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Municipalities with Falling Revenues

Panelists at this session presented their research findings on the challenges city and state governments currently face in maintaining enough revenue to deliver public services. Revenues have taken a hit in the past decade because of a number of factors, including falling housing values, foreclosures, and ecommerce. Lower housing values mean lower property taxes, and foreclosures add fuel to the fire. Ecommerce has lowered revenues because authorities have a hard time collecting taxes on digital transactions.


Quotable:

“Anything people can do to minimize foreclosures will have big impact on city revenues,” said Howard Chernick, a professor at Hunter College.

“Mayors and members of city councils are more important than state senators and governors. Mayors can get things done, but not if cities are in fiscal jeopardy, and in many cases, they are,” said Lee Fisher, dean of Cleveland State University’s Cleveland-Marshall College of Law.

Research highlights:

Foreclosures had a big independent effect on city revenues after the housing crisis. Cities’ revenues are still well below where they were before the Great Recession, and at least one-third of the decline can be attributed to the fall in housing values and foreclosures. Also, municipalities typically increase their spending during periods of population growth, but municipalities don’t cut spending when the population is steadily declining over the longer term. That’s a problem.

Practical application:

Municipalities should be on alert for decreases in housing prices and population. Decreases in housing prices can signal a problem and can foreshadow a decrease in tax revenues, and the response should be to raise taxes, cut spending, and/or build up rainy day funds, if possible. Spending should be lowered when municipalities suspect population declines will continue.