Going into 2025, cities plan for leaner budgets

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A new report from the National League of Cities shows that city officials are preparing for a tougher budget situation, despite many indicators that local governments are in good financial health.

Nearly two-thirds of city finance officials surveyed by the group last year said they were in better shape going into 2024 than they had been entering 2023. But going into 2025, only half of the financial officers surveyed reported a similar improvement.

That wariness has led cities to use more conservative revenue estimates for the coming year, as inflation-adjusted revenue increases have started to level off after booming in the immediate aftermath of the COVID-induced recession.

Still, property and sales taxes are increasing, bolstered by a robust housing market. Local income taxes are declining, but barely. Inflation has been heading down for nearly two years and the unemployment rate remains low.

“The overall health of the economy is really in tip-top shape.” said Farhad Omeyr, the author of the report and program director for the National League of Cities’ Center for Research and Data. Property and sales taxes “do not show any signs of slowing down,” he noted during a virtual event for the report’s release, and many local governments have healthy fund reserves.

But several factors might be making local officials more skittish as they head into 2025, Omeyr said. The federal stimulus money made available through the 2021 American Rescue Plan Act will run out in the coming year, which means city officials must find new revenue sources to pay for any ongoing programs that were initially funded with those federal dollars. While most cities did not use ARPA money for ongoing initiatives, the end of that revenue source could make local officials more cautious, he explained.

The country’s political situation could also be affecting how city officials are planning for the future. “This is an election year, so in general, elections … always make governments think more about their future years, as policies at the federal level and state level could change.”

Lisa Cipriano, the director of budget and evaluation for Newport News, Virginia, said another factor weighing on the minds of city officials is paying off future debt for infrastructure improvements, an issue that is top of mind for Cipriano because Newport News is preparing a five-year capital improvement plan.

The city is keeping about 16% of its general funds in reserve, even though the official policy is only to set aside 7.5%.

“We have a very interesting relationship with fund balance: We don’t use it, we build it,” Cipriano said. “We don’t use it, which is very hard for an elected official to understand that you’re just banking money.”

The extra money helps the city improve its standing with bond rating agencies, but it could also help the coastal city in the event of a hurricane, a severe nor’easter or coastal flooding that could strain city resources, she said.

David Schmiedicke, the finance director for Madison, Wisconsin, said the budget for the capital city has benefitted recently from high interest rates that drove up investment returns and a tight labor market that kept city payroll expenses down. Madison has experienced high turnover.

But, he warned, neither of those were likely to last. In fact, Madison relied on federal ARPA funds to keep current services going through the pandemic and its aftermath. Now that the pandemic relief is ending, the city is asking its residents for a property tax increase in the November election because that’s the only source of major revenue that Wisconsin lawmakers allow the city to collect, he said.

City officials in Madison are also looking for other sources of revenue to supplement property taxes, Schmiedicke explained. The city imposes a monthly “urban forestry” charge on residential properties. “The idea is that there’s a benefit from the forestry canopy, and that’s a benefit that applies to all properties in the city,” he said. “We may move that into other infrastructure areas as well.”

Meanwhile, Madison is exploring ways to use city land to build transit-oriented development, which could also improve the city’s financial situation, Schmiedicke said.

Another source of pressure on city budgets is labor shortages for municipalities.

“We refer to it as a ‘nuclear arms race' when it comes to salaries in this area,” said Cipriano from Newport News. “It has to come to a point where we all have to agree we need to stop, but that doesn't stop the competition with private industry.”

In Michigan, Rebecca Fleury, the outgoing city manager for Battle Creek, said the competition for workers has led to collaborations with the county or nearby municipalities.

“We’ll maintain your fire trucks if you help us with code and inspections. It’s kind of like a barter system, but [otherwise] we’re finding that we’re poaching talent from our own neighbors, and that doesn’t help,” she said. “So what can we do? Can we consolidate those services? Can we use public-private partnerships to leverage the private sector with the talent that we already have?”

“Pre-pandemic, we would have never done that,” Fleury added. “What the pandemic showed us is we better be working better together to serve our residents because our money is tight. The expectation of our residents is not lessening, it’s greatening.”

“And the pandemic created a whole other subset of vulnerable people in our communities” such as people who are unhoused, she said. “It was so much easier when we said, ‘Oh well, the county handles all types of social services,’ but that’s not the case anymore. We are seeing those social service pressures and needs within communities we hadn’t really addressed before.”

“We’re doing our best to work better together in any way that we can, leveraging each other's dollars or partnering with private as well as philanthropic partners in our communities,” she said.

