4 Things to Know About Local Government Fiscal Conditions
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Despite fiscal challenges over the past 18 months, cities have demonstrated greater resilience than expected through the pandemic, according to a report.
Despite fiscal challenges over the past 18 months, cities have demonstrated greater resilience than expected through the pandemic, according to a report by the National League of Cities.
Here are the four things to know about 2021 city fiscal conditions, according to NLC:
City Revenues Declined
In the years leading up to the pandemic, most cities were in a strong fiscal position, with many experiencing healthy general fund revenue growth in the first three quarters of fiscal 2020, according to NLC.
However, when Covid-19 hit in spring 2020, communities' needs increased and revenues decreased. The recession of 2020 was the shortest recession on record, but it wiped out all municipal revenue gains, according to the report.This resulted in a decline in revenues for the year, despite a strong start. Cities then budgeted for a further decline in 2021.
While cities are scrambling to deal with the immediate financial calamity the pandemic has caused, the damage to their budgets from the crisis could linger for years.
Home Prices Rose
The real estate market surged in the spring and summer of 2021 around the U.S. while property tax receipts lagged behind the underlying economy’s changes. This was due to assessment practices, and because property does not change hands frequently, requiring assessors to estimate the value of real estate property, according to the report.
The sudden closing of the economy in March 2020 may have reduced real estate values but not real estate tax collection. This is because property tax bills that month reflected the property’s value a year or two before the shutdown, the report contends.
Online Sales Taxes Expanded
Over half of municipal governments rely heavily on sales taxes to help provide general services, NLC says, and the U.S. Supreme Court South Dakota v. Wayfair decision in 2018 helped blunt what could have been a disastrous fiscal situation for cities dependent on sales tax by expanding retailers' ability to collect sales taxes on out-of-state purchases.
Federal Support Grew
In addition to federal support given to households and businesses—including cash, grants, loans, the eviction moratorium and insurance benefits—throughout 2020 and 2021, large local governments were provided direct relief through the CARES Act in March 2020, according to the report. And all cities, towns and villages across the U.S. were provided relief as part of the American Rescue Plan Act passed in March 2021. (Although some small towns opted not to accept the money because of the reporting responsibilities.)
One of the most significant challenges facing city budgets is infrastructure, the report contends. Infrastructure obligations put extra pressure on already-strained city resources and remain the top factor negatively impacting city budgets this year. As federal leaders debate the bipartisan infrastructure bill and budget reconciliation bill, the fiscal stability of U.S. cities, towns and villages are at risk, according to NLC.
For more information for the National League of Cities report click here.
Andre Claudio is an assistant editor at Route Fifty.
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