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U.S. cities bringing in more revenues, building reserves

WASHINGTON | Thursday, 10 Oct 2013

(Reuters) – The financial clouds that settled over U.S. cities during the 2007-09 recession are lifting, with a survey released on Thursday showing cities’ revenues likely increased in 2013 for the first time in seven years, helping to boost their reserves.

According to the annual survey conducted by the National League of Cities, which represents civic officials across the country, 72 percent of city finance officers believe their municipalities are better able to meet financial needs this year than they were last year. In 2012, only 57 percent said they were more capable of paying for services and other demands than in the prior year.

Meanwhile, cities’ general fund revenues are expected to rise, the first time since 2006, although only about 0.1 percent, according to the League.

“While conditions are no longer deteriorating, the capacity of city budgets remains weakened coming out of the Great Recession,” it said in the survey.

The housing bust wreaked havoc on the major source of revenues for U.S. cities: property taxes.

The finance officers polled said they expect 2013 will mark the fourth year of decline in property tax revenues, with a fall of 0.2 percent. Last year, those taxes dropped 0.1 percent and in 2011 they fell 3.9 percent.

While the housing market is improving, any changes will not show up in municipal coffers for years. In many places, property taxes are determined by assessments that only take place every three years.

Still, cities expect the other major source of revenue, sales taxes, to grow 1 percent this year, compared with a rise of 6.2 percent last year, as consumers become conservative in the face of economic uncertainty.

As their incomes increase, cities are rebuilding the reserves that they had raided during the longest and deepest economic downturn since the Great Depression. In 2010 their reserves, which municipalities refer to as ending balances, equaled only 16.5 percent of expenditures, the lowest since 1997.

In 2012, most cities ended their fiscal years with reserves equal to 21.5 percent of expenditures.

(Reporting By Lisa Lambert; Editing by Ken Wills)