Local Governments Are Broke, Too

October 7, 2010

The National League of Cities has released a grisly survey of municipalities’ money woes.

Eighty-seven percent of local-government finance officials report that “their cities are less able to meet fiscal needs than in 2009.” The NLC says property-tax receipts “are beginning to decline in 2010, after years of annual growth, reflecting the gradual, but inevitable, impact of housing market declines in recent years.” Sales-tax revenues “declined dramatically in 2009 and are declining further in 2010.”

“Concern about cities’ fiscal health,” the lobbying group ominously avers, “remains at the highest level in the history of NLC’s 25-year survey.”

In other words, get ready for more Harrisburgs.

The small Pennsylvania city recently garnered unwanted publicity when it accepted a state subsidy to meet a $3.3 million debt payment. The “solution” was temporary, and bankruptcy remains a possibility.

Fortune’s Kit R. Roane discovered that many places have it worse than the Keystone State’s capital: “Central Falls, Rhode Island, recently went into receivership when it couldn’t pay its bills. San Diego is said to be considering bankruptcy to get out from under its pension obligations. Miami’s city council, hoping to avoid Harrisburg’s fate, recently used emergency powers to slash city salaries and pensions and is now instituting hefty traffic fines and garbage fees. This year, ratings agencies have cut the debt in several cities … to junk.”

“To cover budget shortfalls and balance annual budgets,” the NLC found, “cities are making a variety of personnel cuts, delaying or cancelling infrastructure projects, and cutting basic city services.”

Tough times. But some data you won’t see from the NLC -- or municipal-employee unions, or pols begging Washington and governors for bailouts -- indicate that a right-sizing is overdue.

Since at least the early 1990s, local-government spending has been out of control. The 15 years between 1993 and 2008 are useful to examine, since the prosperous period contained only the mild recession at the turn of the century. U.S. Census Bureau figures show that the decade-and-a-half saw towns, cities, and counties balloon their expenditures by an inflation-adjusted 55.5 percent. (The nation’s population growth was 16.8 percent.)

How did municipalities spend all that money? Mission creep is a persistent problem, but mostly, they hired lots of employees. Staff surged by 39.3 percent.

And the National Compensation Survey, compiled by the U.S. Bureau of Labor Statistics, reveals that bureaucrats continue to outpace their counterparts in the real world. Average hourly wages for full-time state- and local-government employees exceed those in the private sector by 22.2 percent. Every credible analysis of benefits -- pensions, healthcare, paid leave -- has documented an even greater disparity in favor of the public sector. Early retirement is more common, healthcare-premium shares lower, vacation time more generous.

Bell, a poor city in Southern California, just offered a worst-case scenario for municipal-employee rapacity. Several of its top officials, including the city manager, were arrested and charged with conflicts of interest and misappropriation of funds. Their excessive-compensation scam was, in the words of Los Angeles County’s district attorney, “corruption on steroids.”

Most maddening about runaway municipal spending is taxpayers’ acquiescence. Bell’s scandal was uncovered not by good-government gadflies, but enterprising reporters for the Los Angeles Times. Voter turnout in local elections is traditionally lower than the often-unimpressive figures for state and federal races. Ever attend a public hearing at city hall, or a school-board meeting? Unless they involve sex ed, political corruption, or an unwanted land use, the crowd is awfully thin. The mundane march of greater government -- the creation of new positions, approval of outrageous union contracts, launch/expansion of programs, and implementation of unsound economic-development schemes -- goes unnoticed by most citizens.

The consequence of such denial is, of course, higher taxes. The (Albany) Times Union’s ongoing series, “New York’s Property Tax Nightmare,” documented a disturbing trend: “Even while the Consumer Price Index … grew at a pace of only a few percentage points annually in recent years, growth of the property tax burden upstate has hovered close to 7 percent a year. Over the last decade, outside New York City -- where a city income tax keeps the property tax low -- the property tax burden has grown at a rate double that of wage growth.” With states busted and the prospect of another federal “stimulus” package dim, property-tax levies are sure to soar until the Great Recession ebbs.

After giving big-spending government at the federal and state levels a drubbing in November, America’s advocates for fiscal conservatism must finally focus on towns, cities, and counties.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. He lives in Broad Brook, Connecticut.

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