Fiscal Challenges Facing Cities Implications for strongRecoverystrong.pdfVIP

Fiscal Challenges Facing Cities: Implications for Recovery November 2009 Mark Muro and Christopher W. Hoene EXECUTIVE SUMMARY America’s current economic crisis is not only a national crisis. It is also a metropolitan crisis, and it will soon become a local government fiscal crisis. Coping with the worst economic downturn in 50 years, U.S. cities face sizable budget shortfalls for 2009 that are expected to grow much more severe and widespread in 2010 and 2011. With the pace of recovery still sluggish, local government budget tightening and spending cuts over the next two years could well impose a significant drag on the nation’s economic performance just as the extraordinary interventions of the $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) trail off. It could be that a deepening local government fiscal crisis—less remarked upon than the one challenging state governments—could hobble the nation’s incipient recovery with several years of layoffs, cancelled contracts with vendors, and reduced services. This report surveys the current state of U.S. cities’ finances, reviews city leaders’ responses to those conditions, and places these developments in the context of efforts aimed at securing the nation’s recovery from the current severe slump. It finds that: 1. Local government fiscal conditions matter for national economic performance. Cities and their surrounding suburbs are important economic agents that not only provide services important to the functioning of regional economies, but also serve as major employers in many metros. Across the 100 largest U.S. metros, for example, local government accounts for some 10 percent of total non-farm metro employment. And what is more, local government has grown relatively more important in recent years as a source of jobs and wages. 2. Cities and towns face one of the most daunting and widespread fiscal crises in decades—and it’s only just beginning. Nearly nine in 10 ci