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Reports of growth by cities reflects improved policies and long-term planning.

The following was exerpted from the City Fiscal Conditions Report's Executive Summary. Michael A. Pagano is a Ph.D. and professor at Miami University Oxford, Ohio. Andrew Dudas is a doctoral student at Miami University. For more information about the survey, call NLC Research Manager Herbert L. Green, Jr. at (202) 626-3030. To order the report call the NLC Publications Center at (301) 725-4299 or fax (301) 206-9789.

MAJOR FINDINGS

Cities fiscal conditions in 1995 are continuing along a generally favorable path begun nearly two years ago. Ending balances are growing, in large part because the growth rate in spending was under one percent (in constant dollars) for the previous two years.

Cities are increasing their carryover balances or reserves both for funding the construction of capital facilities and for building a fiscal cushion ill anticipation of the next economic downturn (much like state rainy-day funds) or of unanticipated catastrophes (e.g. floods and hurricanes.

After drawing down ending balances in 1992 to an average of 20.7 percent of General Fund expenditures, cities have gradually restored those ending balances to 23.1 percent in 1993 and to 24.9 percent in 1994.

Growth in ending balances reflects prudent city policies designed to improve the long-term fiscal position of cities, which also include the following actions taken during the past year: more than two-thirds (69.2 percent) of all American cities increased tax rates or user fees; nearly two in five cities (39.9 percent) contracted out a new service; and 26.4 percent entered into interlocal agreements with other levels of government.

Although budgeted ending balances as a percentage of expenditures are somewhat lower in 1995 (21.3 percent) compared to actual ending balances in 1994, cities can be expected to improve their actual 1995 budgets as they did in 1994 when ending balances also were budgeted to decrease (from 23.1 percent of expenditures in 1993 to 19. 1 percent) but in fact increased (to 24.9 percent of expenditures.

After four years of cities' General Fund expenditure growth exceeding their revenue growth, spending growth slowed to under one percent (in constant dollars) in both 1993 and 1994. A hold-the-line spending philosophy appears to have been embraced during those two years that has allowed cities to replenish their ending balances. The revenue rebound in 1994, then, did not translate into higher spending levels, but rather were transformed into city "savings" or carry-over balances for the next fiscal year.

General Fund revenues are budgeted to decrease 0.3 percent in 1995 (constant dollars), after a 2.4 percent constant dollar increase in 1994 and a 1.2 percent constant dollar increase in 1993.

General Fund expenditures in 1995 are budgeted to increase by 4 percent in constant dollars (a budgeted growth rate not seen by cities since 1990), following a 0.1 percent constant dollar growth rate in spending in 1994 and a 0.5 percent constant dollar growth rate in 1993.

Three in five fiscal officers nationwide (60.3 percent) felt their cities were better able to meet their fiscal needs in 1995 compared to 1994. This is a substantial improvement over the 33.7 percent who felt their cities' fiscal position in 1993 was better than their 1992 position and slightly better than the 54.4 percent who felt 1994 fiscal conditions were better than those in 1993. And one in two fiscal officers nationwide (51.0 percent) were optimistic that city fiscal conditions in 1996 would be even better.

* 7.5 percent of the responding cities have budgeted to end their 1995 fiscal year with balances less than 1 percent of their General Fund spending, up somewhat from the number that were in this severe fiscal stress category for the previous two fiscal years (4.7 percent in 1993 and 3.7 percent in 1994).

* 14.3 percent of all Northeastern cities, 11.1 percent of all Western cities, and 10.9 percent of all rural cities expect to have precariously little carryover balances at the end of 1995.

* 19.3 percent of all cities have budgeted their 1995 expenditures to exceed their 1995 revenues by more than 5 percent (excluding their canyover balances from the previous year). Between 1990 and 1992, 13-15 percent of aU cities fell in this Negative Imbalance category; and for both 1993 and 1994 cities in this category dropped to 8.4 and 7.9 percent, respectively.

The Western census region has placed a greater proportion of its cities in the Negative Imbalance category than any other region, reaching 22 percent in 1991 and 1992, falling to 15 percent in 1993 and 1994, and climbing to 28.7 percent in 1995.

When asked what factors most affected the city's capacity to balance its budget, infrastructure and capital spending needs were identified by more cities (43.9 percent) then was any other factor. Cities have also been increasing capital spending and borrowing in the past two years. Capital spending increased from $164.20 per capita in 1993 and $170.00 in 1994 to an estimated $200 in 1995 after increasing 7 percent in 1993 and 5 percent in 1994; revenue debt outstanding is expected to decline slightly in 1995 after increasing 6 percent in 1993 and 8 percent in 1994.

