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City Fiscal Conditions 2008: Turning for the Worse

The National League of Cities recently released their 2008 City Fiscal Conditions report. Confronted with ever declining economic conditions driven in part with housing market meltdown, as well as downturns in consumer spending and income, 64% of city finance officers report that their cities are less able to meet fiscal needs in 2008 than in previous years.

Percent of Cities that are Better Able/Less Able to meet Financial Needs in FY 2008

Similar percentages this low were seen in the early 1990 (1990-1993) recession as well as early 2002 recession (2002-2004). The average percentage of finance offers who reported that their cities were less able to meet fiscal needs in the 1990-1994 recession was 72.5% while in the 2002-2004 recession was 66.3%

As finance officers are closing the books for 2008, they predict that revenues and spending will decline in inflation-adjusted terms, with revenues decreasing by 4.3% and spending decreasing by 1.5%. Year to year revenue growth is expected to slow to 1.1%. All together, 2008 projections for 2008 revenue and spending will produce a budget gap of 2.8%.

Significant factors that were cited for influencing city budgets include:

  • Prices and inflation (98%), such as energy and fuel prices
  • Infrastructure (85%)
  • Public Safety (83%)
  • Employee Rated costs, including wages (95%)
  • Health benefit costs (86%)
  • Pensions (79%)

On the spending side, NLC reported that in 2008, 73% of city finance officers reported increases in public safety spending, 52% reported increases in capital infrastructure/capital spending, and 35% reported increase in human service spending.

Expenditure Actions in 2008

As the economy continues to further put a strain on city budgets, one can only anticipate somewhat of a decrease in Information Technology (IT) spend within the cities. Currently, GovWin and Public Technology Institute (PTI) are conducting a survey with Chief Information Officers (CIO's)/Information Technology Managers from Cities and Counties across the United States. GovWin and PTI hope to have the full report of the survey complete with a report out in Late October/Early November 2008. Current responses from the survey suggest that considering the current economic conditions, 48% state their overall Information Technology Budget will stay the same over the next two years, while 39% state it will decrease. 14% anticipated the overall IT budget to increase.

For the vendor community, it will be imperative to provide solutions and technologies that can help reduce costs within the city as well as meet pain points that the cities/counties are experiencing. Vendors will also need to be willing to look at alternative funding models to fund projects within these tough economic times.

UPDATE: The New York Times has a great article on recession in the cities along with a multimedia map that shows "CIties in Trouble vs. Growing Cities." Hat Tip to "The Big Picture" blog.

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