The fiscal condition of U.S. cities: Revenues, expenditures, and the “Great Recession”

The Great Recession has caused significant fiscal stress for U.S. central cities. We draw on a specially created database for the nation’s largest cities that takes account of the revenues and spending of all of the governmental units that serve central city residents, which we call fiscally standardized cities, to provide the most complete documentation available of the sharp decline in real revenues and spending between 2007 and 2012. Except for user charges, all major revenue sources declined. We pay particular attention to property taxes, which have fallen precipitously since 2009, and to state aid, where patterns of decline differ sharply across states. Regression analysis shows that, unlike the previous recession, cities have not been able to offset sharp declines in state aid by increasing local taxes. We also evaluate the special conditions that help to explain the case of Detroit, the largest municipal bankruptcy in U.S. history. On the spending side, no category of spending, including core public safety functions, has been spared. Education spending—down by 11%—and capital spending—down by than 18%—were particularly hard hit. The service consequences of these cuts have yet to be fully assessed, but our analysis suggests that it will take a number of years to return to prerecession levels of public service.