The Fiscal Health of U.S. Cities

The recent bankruptcy filing by Detroit highlights the importance of measuring the fiscal health of the nation’s central cities. In this paper we explore several means of assessing city fiscal health. In the first section, we describe methodology we employed to estimate the fiscal condition of Milwaukee, WI and its suburbs. In the second section, we employ a regression model to determine whether a measure of the fiscal health of a large sample of cities in 1982 developed by Helen Ladd and John Yinger is systematically related to the economic growth of these cities over the next 25 years. In the final section, we describe the construction of a fiscal database for 112 large central cities over the period 1977 to 2011. In creating what we refer to as fiscally standardized cities (FiSCs), we account for the wide variation in fiscal arrangements across U.S. cities. For each central city, the FiSC data include the revenue and expenditures of overlapping counties, school districts, and special districts. This unified framework allows systematic comparisons of city revenues and expenditures that have heretofore not been possible. We use the FiSC data to study the effect of the Great Recession on central cities. A predictive model for 2009-2013 suggests a sustained period of revenue decreases in many large cities. Pressure on the property tax from the housing crisis, together with declines in state and federal aid, are severely squeezing many cities. Actual revenue changes from 2009 to 2011 are broadly consistent with our forecasted revenue changes.