When States Strangle City Budgets: Pew Reports on “Local Squeeze”

Americans are living in communities with fewer teachers, firefighters and police officers.  They are facing larger class sizes, reduced trash pickup and less access to parks and libraries. That’s the gloomy conclusion of a new report from the Pew Charitable Trusts’ American Cities Project that acutely, painfully details the severe budget cuts local governments have made in response to declining revenues and their increasingly curtailed capacity to raise the revenues they need to keep things running.

While some local governments have responded to what Pew calls the “local squeeze” by raising property tax rates, the report notes that state lawmakers are forcing localities to make tough decisions and cuts by imposing restrictions on the growth of local property taxes. Nearly all states (46) have property tax restrictions (limiting a property’s assessed value or tax rate, for example) that prevent municipalities from even considering raising additional revenue to mitigate painful budget cuts.

Property tax revenue and aid from state governments together make up more than half of all local government funds, and they are declining – in tandem – for the first time since 1980. State aid to local governments declined by $12.6 billion in 2010, and would have fallen further if not for the infusion of federal stimulus funding. Even so, 37 states still had to cut aid to local school districts in 2011-2012.

In the past, recession-induced revenue declines have been buffered by a steady flow of property tax revenue. But with the housing market collapse and epidemic foreclosures, property tax revenue declined by $11.9 billion in 2010 (the first real drop in property tax revenue since 1995) and then by a further $14.6 billion in 2011.

As a result of diminished funds, reports Pew, localities are cutting back on some of government’s most basic services; New York State is one example of what the current struggle looks like, Minnesota is another. In total, local governments cut half a million public sector jobs between September 2008 and December 2011. Half of these jobs came from the education sector in the form of teachers, guidance counselors and support staff. It’s been noted that these local workforce reductions offset modest private sector job growth and have contributed to stubbornly high national unemployment rates.

Cities and counties have attempted to balance budgets through other kinds of cuts that once seemed unthinkable. Some have reduced the school week from five to four days. Others have stopped paying police officers. One municipality cut garbage collection entirely. The full report provides numerous and specific accounts of how local governments and communities from Phoenix, Arizona to Foley, Minnesota to Harrisburg, Pennsylvania have been hurt by the “local squeeze.”

And for more on the revenue side of the equation, see “The ITEP Guide to Fair State and Local Taxes” and ITEP testimony to Congress on how federal tax reform could help or hurt state and local budgets.