News to Use

Trends, Common Challenges, Cool Ideas, FYIs and Notable Events

Death Penalty
Texas Supreme Court halts execution of man after lawmakers’ last-minute appeal. The execution of Robert Roberson was paused late Thursday night, capping a flurry of litigation filed that same day by Texas state lawmakers in a last-ditch gambit to stop the state from killing a death row inmate they believed was most likely innocent. The order was a stunning 11th-hour victory for Roberson and for the state lawmakers who opposed his execution and turned to novel legal maneuvers in an effort to buy him more time. The stay arrived in response to a separation-of-powers conflict touched off by a group of Texas lawmakers when they subpoenaed Roberson the night before he was set to be put to death. The unprecedented step sought to give the man a final lifeline after a series of court rejections left him on track to become the first person in the country executed for allegedly shaking a baby to death.

Elections
Georgia judge blocks ballot counting rule. A judge has blocked a new rule that requires Georgia Election Day ballots to be counted by hand after the close of voting. The ruling came a day after the same judge ruled that county election officials must certify election results by the deadline set in law. The rulings are victories for Democrats, liberal voting rights groups and some legal experts who have raised concerns that Donald Trump’s allies could refuse to certify the results if the former president loses to Democratic Vice President Kamala Harris in next month’s presidential election. Fulton County Superior Court Judge Robert McBurney wrote that the hand count rule “is too much, too late” and blocked its enforcement while he considers the merits of the case. Meanwhile, early voting in Georgia has shattered records with more than 300,000 ballots cast on its first day this Tuesday, which top Georgia elections official Gabriel Sterling reported was 123% higher than the last record. On Friday, turnout crossed 1 million early and absentee voters, or roughly 14% of active voters in the Peach State. 

Opioids
Overdose deaths are down nationally, but up in many Western states. A hopeful and unexpected drop in U.S. drug overdose deaths appears to be gaining speed. Fatal overdoses are down 12.7%, according to data released this week from the Centers for Disease Control and Prevention. It marks another significant improvement from last month, when surveys showed roughly a 10.6% drop in fatalities from street drugs. But despite an encouraging national dip in the past year, overdose deaths are still on the rise in many Western states. Alaska, Nevada, Washington and Oregon have moved into the top 10 for rate of overdose deaths since 2023. Meanwhile, vaping among high school students in the U.S. fell sharply from 2023 to 2024. Data released Thursday by the CDC showed that about 1.63 million middle and high school students regularly used e-cigarettes this year, according to the 2024 National Youth Tobacco Survey. That is about 500,000 kids fewer than the year before, when 2.13 million kids reported using e-cigarettes in the previous 30 days.

Finance
Texas rejects insurance rate increase for coastal homeowners, businesses. The state’s chief insurance regulator has shot down a proposed 10% insurance rate hike for property owners along the Gulf Coast. The increase was sought by the Texas Windstorm Insurance Association, the state’s insurer of last resort. Such an increase “would be unjust and unfair because of the hardships [it] would impose on the coast,” Texas Insurance Commissioner Cassie Brown wrote in a Monday filing rejecting the proposed increase. Brown’s rejection comes as Texas property owners face some of the highest insurance premiums in the nation and lawmakers eye ways to rein in those costs. Homeowners’ insurance rates in Texas grew by more than 23% last year, outpacing every other state, according to an S&P Global analysis.

Gas Prices
California governor signs a law aimed at preventing gas prices from spiking. The new legislation was inspired by findings from the state’s Division of Petroleum Market Oversight that showed that gas price spikes are largely caused by increases in global crude oil prices and unplanned refinery outages. The law gives energy regulators the authority to require that refineries keep a certain amount of fuel on hand. The goal is to try to keep prices from increasing suddenly when refineries go offline for maintenance. The law marks Gov. Gavin Newsom’s latest move in a battle with the oil industry over energy prices and the impacts of climate change. Californians pay the highest rates at the pump in the U.S. due to taxes and environmental regulations. The average price for regular unleaded gas in the state was about $4.68 per gallon as of Monday, compared to the national average of $3.20, according to AAA. 

Natural Disasters
Building codes led North Carolina to lose out on $70M in disaster prep funds, state says. As North Carolina rebuilds from the devastation of Hurricane Helene, the loss of $70 million in FEMA funds—$18 million of which would have helped western North Carolina to prepare for floods—may come back to haunt the state. The shortfall can in part be attributed to the state’s building codes, which by design, only implement new standards years after they are adopted at the international level. The delay puts North Carolina behind most other coastal states. In addition to lower flood and wind protection requirements for new construction, the delay in adopting stronger standards also means higher insurance rates for North Carolina residents and—crucially for disaster preparation—a disadvantage when communities in the state seek federal funding for climate resilience projects. Meanwhile, misinformation has led to threats against federal emergency response personnel, hampering relief work in parts of western North Carolina hard hit by Hurricane Helene.

LGBTQ Rights
Texas AG sues doctor over treatment for transgender minors. Texas Attorney General Ken Paxton has filed a lawsuit against a Dallas pediatrician, accusing her of violating a 2023 state law by providing gender-transitioning treatments to at least 21 teenage patients. Thursday’s filing is Paxton’s first attempt at suing a doctor by leveraging Senate Bill 14, which prohibits physicians and health care providers from prescribing hormones to minors to transition their biological sex. SB 14, which the Texas Supreme Court upheld in June, commands the Texas Medical Board to revoke the license or other authorization to practice medicine from a physician who violates the law. In addition, Paxton is asking for $1 million, which includes civil penalties and to pay for other costs.

