Big City Finance Officials See Recession on the Horizon

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That’s one of the notable findings in a new survey of over 500 city finance officers.

Government finance officials in larger-sized American cities are voicing concerns that a recession could hit as soon as next year, according to new survey results.

For the first time in seven years, city leaders anticipate that revenues will decline as they close out the 2019 fiscal year, a report on the survey findings also says. At the same time, it adds, costs tied to areas like infrastructure, public safety and pensions for government retirees are on the rise.

Still, the officials who responded to the survey were generally upbeat about the ability of government to meet their community’s financial needs. About three-quarters of them said that their local government was better able to do so this year compared to last year.

The latest annual edition of the National League of Cities’ City Fiscal Conditions report includes the results of a survey of 554 city finance officers from jurisdictions around the U.S.

Among 55 respondents from larger cities with over 300,000 residents, 63% or nearly two out of three, predicted a recession will occur in the next one to two years. The same was true for about half of the 131 respondents from cities with populations of 100,000 to 299,000.

The 368 officials from cities with fewer than 100,000 residents were less apt to say a recession will occur in the next one to two years. Only about 35% to 38% of them offered this view.

Predicting the timing of recessions is tricky business, which is made more difficult these days by the fact that the nation’s economy is in somewhat uncharted territory. 

The growth cycle that began in 2009, in the wake of the Great Recession, became the longest one on record in U.S. history earlier this year. But the economy has also grown more slowly during that time than it did during past periods of expansion.

Meanwhile, the Trump administration’s trade positions have resulted in tensions between the U.S. and other countries—including China—which is fueling uncertainty. And the effects of the sweeping, Republican-backed federal tax overhaul in 2017 are still coming into focus.

The NLC report notes that the nation’s manufacturing, agriculture and service sectors, as well as home sales and business sentiment, have shown recent signs of weakening.

Even so, Moody’s Analytics said the probability as of August of a recession in the U.S. during the next six months was relatively low at 13%. A year prior, the firm pegged the odds at 10%.

Overall, for the cities NLC surveyed, the growth rate for general fund revenues softened to 0.59% in fiscal year 2018, from 1.25% in fiscal 2017. Expenditures grew at a rate of 1.8% among the surveyed cities in fiscal 2018, slightly lower than the 2017 rate of 2.1%.

The property tax revenue growth rate for surveyed cities was 1.8% in fiscal 2018, down from 2.6% in 2017. The income tax revenue growth rate slipped to 0.6% from 1.3%. Sales tax revenues grew by 1.9%, roughly in line with the growth rate for 2017, according to the report.

Last year’s fiscal conditions report showed that the growth rates for each of these types of city revenues slowed down in fiscal 2017 compared to the prior year.

Looking at trends by region, NLC’s experts found a decline in revenues for Midwestern cities that was so dramatic that the report says that the authors checked the data multiple times. 

General fund revenues overall for cities in the Midwest region declined by 4.4% in fiscal year 2018, according to the report. But it adds that large revenue decreases in big cities, including Chicago and Minneapolis, were major drivers of the total revenue drop.

Chicago is one of the nation’s most financially troubled big cities, and officials there are currently grappling with how to address a budget shortfall in the upcoming 2020 fiscal year that is estimated to be about $838 million.

In contrast to some of the downbeat findings in the Midwest, cities in the western reaches of the U.S. saw above-average revenue growth during fiscal 2018, the report says.

The NLC report emphasizes that it’s hard to make blanket statements about the finances of cities and that while some are doing well, others appear to be edging towards another downturn.

Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.

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