City revenues continue to fall

Sept. 16, 2012

By Brian Calle

More and more cities are starting to face the reality of shrinking budgets as a result of over generous pay and benefits offered to public workers. And it is not just California.

A recent survey by the National League of Cities found that 2012 will mark the 6th annual year of falling revenue for American cities. In 2012, the average city’s revenue will decrease 3.9 percent. What’s the culprit? High pay and benefits.

As noted by the Wall Street Journal “The skyrocketing costs of pensions and health care are also taking a toll on cities. Among the 324 cities surveyed, 77% said pension costs increased in 2012 from the previous year, and 81% said the same of health-care costs.”

The Journal gave the example of Bluffton, Indiana which “has shed workers by not replacing people when they retire, while cutting back on local services like paving roads.” This is a reality for many California cities too. And elected city council members may have to choose between paying off past promises (retiree pay and benefits) or servicing current residents.

Few cities have recognized the dire situation.  One exception is the city of Costa Mesa which has moved aggressively to privatize some services and make tough budgetary decisions in an effort to right the wrongs of past city councils and the lucrative contracts they approved. But other councils seem to think that their woes will be cured by a miraculous economic turn around. Good luck.

Since the economy is not showing signs of a rapid recovery more cities will have to begin making tough decisions that will cause powerful public employees unions to react. But there are few other choices for balancing municipal finances, and more importantly serving the priorities of taxpayers.