NEW YORK (Reuters) – U.S. cities’ revenue growth in fiscal 2017 is projected to contract for a second consecutive year, the first time this has happened since the recession, according to a report released on Tuesday by the National League of Cities.
The report, based on a survey of finance officers from 261 cities, found that General Fund revenues are slowing. Revenue growth for the fiscal year ended June 30 is projected to “stagnate” to a rate of 0.9 percent, down from fiscal 2016’s growth rate of 2.61 percent, the survey said.
“This minimal growth projection is a result of slowing revenue growth overall, a return to higher levels of inflation in 2017 (2.1 percent) and the typical conservative approach that finance officers take for revenue estimates,” it said.
In 2015 the revenue growth rate was 3.26 percent.
General Fund revenues are made up of revenues from property, sales, utility and other taxes.
Property tax revenue growth is expected to slow to a rate of 1.6 percent in fiscal 2017, compared with 4.3 percent last year. Sales and income tax revenue growth rates are projected to decline in fiscal 2017 by 0.2 percent and by 2.7 percent, respectively.
The shift in the retail sector to online sales from brick-and-mortar stores has contributed to the decline in sales tax receipts. Local governments do not gain as much revenue from online sales and therefore do not benefit from an improving retail sector, the report said.
In addition, declines in income tax revenues can be attributed to “gradual employment gains and slow wage growth, widening income inequality and a lack of expansion of middle-income jobs,” the report noted.
Christiana McFarland, a research director for the NLC, told Reuters that cities are seeing more pressure from state governments in the form of less financial funding, as they have budget concerns of their own.
“Many cities receive aid from their state governments that are part of this revenue picture,” she said.
At the same time, expenditures in fiscal 2017 are expected to increase by 2.1 percent over 2016, the report said.
It added that fewer city finance officers are confident in the fiscal position of their cities. The percentage of officers who said their cities are “better able to meet the financial needs of their communities in 2017 than in 2016” fell to 69 percent, down from 81 percent in the prior year.
For a graphic on change in U.S. Cities’ Constant Dollar Revenue and Expenditures (General Fund), click: reut.rs/2f09Qnj
Reporting by Stephanie Kelly; Editing by Daniel Bases and Dan Grebler