Many cities in the U.S. rely on sales tax for revenues and are facing budget shortfalls as consumers cut back their purchases and businesses reduce their inventories. In a 9/18/09 WSJ article, Leslie Eaton takes a deeper look into the financial woes of cities.

Big cities are having the greatest difficulty. The Pew Charitable Trust analyzed 13 major cities and found budget gaps averaging 5%. However, city payrolls have become bloated over the past 15 years. Technological improvements during that time have led to great productivity increases in the private sector but that efficiency has apparently escaped city governments. During that period city government employees, excluding teachers, have increased 13%.

Solutions to city budget woes have included layoffs and mandatory furloughs, sales tax increases, deferring pension obligations and closing libraries. Several years ago Chicago had privatized their parking meters, forgoing that continuing revenue stream for a one time payment of $1.15B. At least they had the prudence to put the money into a rainy day fund, which they raided this year to close their budget gap.

As unemployment rates stay high and consumers pay down debt, the budget problems of many cities will continue. Property taxes are a fairly stable source of revenue for many cities but reduced housing valuations will cut those revenues as well. For city officials this downturn has prompted a soul searching look at what are the core responsibilities and priorities of a city government.