Budgeting For Basics: The Changing Landscape Of City Finances

Though recovering as of late, city budgets have been bleak over the past few years due to the struggling economy. Beyond booms and busts, however, cities also confront real structural challenges to balancing their budgets. In a new paper, Bruce Wallin examines the finances of 162 cities from 1977 to 2004. Among the findings is that though direct federal aid to cities has dropped precipitously since 1978, those monies have been largely replaced with state aid. But that aid has increasingly been targeted for K-12 education spending, requiring financial innovations for other local priorities while still balancing budgets. By 2004, cities had reduced overall spending over previous years, diversifying their revenue bases, and relying less on the property tax. However, as different cities become increasingly dependent on diverse revenue sources, they must be aware of how shifts in state aid and the economy reverberate.