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Multiple Indicators Point to Financial Slowdown for Cities

financial-slowdown-snail-2-IC System

By many markers, the national economy is performing well as of late. Unemployment figures recently reached a 16-year low, and we have seen steady GDP growth since the 2007 recession. However, those numbers don’t tell the whole story. According to the latest edition of an annual survey from the National League of Cities, a few key findings point to a financial slowdown in the near future.

The National League of Cities conducts The City Fiscal Conditions Survey every summer and has done so for over 30 years. For the 2017 survey, finance officers from over 250 cities of varying size responded to questions regarding the fiscal health of their respective municipalities. While the findings of the survey don’t necessarily suggest a recession is imminent, they do hint at an impending slowing of economic growth.

Among the key questions of the survey, the finance officers were asked whether their cities were more or less able to meet fiscal needs as compared to the prior year. A clear majority, 69%, replied that they were better able to meet financial needs in 2017 than in 2016. While 69% is not a terrible number, it is lower than the previous two years and is, in fact, the lowest since 2012, when 57% replied that their cities were better able to meet financial needs. Even though the question is a qualitative measure of perceived fiscal health, the responses to it have historically corresponded with more quantitative measures of economic strength.

Other major findings of the survey relate to general fund revenues. The annual rate of growth of general funds has slowed to 2.61% in 2016, which is down from 3.26% in 2015. Moreover, revenues are projected to increase by only 0.9% in 2017. Finally, general fund revenues still have not recovered to pre-recession levels. General fund revenues currently sit at less than 98% of what they were in 2006. By comparison, general fund revenues after the 1990 and 2001 recessions had recovered to over 100% of pre-recession levels after only five and six years, respectively.

Some of the actions that cities take to counteract the fiscal challenges facing them include increasing the number and amounts of fees charged for services, and increasing local property tax levies. Another common step involves partnering with a trusted provider of receivables management services, such as IC System, to maximize revenues.

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