With flat revenues and increasing costs, more cities are tightening their belts

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Dive Transient:

• U.S. cities’ general fund spending increased 7.5% in fiscal 12 months 2024, in response to a brand new Nationwide League of Cities survey. Nonetheless, that development slowed to 0.7% in FY 2025 as new headwinds like coverage uncertainty and financial shifts have come into play.
• Cities’ income development in FY 2025 is expected to decline 1.9%, in response to NLC, following a 3.9% improve in FY 2024. 
• For FY 2025, 52% of metropolis finance officers reported being higher capable of meet their metropolis’s monetary wants, down from 64% in 2024. That optimism dipped even additional for FY 2026, with solely 45% voicing confidence.

Dive Perception:

As federal funding from large monetary injections just like the Infrastructure Funding and Jobs Act and the American Rescue Act start to wind down or get reversed by Trump administration efforts, cities are going through a brand new post-COVID actuality. 

The setting is extra complicated, compounded by federal coverage uncertainty, inflationary pressures and a shifting financial setting, in response to the NLC report.

Whereas property and earnings tax revenues grew sharply in 2024, gross sales tax revenues remained “principally flat,” in response to the report, signaling a “shift from the tax income increase cities skilled following the reopening of the financial system after the COVID-19 pandemic, when robust shopper spending drove gross sales tax collections increased.” It additionally indicators a “normalization of the financial system” following a post-COVID surge.

Cities are additionally persevering with to watch the impression of tariffs, with 43% of metropolis finance officers reporting tariffs have influenced their means to obtain sure items, in response to the report.

Talking at a panel in the course of the NLC Metropolis Summit 2025 in Salt Lake Metropolis on Friday, Thousand Oaks, California, Councilmember Connie Gutierrez mentioned her metropolis is “proper on development” with its spending and “not very optimistic, sadly.” 

The town lowered its gross sales tax income estimates from $40.9 million to $36.7 million this 12 months after bringing in $38 million final 12 months.

“I believe we have realized quite a bit from the 2025 realities that we have confronted,” Gutierrez mentioned.

Evanston, Illinois, Councilmember Clare Kelly mentioned Evanston can also be reassessing its budgets as COVID reduction funding ends.

“We’re undoubtedly in a second now the place we’re weighing our priorities by way of spending,” Kelly mentioned. 

The report discovered that public security continued to make up the biggest proportion of metropolis budgets, at greater than 50%, with 10% going towards public recreation and tradition and seven% towards capital outlay, per spending patterns of earlier years. Debt service made up 3% of metropolis spending and public well being was 1%.