Municipal Governments Struggle with Finances as Pandemic Relief Ends and Inflation Persists

Rewrite: As pandemic relief comes to a close and inflation lingers for longer than expected, municipal governments across the United States are attempting to reduce their expenses. Michael Rinaldi of Fitch Ratings’ public finance group explains that while there is a significant need for capital improvements nationwide, financial difficulties seem to be mounting despite high credit ratings in cities and strong demand for urban commodities like housing. For example, New York City had $177.6 billion worth of total public debt at the end of fiscal year 2022, equivalent to a per capita taxpayer burden of approximately $61,200 according to researchers from Truth in Accounting. The city’s debt figure falls short by about $30 billion when compared to its debt limit as quoted by New York City Comptroller Brad Lander. This discrepancy is due to underreported pension obligations that will eventually be passed on to future taxpayers, says Sheila Weinberg, the founder and CEO of Truth in Accounting, a nonprofit organization partnering with the University of Denver to promote transparency in public accounting. The group estimates that 53 out of the largest cities in America were not generating enough revenue at fiscal year-end 2022, citing fiscal difficulties faced by Chicago, Houston and Portland as examples. “I think we’re broke,” declared Mayor John Whitmire of Houston during a City Council budget hearing last March 24th (EDT). Underfunded pension obligations and retiree health benefits are reportedly putting significant pressure on municipal governments nationwide, with Detroit’s bankruptcy in 2013 serving as an illustrative example when the city had to suspend pension payments for reserves. “I believe this is a big problem across America,” declares Weinberg who alleges that local officials appear complacent about their financial predicament since voters presume they are managing finances responsibly, whereas in reality they’re spending tomorrow’s money today in an unsustainable fashion. In New York City, the leaders remain optimistic regarding future returns despite rising debts; however, Lander cautions that one must be careful not to get into too much debt since tax increases could also generate revenue for city services like community colleges and police departments. Rinaldi at Fitch Ratings highlights a potential issue where New York City may face unsafe school conditions or overcrowding if it cannot borrow money to finance its capital plan, which Adams has proposed cutting by three separate 5% program spending cuts affecting various public services such as sanitation, library access and education. In the spring of 2024, some components in Adam’s budget proposals were reversed owing to better than anticipated economic performance within New York City; however, he warned that further measures are still required for financial stability.