Employees' Health Benefits, Pensions Squeezing Cities' Budgets
By: Administrative Account | Source: CNSNews.com
December 1, 2003 10:25AM EST

By Susan Jones
CNSNews.com Morning Editor
December 01, 2003

(CNSNews.com) - Cash-strapped cities are cutting staff and increasing fees, and there's no immediate fix on the horizon, according to a survey of 328 cities.

The National League of Cities, which commissioned the survey of municipal finances, found that cities' spending increases exceeded revenue increases in the 2002-2003 fiscal year.

Four out of five finance directors surveyed said their cities were less able to meet financial needs compared with the previous year.

The gap in revenues and expenditures was fueled by rising employee healthcare and pension costs; declines in sales, income and tourist tax revenues; cuts in state aid; and increased demands for spending on public safety and homeland security.

City finance officers said the biggest negative factors affecting budgets were:

- Costs of city workers' health benefits (cited by 63 percent),
- Costs of city workers' pensions (30 percent),
- Reduction in state aid (29 percent),
- The local economy (25 percent), and
- Infrastructure needs (25 percent).

The survey showed cities are responding by cutting back personnel and government spending; curtailing capital and infrastructure investment, raising user fees and charges, and drawing down "rainy day funds," which are set aside for emergencies.

According to the National League of Cities, the improving economy is unlikely to lift struggling cities and towns any time soon. City officials expect to feel a budget pinch next year as well.

"Even if the economy fully recovered tomorrow, cities would still be facing increased fiscal stress over the next year," said Chris Hoene, research manager at the National League of Cities, in a press release.

"This is because of rising costs for cities and towns such as healthcare and pensions, new responsibilities such as homeland security, cuts in state aid to cover state shortfalls, and continued need to invest in infrastructure."

The head of the NLC - Mayor John DeStefano Jr., of New Haven, Conn., sees increased federal funding as one solution.

The National League of Cities, which describes itself as a resource and advocate for 18,000 cities, towns and villages of all sizes, will discuss various financial challenges at its annual meeting in Nashville on Dec. 11-13.