NLC’s City Fiscal Conditions report: City budgets are stable in the short term, admins uncertain about future

It’s been years since stay-at-home orders and mask mandates broke the headlines, and cities have more or less recovered from the effects of the pandemic. Most administrators now project a positive short-term fiscal outlook, according to the National League of Cities’ (NLC) annual 2023 City Fiscal Conditions report.

The report, which was published earlier this month, analyzes data from 820 cities and includes responses from more than 530 finance officers. In the months after the pandemic was realized, federal aid from initiatives like the American Rescue Plan Act and the Bipartisan Infrastructure Law bolstered municipal budgets, allowing them to weather the immediate crisis. The support gave administrators a chance to fiscally plan for the future and thoughtfully position their communities for the next challenge.

“We took a slow, methodical approach on how we were going to use our ARPA funds. The first thing we did was have a community survey and focus groups on what were the actual needs of our community. We did a rental assistance program where over $1 million has been spent in the community to help with rental issues, adding to our police force, and social services. We were really careful to make sure that we weren’t using ARPA for operating costs, our use of APRA was focused on one-time programs and getting the money to our local economy,” said Kimberly Lord, director of finance for Manchester, Conn., in a statement from NLC about the report. NLC analysts attribute the cautious budgeting undertaken by administrators to an anticipated economic downturn—which hasn’t materialized.

“Cities prepared for a potential fiscal downturn by reining in their revenue and expenditure budget estimates,” the report says. “However, the recent economic outlook shows that the U.S. economy may instead be headed for a ‘soft landing’—a gradual slowdown of growth without a sharp contraction—in which city budgets may not be impacted as negatively as once believed.”

High property values and historically low unemployment rates have bolstered municipal tax bases over the last few years, giving cities flexibility for the future. Almost seven out of 10 finance officers reported being better able to meet financial goals this year than last year in the report: “The average city experienced more than a six percent increase in general fund revenues. Inflation is more manageable and cities are reaping some benefits of lower inflation,” the statement says. 

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