From the trough of recession it can take up to two more years for cities (and other local governments) to reach their revenue low point, according to research by the National League of Cities and the Brookings Institution. If the overall economy has hit bottom, we’re looking at another few years for local government to find the low point. State revenues, such as income taxes, lag the downturn in jobs and corporate activity. A budget cycle later, state actions to close their gaps trickle down to the local level. What’s the message here? Local governments should be aggressively planning their out-year budget actions today, thinking creatively to find cost savings and not expecting the state or federal government (or the taxpayer) help out. Those that set aside some funds today and continue to improve efficiency will best weather the next two years. We quote Christopher W. Hoene (National League of Cities) and Mark Muro (Brookings), co-authors of the recent report:
Because most city tax revenue is collected only at a few specific points during the year, or over the course of several years in the case of property tax revenue, there is usually a time lag of 18 months to two years before economic shifts register their full impact on city fiscal conditions. This means that cities will be navigating the implications of the downturn for quite a while longer, even if the business climate improves quickly. For instance, drawing upon city experiences in the past two recessions, the low point, or “trough,” in those recessions came in 1991 and 2001 respectively. But the low point for city revenues came in 1993 and 2002. The implication: America’s cities, towns, and suburbs will likely be struggling with the effects of the current downturn throughout 2010 and 2011 and most likely beyond that.
Their chart is worth a thousand words.
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