States decrease their aid to cities
When it comes to financial matters, the bad news just keeps on coming for local governments. According to a new study by the Washington, D.C.-based National League of Cities (NLC), states decreased their financial aid to cities by approximately $2.3 billion, or 9.2 percent, in fiscal year 2004 when compared with the preceding year. The study expands upon the findings of an earlier NLC report that showed state aid to cities declined by 2.1 percent in fiscal year 2003 after growing marginally — 0.3 percent — in fiscal year 2002.
The actual decline in state aid marks a departure from historical trends. The revenues that cities receive from states rarely decline. Rather, slowing growth rates tend to mark most economic downturns.
Cuts in state revenues for cities were reported in 24 states for fiscal year 2004. In 13 of the 16 states where revenues for cities were not cut, revenues grew only marginally, at rates of less than 3 percent. (Nine states provide minimal or no revenue to cities; also, Hawaii was not included in the study.)
A handful of states are driving the total dollar decline in aid to cities. California made more than $1.1 billion in cuts in fiscal year 2004, Massachusetts more than $400 million, Florida more than $136 million and Minnesota more than $110 million.
Given the differences among states in population and the size of their economies, it is important to examine the percentage decline in each state’s aid to its cities. Kansas eliminated its aid by 100 percent when compared with the preceding year, California by 59 percent.
In many states, the rounds of cuts began prior to 2004. North Carolina cities saw state revenues drop by 68 percent from 1999 to 2003. Similar drops occurred in Alaska, Washington and West Virginia during the same time period.
Today’s economic climate stands in stark contrast to the boom years of the 1990s. From 1992 to 1997, states increased their financial support for local governments by an average of 4.6 percent each year. Overall, state aid to cities increased from $37.4 billion to $50 billion during that time.
In some instances, states have cut revenues for cities while also passing along the authority for local governments to raise taxes. While the extension of local tax authority might be viewed as a positive development, the political difficulty of raising taxes locally also should be recognized.
Declining state aid places cities in a precarious fiscal position, as they will feel the repercussions of the recession most heavily during the current and next fiscal years. Unfortunately, the lack of intergovernmental support will make that challenge all the more difficult.
(Note: The full report, “Fiscal Crisis Trickles Down as States Cut Aid to Cities,” is posted on the NLC Web site, www.nlc.org.)
Christopher Hoene is the research manager for NLC. Michael Pagano is a professor of public administration at the University of Illinois at Chicago.
Declining state aid
In fiscal year 2004, states decreased their financial aid to cities by about $2.3 billion, or 9.2 percent, when compared with the previous year, according to the National League of Cities. Below is a listing of the states with the 10 largest percentage reductions in aid to cities from fiscal year 2003 to fiscal year 2004.
% decline from FY ‘03 to FY ‘04 | |
---|---|
1. Kansas | 100.0 |
2. California | 59.7 |
3. Texas | 47.4 |
4. West Virginia | 39.1 |
5. Alaska | 25.7 |
6. Oklahoma | 23.7 |
7. Pennsylvania | 21.6 |
8. Georgia | 16.8 |
9. Florida | 12.3 |
10. Iowa | 12.2 |
Source: National League of Cities |