A survey of city fiscal conditions was sent to all 536 cities over 50,000 population and a sample of 833 cities with populations between 10,000 and 49,999 in March and April 199. Usable data were received from 41 7 cities, for a response rate of 30.3 percent. The following are other major findings from the survey.

General City Fiscal Conditions

In 1995, 51.6 percent of all cities expect General Fund expenditures to exceed current-year General Fund revenues. This estimate is up from 1993 and 1994 figures and is nearly the same as the date for 1991 and 1992.

In 1995, the average per capita ending balance is expected to drop by 7.4 percent to $116.90. However, the average per capita ending balance for all cities in 1994 was 10.9 percent higher than 1993 levels even though the 1994 fiscal survey showed that cities had budgeted to draw down their 1994 ending balances by 7.2 percent.

Causes of Fiscal Problems

Respondents were asked to select, from a set of 19,3 factors that most unfavorable impact on city fiscal positions. The most frequently identified factors are identical to those named in the last four surveys (though the percentages and ranking have changed):

* infrastructure needs were identified as one of the three most unfavorable factors by 43.9 percent of all cities;

* unfunded federal and state mandates by 38.4 percent of all cities;

* city employee health benefits by 32.9 percent of all cities;

* crime and demand for criminal justice by 28.5 percent; and

* the state of the local economy by 24.9 percent.

Fiscal Policy Adjustments

More than 1 in 3 cities identified areas in which productivity levels were improved. Moreover, as a means of reducing cities' fiscal burdens in service delivery, 26.4 percent of all cities engaged in interlocal agreements or cost-sharing arrangements with other levels of government. Cities reported numerous examples of improvements in productivity levels and inter-local agreements that are listed in the report.

Of the cities responding to the survey, 27.1 percent actually reduced municipal employment and 22.1 percent froze municipal hiring. Per capita full-time employment in 1995 is expected to increase by 2.0 percent over 1994 levels, following a 1.0 percent growth rate in 1994. However, part-time employment is not expected to change in 1995., after an increase in 1994 in 1994 of 3.6 percent.

The nation's largest cities are expected to reduce part-time employment by 21.1 percent and increase full-time employment by 0.7 percent. Western cities expect to increase part-time employment by 7.4 percent and full-time employment by 1.4 percent.

The survey shows 39.9 percent of all cities contracted out a new service during the past 12 months (this figure has varied between 30 and 40 percent since 1987; the value of city contracts with the private sector are not known),

In addition, 10.5 percent of all cities reported that city service levels will actually decline in 1995, down slightly from the 11.7 percent rate for 1994.

The survey shows, 51 percent of all cities reduced the growth rate in operating spending (down from last year's 63.1 percent and from 71.5 percent in 1993).

Also, 31 percent of all cities reduced actual levels of capital spending (down substantially from last year's 43.3 percent rate and the 55.4 percent rate in 1993).

After increasing G.O. debt outstanding in 1994 by 5.0 percent, cities expect only marginal changes to their outstanding debt in 1995. The largest cities carry the heaviest debt burden at $728.10 per capita.

Revenue debt outstanding is expected to decrease marginally. After an 8.1 percent increase in revenue debt outstanding between 1993 and 1994, cities expect a decline of 1.8 percent in 1995. The nation's largest cities lead with revenue debt outstanding expected to be $934.70 per capita. The small cities expect revenue debt outstanding to reach $301.40 by 1995.

* 69.3 percent of all cities raised tax rates or fees and/or imposed new tax rates or fees during the past 12 months, generating approximately $721 million in additional taxes and fees in 1994. This represents the lowest amount of new tax and fee revenues for at least the past four years. In 1993, $1.5 billion in new city revenues were raised; in 1992, $1.7 billion in new city revenues were raised, and in 1991, $3.5 billion in new taxes and fees were raised.

* 24.6 percent of all cities raised the property tax rate.
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Title Annotation:includes related listing of cities included in the survey; excerpt from the City Fiscal Conditions Report Executive Summary; Special Report: NLC Releases 1995 Fiscal Conditions Report
Author:Pagano, Michael A.; Dudas, Andrew
Publication:Nation's Cities Weekly
Date:Jul 10, 1995
Words:1648
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