84% of Municipalities in Trouble

CNNMoney.com writes 84% of cities in money trouble:

More than eight in ten cities are in financial trouble, up from 64% six months ago, according to a survey released Wednesday.

The recession is straining cities’ ability to meet their financial needs, according to the National League of Cities. Some 84% of cities reported facing fiscal difficulties, the highest percentage since the group starting doing surveys in 1985.

The nation’s cities are counting on billions of dollars from the economic stimulus package now being debated in the Senate. Mayors gathered in Washington, D.C., to meet with White House advisors and House Speaker Nancy Pelosi, D-Calif., on Wednesday to urge Congress to pass the recovery bill.

“When the snow hits we’ve got to get it off the street,” said Donald Plusquellic, mayor of Akron, Ohio. “We’ve got to get the garbage picked up. We have to respond to police and fire. There are immediate needs in our society right now.”

Things will remain tough in 2009. Some 92% of the cities surveyed expected to have trouble meeting their city needs during this year. To cope, they are implementing hiring freezes and layoffs, delaying capital expenditures and instituting service cuts.

Some 69% have instituted hiring freezes or layoffs, while 42% are delaying or canceling infrastructure projects. Another 22% have instituted across the board cuts.

Cities are seeing their tax revenues decline as property values drop, shopping slows and unemployment rises. On top of that, nearly one in two city finance officers report difficulties in access to credit and/or bond financing.

To bring in more revenue, they are adding to raising fees. Nearly half are increasing charges for services, while 28% are increasing the number of fees. Fewer are raising taxes. Some 14% have increased property taxes, while 6% have hikes sales taxes.

“Cities are responding as best they can,” said Donald Borut, the league’s executive director. “Their citizens have increasing needs for services just at the same time that revenues are declining.”

City finances tend to lag the overall economy by 12 to 24 months, the league said. The weakening economic conditions will be felt by cities through 2009 and likely through most of 2010, the league said.

It is of course nothing but sheer arrogance for Donald Borut to claim the “citizens have increasing needs for services”. The city managers spent too much money, that’s the problem. The Coming US Tax Receipt Shortfall will only add to these problems. They will have to cut back on their expenses on parks, swimming pools, salaries, ridiculous pension plans, union labor, etc. Some will have to declare bankruptcy in 2009.

Interest rates on the municipal paper market are nearing 1%. This is a result of a complete gridlock on this market. No one wants to borrow any more money because they are simply too broke to even pay off the existing debt. The prospect of a federal bailout only aggravates this situation. Aside from the fact that the $800 billion stimulus will do nothing at all to alleviate their problems, municipalities will now be lurking with inaction until they know how much money they will receive. If anything, it will only postpone the necessary consolidation of their finances.

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