Voting
A ballot measure in California could set precedent for noncitizen voting. In a vote that will be closely watched nationwide, Santa Ana, the county seat of Orange County, could become the first city in California to allow non-U.S.citizens to vote in municipal elections. In California, non-U.S.citizens are currently permitted to vote in school board elections in San Francisco. If the measure passes, it could lead to ballot measures in other cities in Southern California, particularly those that have, like Santa Ana, large long-term immigrant populations. The county’s move comes at a time when Republicans have made opposing voting by noncitizens one of their platforms going into the November elections. Outside of the Golden State, three cities in Vermont allow non-U.S. citizens to cast ballots. Non-U.S. citizens can also vote in some cities in Maryland (in Takoma Park that dates back three decades), as well as in Washington D.C., where a voting measure recently passed. These votes are limited to local elections and school board races.

Elections
Florida governor orders another state agency into campaigns against amendments. Gov. Ron DeSantis has enlisted another state agency in what now appears to be a nearly $20 million, taxpayer-financed campaign against two citizen-led constitutional amendments that Florida voters are about to decide. This time it’s the Florida Department of Education, which is helping pay for a new television ad warning of the “risks to marijuana”—just as voters begin casting ballots on a constitutional amendment that would legalize marijuana in the state. The Department of Education is at least the sixth state agency that DeSantis has turned to in his efforts to combat Amendment 3, which would legalize marijuana, and Amendment 4, which would overturn a near-total ban on abortion in Florida. Both ballot measures need at least 60% support to pass. On Thursday, a federal judge temporarily barred the DeSantis administration from intimidating and coercing television stations that air ads in support of Amendment 4. The ruling stops Surgeon General Joseph Ladapo as the head of the Florida Department of Health from acting against broadcasters the department has already threatened with criminal charges. The temporary restraining order remains in effect until Oct. 29.

Climate Change
Oregon approves “precedent setting” plan to put state forest in a carbon market. On Tuesday morning, the State Land Board voted unanimously to support a proposed forest management plan for the Elliott State Forest near Coos Bay that prioritizes research, protecting animal habitat, increasing forest carbon storage to combat climate change and produce income from the sale of carbon credits. Logging would still be allowed in parts of the forest, but would be significantly reduced from previous decades. The decision makes Oregon the second state nationwide to enroll an entire state forest in a plan focused on storing harmful emissions in exchange for carbon credits, after Michigan. The forest management plan includes registering all 83,000 acres of the Elliott into the voluntary carbon crediting market to generate millions of dollars for the state. Voluntary markets are not tied to any government-regulated emissions reduction laws, such as California’s cap-and-trade program, or Washington’s cap-and-invest program.

Picture of the Week

Planning to do a little leaf peeping this weekend? If you live in Minnesota, you better get out there. The fall foliage is nearly past peak colors, according to the state’s Fall Color Finder. The popular interactive map, which drew more than 250,000 views in 2023, has been revamped this fall to incorporate public feedback. Mainly, people wanted an improved leaf forecasting experience to plan their travel. So, state park staff now share status reports from their location each Wednesday, in time for Minnesotans to make leaf-peeping travel plans for that weekend. The color-coded map shows the approximate percentage of leaves that have changed color, and has a date slider that allows viewers to choose times in the future to see what typical colors are like across the state on that date, based on past data. New this year is the ability to compare current fall conditions to previous years. The new map has also been tailored to adapt to different devices such as a smartphone, tablet or desktop. And upgrades to the map this year give photos from the community more exposure, making them viewable as part of the map. When users click on a dot in the map, they’ll see the park's latest fall color stats and a link to user photos in the popup.

What They’re Saying

“Patty and Selma at the Department of Motor Vehicles may not be constitutional scholars, but they know that they are expected to follow the law.”

—Justice Lindsey Miller-Lerman of the Nebraska Supreme Court in a ruling that found the state’s top election official had no authority to strip voting rights from people convicted of a felony. 

Miller-Lerman is referencing the older sisters of Marge Simpson from the animated TV show “The Simpsons.” The ruling overturned an order by Republican Secretary of State Bob Evnen that directed county election officials to reject voter registrations from those with felony convictions, citing an opinion from the state attorney general. That opinion, which Evnen had requested, deemed as unconstitutional a law passed this year by the legislature immediately restoring the voting rights of those who complete the terms of their felony sentences. Miller-Lerman criticized Evnen and Attorney General Mike Hilgers for taking it upon themselves to declare the law unconstitutional, writing, “Do we want to live in a world where every state employee who has a hunch a statute is flawed gets to ignore it?”