City Finances May Follow the Private Sector

Local government economic struggles mirror those of the nation, according to a quick poll conducted by ICMA (the professional and educational organization for city administrators) in September. Decreasing revenue from property tax, sales tax, and new construction permits, coupled with sluggish sales of new and older homes, and rising fuel transportation costs all have contributed to economic anxiety for local governments.

The 339 city and county managers responding to the ICMA poll indicated that they are taking action to mitigate the effect of these declining revenues by freezing vacant positions (55%), reducing service hours (39%), sharing services with another local government (36%), and eliminating delivery of non-required services (34%). Many cities are exploring new ways--from permitting city employees to use golf carts on city streets to implementing four-day work weeks--to lower costs, as well.

Nearly 70% of local governments have increased or added user fees for services, and close to 40% are rescinding previously approved capital expenditures. Thirty-five percent of local governments have increased the rates of those taxes that have showed a decline in revenue--such as sales, property, and utility taxes. More local governments (59%) have raised property tax to offset revenue decreases elsewhere.

The weak housing market has so severely affected property tax revenues that unlike the 2001 economic downturn, those revenues cannot buffer the effects in declining income and sales tax receipts and will most likely have an impact on city budgets until 2010, the ICMA's experts project.

Thus far, the City of Columbia has not had to explore any of these options, but the continuing economic downturn is likely to hit home here eventually.