Local Government Finances During and After the Great Recession

In this paper, Adam Langley takes a broader approach to municipal finances, tackling the effects of the Great Recession on U.S. cities. The collapse of the housing market in 2008 precipitated cuts in property tax revenues as a result of declining house values. This was exacerbated by cuts in both state and federal aid necessitated by declining revenues, primarily from sales and income taxes. In addition, the financial crisis caused significant instability in the municipal bond market, the bulwark of public infrastructure financing across the country.

Using data from the Lincoln Institute’s Fiscally Standardized Cities (FiSC) database, Langley documents the impact of the Great Recession on major revenue sources for local governments across the nation and their policy responses, including revenue increases, spending cuts, and the use of rainy-day funds. Langley shows that although local governments were able to weather the Great Recession itself (2007–2009), revenues and employment began to decline in 2010 and continued to do so until 2012. The longer-term effects of the recession, including delayed contributions to pension obligations, lower property values, and ongoing decreases in state and federal aid, continue to hamper local governments’ return to prerecession revenue and spending levels.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2014 and is Chapter 6 of the book Land and the City.