Long after Its End, Great Recession Still Plaguing U.S. Cities

The recession may have ended in 2009, but a new report shows that declining revenues and state aid are keeping many big cities from recovering.

Many big cities continued to deal with recession economies years after the Great Recession officially ended in 2009, a new report indicates.

Of the 30 cities surveyed by the Pew Charitable Trusts, 18 reported a decline in governmental revenue between 2011 and 2012. That’s double the number from a year earlier. In fact, 2012 was such a tough year that eight cities recorded their lowest level of revenue since the start of the recession in 2008. Additionally, four of the nine cities that had previously surpassed their pre-downturn revenue peak fell back below that level again. (The report adjusts revenue figures for inflation.)

The results mean that spending will continue to be tight for localities. While 17 cities managed to increase spending on some programs and services and replenish reserves in 2012, overall spending in most cities remained below pre-recession levels.

“This cautious approach suggests that many city officials have adjusted to the reality of an unusually slow recovery,” said Mary Murphy, one of the report’s authors.

An ongoing slump in property tax revenue and declines in state aid were the two most significant contributing factors in the prolonged fiscal strain on some cities. Both revenue streams fell 4 percent on average across the 30 cities.

City property assessments and tax collections typically lag behind the real estate market by 18 to 24 months. This time, however, the national housing crisis so dramatically undercut the revenue source that Pew’s analysis found collections in many cities remained anemic a full three years after the national economy began to improve. The majority of cities (24) reported year-over-year losses in real property tax collections in 2012 -- the worst year since 2007.

The significant weakening of federal and state aid also undercut cities' financial flexibility. For example, Phoenix lost roughly $200 million alone in intergovernmental aid, resulting in a 10 percent drop in its total revenue. The losses reflect ongoing budget tightening in Congress and state legislatures, the report said. In particular, the automatic spending cuts mandated in the deficit reduction legislation, the Budget Control Act, that Congress approved in 2011 included a decrease in aid to localities that took effect in fiscal 2012.

Not all cities were worse off in 2012 than the year before, however. Boston, Cincinnati, Minneapolis, New York and Seattle are some of the 10 cities that exceeded their prerecession revenue peaks in 2012. The improvements were mostly due to gains in sales and income taxes and increased charges and fees.

There are indications that finances will continue to get better for cities, albeit slowly. Last month, the National League of Cities released its annual survey of fiscal conditions. While finance officials said they expected slower growth in fiscal 2014, which ended on June 30, they said 2013 was a year of much-improved revenue totals.

Read the report here.

Liz Farmer is a former GOVERNING fiscal policy writer.