Municipal budgets are showing resilience which could dampen the need for issuing new debt, even as headwinds have grown to include congressional stalemate that has put the possibility of a government shutdown back on the table.
“A federal shutdown has many ripple effects,” said Farhadi Omeyr, program director, Research and Data, National League of Cities. “A shutdown only improves the chances of an economic slowdown, which combined with higher-than-normal inflation is a recipe for disaster that can impact all aspects of city operations including operating and infrastructure.”
The shutdown concern stems from a Nov.17 date on which existing government funding authority will run out. Congress waited until the last moment to pass a short-term funding bill when a similar cliff approached at the start of October, and the ongoing struggle of the House to even select a speaker is making some pessimistic about the chances a funding bill can be ready in time.
The concerns come along with a report issued by NLC last week that breaks down tax and revenue equations into budget trends in U.S. cities. Mostly pleasent tales of surpluses and fat rainy day funds echo the findings of other economy watchers.
“Both income and sales tax receipts increased, rather substantially in 2022 over the previous fiscal year as businesses in many states continued revenue growth trends after the reopening of the economy and as unemployment rates steadily declined,” NLC found.
Large metropolitan areas highlighted in the report include Detroit, which showed a 21% increase in revenue that is largely attributed to an increase in income tax collections.
Philadelphia also shows up in the black with a 20% increase in revenue from locally generated non-tax revenue.
The report shows an overall dip in property tax revenue when calculated with the effect of inflation factored in. Per the report, “While 2022 property tax values show a large, almost 4% percent increase in nominal values over 2021, high inflation rates during most of 2022 significantly deflated the constant value of tax receipts.”
In municipalities that are experiencing rapid population growth, property tax revenue can become a political bone of contention. On Wednesday the National Association of Counties shined a spotlight on Beaverhead County, Montana. Newcomers to the state have helped create $78 million in revenue.
The counties are looking for a downward adjustment in the tax rate to bounce funds back to the taxpayers. In early October the governor filed a lawsuit against the counties arguing the money should be kept in the state’s general fund.
The report also notes concerns about the “ARPA cliff,” a budgetary shortfall caused by federal funds that were injected as pandemic relief start to dry up. NLC has been tracking the flow via an online tool. As of Aug. 16, over three-hundred local governments were sponsoring 12,000 projects with $50 billion tracked and 79.5% of those budgeted. The report indicates mostly thoughtful use of the stimulus money.
“We took a slow, methodical approach on how we were going to use our ARPA funds,” said Kimberly Lord, Director of Finance, Manchester, Connecticut. “We were really careful to make sure that we weren’t using ARPA for operating costs, our use was focused on one-time programs and getting the money to our local economy.”