City finance officers throughout the country are reporting improving fiscal conditions in 2013, but pension and health-care costs are placing an increasing burden on finances, according to an annual survey from the National League of Cities.
At the end of the 2013 fiscal year, cities project a 0.1% increase in general fund revenue — the first increase since 2006 — but expenditures are also expected to grow by 1.5%, led by pension and health-care costs.
“The past few years, pension costs are weighing extremely heavy on city finances,” said Christiana McFarland, interim director, city solutions and applied research, and co-author of the report.
Of the 350 cities that responded to the survey, 80% said pension costs increased from the previous year, second only to 84% that reported rising health-care costs.
In the years immediately following the financial crisis, cities mostly cut costs through hiring freezes, wage reductions or freezes and layoffs. However, those measures have been reduced the last couple of years while actions to slash pension benefits are moving in the other direction, Ms. McFarland said in a telephone interview. Twenty-two percent of cities reported reducing pension benefits in fiscal year 2013, up from 15% in 2012 and 7% in 2010.
Despite the drag from pension and health-care costs, 72% of city finance officers reported their cities are better able to meet financial needs than the previous year.