• 1.5% Economy
• Public vs. Private
• Size of Government
• President's Performance
• Capitalism Image Problem
• Who Built America
• Who Built Anything
• Earned Success
• Stimulus and Failure
• States and Response
• Speaking Out
• Economic Recovery
• Stalled Recovery?
• Hard Times
• Current Events

 

Hard Times Spread for Cities  

Rising Health, Pension Costs Top the List as Municipalities Struggle to Recover From the Recession

 

In a majority of the nation's 19,000 municipalities—urban and rural, big and small—stagnant property tax revenues, less aid from states and rising costs are forcing less dramatic but still difficult steps.

Moody's Investors Service recently said that while municipal bankruptcies are likely to remain rare, it warned of a "a small but growing trend in fiscally troubled cities unwilling to pay their debt obligations."

A study by the Center for Retirement Research at Boston College found that annual pension payments for state and local plans more than doubled to 15.7% of payrolls in 2011 from 6.4% a decade earlier.

The Nelson A. Rockefeller Institute of Government said local governments made roughly $50 billion in pension contributions in 2010, but their unfunded pension liabilities still total $3 trillion and unfunded health benefit liabilities are more than $1 trillion.

Local government cuts are one factor slowing the broader economic recovery, offsetting stronger private-sector growth. State and local government spending and investment fell at a rate of 2.1% in the second quarter, according to the Commerce Department, the 11th consecutive quarterly drop. Local governments also have cut 66,000 jobs in the past year, mostly teachers and other school employees.

At the same time, pension and health-care costs are rising despite efforts to restructure those benefits. The most vulnerable cities are ones that experienced drastic reductions in property values or are in states like California that limit municipal options to increase revenues. In addition, nearly a third of California cities require collective bargaining and prohibit outsourcing of administrative and maintenance services.

Since 2008, four California municipalities have filed for bankruptcy protection—Vallejo, Stockton, Mammoth Lakes, and most recently, San Bernardino, which declared bankruptcy Aug. 1, in large part because sales and property taxes fell after the real estate bust. The assessed value of homes in San Bernardino dropped to $10.3 billion in 2011 from $12.2 billion in 2008.

 

  

 

Where will this all end up?