FOR IMMEDIATE RELEASE:
Friday, June 14, 2002

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PRESS RELEASE

From Portland, Maine, to Seattle, Washington, cities are facing hard choices as rising post-9/11 costs collide with shrinking revenues. Increasingly strapped for cash, localities are struggling to cope with growing demand for security and other services.

A new paper published today by the Economic Policy Institute looks at a sampling of cities that have begun experiencing or projecting budget shortfalls for this budget year and next. In U.S. Cities Face Fiscal Crunch, economist Max B. Sawicky points to harder times ahead for cities, big and small, throughout the country, as they struggle to maintain essential services.

Sawicky notes that long before the disaster of September 11, most local governments were anticipating belt-tightening measures because of the economic downturn that began in March. The events of September 11 made this problem far worse, as bills for heightened security began to pour in. By February, the National League of Cities reported, cities had already run up around $2 billion in costs for extra security expenditures.

It comes as no surprise that New York City’s projected budget shortfall of $6 billion – nearly 15% of the city’s total budget – is the largest dollar gap facing any of the cities Sawicky reports on. However, the paper reports surprisingly bad news for other cities as well.

“This is an equal opportunity budget crunch that is hitting big cities, small cities, and everything in between,” said Sawicky. Among the examples he cites:

• In Atlanta, this year’s $82 million deficit represents 18.8% of the city’s budget and has forced Atlanta’s mayor to reduce her own salary and personal staff and to raise property taxes.
• Detroit is facing a $94 million deficit caused by reduced revenue and increased overtime costs for police and fire fighters.
• Boston’s projected $100 million deficit means that city will have to make up – or cut – 5.6% of its entire budget to bring it into balance. Albuquerque’s $18 million projected shortfall represents the same 5.6% budget share.
• Seattle’s $50 million shortfall is 8% of its annual budget.
• In a number of smaller cities (population under 100,000) the dollar amounts of deficits are smaller but represent a large percentage share. The $2.1 million gap in Gresham, Oregon, is 11% of its budget. Portland, Maine’s $11.6 million deficit and San Luis Obispo, California’s $2.6 million shortfall are both 7.9% of their overall budgets.

Sawicky notes that the states will actually compound some cities’ pain if they, facing deficits of their own, reduce their normal payments to local governments as a way to cover their own budget shortfalls.

Adding to the cities’ woes are federal actions that either inadequately address the needs of localities or make matters worse. Sawicky notes, for example:

• Rising state obligations, such as increases in Medicaid recipients, will make it harder for states to meet their obligations to localities.
• Cuts in federal income and estate taxes will shrink state revenues further. The repeal of the federal estate tax, alone, is expected to cost the states $9 million per year in lost revenue.
• The President’s proposal to cut federal law enforcement funding by 26% will reduce revenues for localities. At the same time, the proposed $3.5 billion for “first responders” such as police, fire, and emergency medical technicians would go primarily to the states, not to the localities that employ these personnel.

To help cushion the blow for cities facing reduced circumstances and rising need, Sawicky says the federal government should increase aid to the localities that need it most, where it will directly benefit public safety and services.

“It is crucially important for the cities to have the resources they need to keep essential services in place and protect our public places,” Sawicky said.

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The Economic Policy Institute is a nonprofit, nonpartisan economic thank tank founded in 1986. The Institute is located on the web at http://www.epinet.org.

To receive EPI press releases via email, please send a request to rsvp@epinet.org.