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Mayors face bigger financial woes as states cut help
June 17, 2011 / 12:10 PM / in 6 years

Mayors face bigger financial woes as states cut help

CHICAGO (Reuters) - As a candidate for Chicago mayor, Rahm Emanuel laid out big plans to put 1,000 more police on the streets and increase class time for public school students.

<p>Chicago mayor-elect Rahm Emanuel answers a question during his first news conference after winning the election in Chicago February 23, 2011. Emanuel takes office May 16. REUTERS/Frank Polich</p>

But on his first full-day in office on May 17 the former chief of staff for President Barack Obama began tackling his biggest challenge -- a projected $700 million hole in the city’s next budget.

Emanuel said his $75 million plan to trim spending sends a message that he is committed to stabilizing Chicago’s finances. His predecessor, long-time Mayor Richard Daley, had nearly exhausted one-time measures available to keep the city’s budget afloat, leaving Emanuel with few options as revenue collections remain at 2004 levels and the cost of running the city escalates.

Mayors across the United States are facing similar financial woes as revenue continues to sag even though the so-called Great Recession officially ended two years ago. Compounding cities’ problems is a move by many states to cut revenue sharing to help balance their own budgets.

The dire state of many cities’ finances will present a stark backdrop for the annual meeting of the U.S. Conference of Mayors which opens on Friday in Baltimore.

The National Conference of State Legislatures found about half of U.S. states reduced funding to cities and other local governments in fiscal 2011, while 15 were projecting cuts in fiscal 2012, which begins July 1 for most states.

“So if you factor in that this is the fourth year of closing significant budget gaps, one could imagine that states would get around to (cutting) local governments,” said Todd Haggerty, a policy analyst at the legislatures’ group.

For Pontiac, Michigan, the state’s new budget will mean a $2 million drop in revenue sharing at the same time the continuing real estate crisis has decreased property values that will deflate property tax collections by $2.6 million a year, according to a city report released last week.

Revenue sharing and property taxes accounted for $20.7 million or more than half of the beleaguered city’s fiscal 2011 budget and are now expected to fund only 38 percent of fiscal 2012 expenditures.

“So it’s the perfect storm I’d guess you’d say,” said Pontiac Mayor Leon Jukowski, who along with the city council no longer gets paid.

The city, once a major manufacturing hub for giant automaker General Motors, has had a state-appointed emergency financial manager since 2009 after it failed to resolve a big budget deficit. Jukowski said the city’s workforce was downsized by 100 over the last year, while the Oakland County sheriff has contracted with the city to take over police services in coming weeks.

“Having our own police department in this day and age is a luxury we can’t afford,” he said, adding that Pontiac’s government will emerge “smaller and skinnier.”

Other property tax-dependent cities are also struggling with lower property values as the real estate market remains in the doldrums and foreclosures continue. A Boston study this week found that city’s total taxable value of properties fell by $456 million or 0.5 percent in fiscal 2011, after slumping 3.5 percent in fiscal 2010.

Meanwhile, some cities find their financial problems are too overwhelming and have considered or actually filed the rarely used Chapter 9 municipal bankruptcy.

The California city of Vallejo used bankruptcy to rein in its unions. Pennsylvania this week unveiled a plan to help its capital city of Harrisburg avoid bankruptcy as it deals with a debt-ridden incinerator.

Additional reporting by Mary Wisniewski in Chicago, Ros Krasny in Boston, Edith Honan in New York and Jim Christie in San Francisco. Edited by Peter Bohan

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