Sustainable Municipal Finances

Introduction

Cities and towns across the nation are struggling to maintain infrastructure and levels of service. These municipal programs were created and expanded to support wave after wave of new households after WWII. Most subdivisions and shopping centers were built to accommodate these new families. They were built to accommodate the peak of these families’ commercial activity. Those young founding families aged and their spending and economic activity changed. The municipal services needed and demanded by those young families are still in place. Many of those communities have changed so much that they no longer generate the tax base needed to keep municipal services running. Fiscal sustainability for cities comes from strengthening the tax base, but also from improving the efficiency and effectiveness of city services.

Municipal Financial Pressure

This last month, we engaged local leaders from across Texas through several state conferences. We participated in Texas Municipal League, Texas Economic Development Council and the Government Finance Officers Association of Texas. As expected, the topics were wide ranging, but a common thread ran through them all. Municipal financial sustainability is on the lips of panelists, speakers and attendees alike.

Communities across the state face growing inventories of aging and failing infrastructure. The scope of the challenge includes every component of municipal capital: streets, storm sewers, water mains, street lights, facilities, equipment and computer systems. Even the more prosperous communities have a growing maintenance challenge.

Likewise, municipal operations and staffing is a challenge. Municipal services need upgrades, and new technologies mean city staff need more advanced skills. Local governments have an older than average workforce and are competing with the private sector for many of the newly needed skills. Pensions and retiree health costs are a growing expense for many governments.

In recent decades, Texas cities, suburbs and towns grew and government finances grew with them. Cities built their infrastructure to accommodate this growth and design standards increased the scope and scale of many infrastructure projects. It is becoming clear that this pattern of growth has had consequences for the sustainability of local governments. Today, the economic foundation in many communities cannot support that level of municipal services.

Waves of Growth

The growth that benefited so many communities in the past, especially in the 1960s, 1970s and 1980s, took the form of adding new fully-built subdivisions. These communities were built quickly, at about the same time with essentially identical residential and commercial real estate. Their founding families were mostly at the same point in their economic life cycle. They bought the new homes and began filling them with children, furniture, appliances and clothing. This supported the large retail centers being built on the edge of growing cities.

Those founding families eventually entered a less spendthrift phase of life. The children left for college and jobs. The spending has decreased as retirement becomes a more pressing concern. The shopping centers that were built for peak use struggle to stay open. Many now present fading marquees, pot-holed parking lots and too many dollar stores.

This is not a new process. City neighborhoods have gone through these cycles for generations. The challenge today is that so much of our urban environment is experiencing this trend at once. Even more serious is that entire cities were built at the same time and now face across-the-board challenges as every neighborhood experiences this relative decline. This has consequences for the sustainability of our municipal governments.

For many years, the conversation among local leaders has been about how to grow their way out of this situation. Traditional economic development strategies are unlikely to make much of a difference for most communities. Most places are off the site-selection radar. Their challenge is to make better use of their existing assets, grow from within and focus on core municipal responsibilities. Aligning services to support a more sustainable economic model and better infrastructure management are the immediate concerns.

Next Week

We will continue exploring the evolution of local government services created to support post WWII growth and what cities and towns can do to improve their financial sustainability. In the meantime, sign up for email updates and let us know how we can help.

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