. 1, the federal government shut down when Congress couldn’t strike a budget deal. The spending fight, and another over raising the U.S. government’s debt ceiling, may damper the economy and leave federal aid that cities rely on in limbo.Projections for a 2.3 percent increase in income tax revenue by cities and a 1 percent increase in sales tax collections were offset by drops in property taxes and federal and state aid, McFarland said.Filing BankruptcyThis year, Detroit became the biggest municipality to file for bankruptcy in U.S. history, pushed over the brink by pension costs. California cities Stockton and San Bernardino confronted insolvency for similar reasons last year.Of the 350 cities that responded to the National League of Cities survey between April and June, at least seven in 10 listed health benefits and pension costs as having a negative effect on their budgets, according to the survey.The gap between revenue and spending led 38 percent of cities to freeze hiring, and at least one in five to reduce employee health-care benefits, according to the survey. As of August, total local government employment was more than 500,000 jobs below the August 2008 level, the survey said, citing the U.S. Bureau of Labor Statistics.The 1 percent growth in sales taxes projected for 2013 follows a 6.2 percent increase in 2012, when adjusted for inflation. The projected growth in income taxes for this year follows a 4.4 percent jump last year.Budget TalksThe Nelson A. Rockefeller Institute of Government has said that a similar rise in income-tax revenue at the state level may slow in the second half of 2013 because taxpayers shifted income and dividends into 2012 to avoid higher federal taxes imposed as part of last year’s budget agreement in Washington.With budget negotiations under way again in Washington, further instability for local income tax collections may be ahead, McFarland said.“The federal government shutdown and the fight over the debt ceiling are going to continue to negatively impact income,” she said. “Longer term, that’s something cities are going to be dealing with.”www.bloomberg.com