Zoom out and roll over the U.S. city name to see when each of the 30 surveyed experienced revenue lows after the recession. Source: Pew Charitable Trusts
WASHINGTON – To weather economic rainy days, it’s prudent for U.S. municipalities to have a robust stash of emergency cash. That is the message one prominent economist said local leaders should take away from a Pew Charitable Trusts study about the post-recession health if American cities.
A report released Monday concluded that U.S. cities did not feel the financial devastation of the Great Recession until at least a year after the end of the downturn. Economists say the recession lasted from December 2007 to June 2009.
Most of the nation’s big cities hit bottom in 2010 or 2011. Examining the revenue trends from cities that represented 10 percent of the country’s total population and 49 percent of the nation’s gross domestic product, the study concluded that by 2011 more than two-thirds of the cities surveyed still had not recovered to their pre-recession revenue peaks.
Kil Huh, director of State and Local Fiscal Health the Pew Charitable Trusts and co-author of the study, said a takeaway for lawmakers is to understand the source of revenue fluctuations and to plan for how municipalities will survive an economic downturn in the future.
“When times are good, lawmakers have discretion at the local level to expand programs and offer tax relief,” Huh said. “When times are bad, they have little ability to raise taxes and the tools that they have at their disposal are reserve fund policies.”
To make up for lost revenue, 29 of the 30 cities tapped into their rainy day funds during the study period, often before cutting services.
“Cities’ average reserve funds declined between 2007 and 2011,” Huh said. “Many of the cities in our study have started to put away a little bit more money but they certainly tapped it during the crisis.”
Cities also cut spending, often through job cuts, and, when necessary, raised taxes.
Property taxes, the report said, can be slow to respond to economic swings and were the reason many cities’ did not feel an immediate impact of the recession. Eventually property tax revenue declined a s a consequence of the housing crisis.
Recovery of the nine cities that had returned to their previous revenue strengths—Atlanta, Chicago, Dallas, Pittsburgh, Portland, Ore., San Antonio, San Francisco, St. Louis and Washington, D.C. – was driven in large part by aid from state and federal governments, not from their own revenue streams.
In Washington, Huh said, the city’s close relationship with the federal government meant more assistance on the local level.