Revenue growth in US cities slow despite strong economy

New York

US cities are seeing the growth of their tax collections slow, suggesting local government gains from economic expansion are diminishing even as they face pressure to spend more on wages, pensions and infrastructure, according to an annual survey by National League of Cities.

City general-fund revenues are projected to stagnate in 2018, compared with increasing 1.25 per cent in 2017, as property, sales and income tax collections slow. The share of cities reporting that they're more able to meet their financial obligations than they were a year ago rose slightly to 73 per cent, after slipping to 69 per cent last year, the lowest since 2012, when many were still contending with some of the fiscal aftermath of the housing crash and recession.

"Although fiscal health is not yet declining, these conditions echo several cautionary signals from previous economic downturns," according to the report, which is based on results from 341 cities.

The findings are surprising, given the strength of the US economy and the housing market that provides a big share of cities' tax collections. Consumer confidence is near an 18-year high and the nation's gross domestic product expanded at its fastest clip in four years during the second quarter. On Wednesday, the Census Bureau reported median household income rose 1.8 per cent in 2017, when adjusted for inflation.

The biggest drags on municipal finances stem from rising wages and the need to rehabilitate aging infrastructure: 94 per cent of officials reported that wages rose and 86 per cent reported the cost of infrastructure increased. Spending growth continues to outpace revenue growth.

Growth in property tax collections, typically the biggest source of municipal revenue, is anticipated to slow to less than 1 per cent in 2018 from 2.6 per cent in 2017. The survey projected stagnant sales tax growth, though that may change because of the US Supreme Court decision that expands states' ability to tax online retailers.

The previous inability to collect state and local sales tax on Internet retailers that didn't have a fiscal presence in a state cost state and local governments an estimated US$26 billion in foregone tax revenue in 2015, according to the National Conference of State Legislatures and the International Council of Shopping Centers. BLOOMBERG