Cities’ budgets squeezed by housing crunch

Even though the economy is slowly growing, the housing crunch is continuing to weaken cities’ budgets across the country, according to a report released Wednesday.

The report from the National League of Cities found that nearly 90% of municipalities were having trouble balancing their books this year.

“While the recession has officially ended for the national economy, cities are now in the eye of the storm,” said Christopher Hoene, the organization’s director of policy and research and a coauthor of the report.

The recession led consumers to curtail spending, which cut into sales tax money that funds police, firefighters and parks. For a time, the housing slump was not an issue. Property tax payments tend to lag, so the drop in home prices didn’t directly affect cities.

But property tax receipts dropped 1.8% the last fiscal year and are expected to continue to plunge. City tax receipts have dropped for four years in a row, the report found.

Normally, by the time city property tax receipts drop, the economy has rebounded and sales taxes are growing again. But with growth anemic for the last year, that hasn’t happened, said Michael Pagano, the report’s other coauthor. City tax revenues were down 3.2% in the last year.

“Even if the economy was going to turn around tomorrow, cities’ budgets aren’t going to feel it for two to three years,” said Pagano, dean of the college of urban planning and public affairs at the University of Illinois in Chicago.

Another ominous sign for cities is that the federal government’s stimulus money is winding down. That will leave states with less federal aid, making it more likely they will cut the funds they give municipalities.

Riverside Mayor Ronald Loveridge, National League of Cities president, said that California municipalities were desperately pushing the state not to raid the funds that normally go to cities.

“They’re taking monies from cities rather than giving them,” said Loveridge, whose city’s budget shrank from $238 million to $190 million last fiscal year.

The drops in revenue and cuts in spending are the largest in the survey’s 25-year history, the league said. They are slightly higher in the West, where much of the real estate bubble was concentrated.

The report found that 69% of cities are delaying construction projects, three-quarters have hiring freezes, a third have resorted to layoffs and a quarter have cut public safety. Forty percent of cities have increased fees in an effort to drum up more revenue. Overall, cities cut spending by 2.3%.

nicholas.riccardi@latimes.com