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Fearing economic slowdown, many cities rein in spending

<i>Adobe Stock</i><br/>New York City Mayor Eric Adams last month asked city agencies to reduce spending by 3%
Adobe Stock
New York City Mayor Eric Adams last month asked city agencies to reduce spending by 3%

By Tami Luhby, CNN

Cities, towns and villages are expecting spending to decline by nearly 3% for fiscal 2022 compared with the year before, in anticipation of an economic slowdown in the near future, according to the National League of Cities’ annual City Fiscal Conditions report.

Municipalities are expecting a 4% decline in revenues for fiscal 2022 after adjusting for inflation, according to the report, which was released Wednesday.

Abnormally high inflation rates have nearly canceled out the tax revenues these governments gained in 2021.

Now property tax receipts are expected to decline by more than 4% in fiscal 2022 due to the housing market slowdown triggered by multiple interest rate hikes by the Federal Reserve. Sales tax receipts are expected to slide 2.5% after an “extraordinarily strong” fiscal 2021. And nearly no income tax revenue growth is expected.

The share of cities that say they will be less able to meet their fiscal needs in 2023 is nearly tripling to 31% compared with the prior year.

Municipalities were more optimistic in fiscal 2021, when they enjoyed a strong rebound in revenues, particularly income and sales taxes, along with a massive injection of federal funding in the American Rescue Plan Act, which Congress passed in March 2021, the report found.

Meanwhile, states are also battling with a slowdown in tax revenue, after adjusting for inflation. In June and July, total tax revenues increased only 0.3% compared with the same period a year prior, according to the Urban Institute.

Personal income taxes fell nearly 5% over the two months, while sales tax revenue declined 3.3%. But corporate income taxes shot up 28%.

The slowdown comes at a time when several states have instituted tax cuts or holidays. California, for instance, began sending $9.5 billion in tax refunds to up to 23 million residents last week. Eligible Californians will receive up to $1,050 to help them counter rising costs on groceries, gas and other items, said Gov. Gavin Newsom.

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