History of Fiscal Crises


As we pointed out recently, from a fiscal point, there has never been a golden age for American cities. The history of cities in this country is also a history of reoccurring fiscal crisis. Our cities seem to have been in hard financial times since they first grew from small towns and added modern services.

Early Urbanism in the U.S.

There were few real cities in the U.S. until the mid-1800s. City growth was tied to industrialization. Before that, professionalized city services and major capital projects were few and far between. This kept city spending low along with the risk of overextending financially.

The founders did not comprehended cities in the Constitution, which limited its attention to powers of the national and state government. The 10th Amendment reserved rights for states to set policy on the remaining, unnamed issues. States focused their attention on enabling counties to provide limited services to the mostly rural population.

Throughout the century, local communities lobbied state governments to continually increase the scope of city responsibilities. Population growth, new wealth and new technology made cities more complex and challenging to live in. As towns grew, states supported citizen-led charter initiatives to create new cities.

By the end of the 19th century, cities had added the authority to provide the range of services, that a modern urban dweller would recognize and expect: water, sewer, streets, police, fire, waste, parks, libraries, and so on. At the same time, state governments had imposed severe restrictions on local governments that prevented cities from directly administering those services. The most common arrangement was for state legislatures to appoint boards of local citizens who would administer the budgets and staff of city departments. Even the nation’s greatest metropolis, New York, in the 1890s only had direct control over a fraction of its budget.

State control was imposed to establish political party control at the local level. Cities were now important and city jobs and contracts were key prizes in political patronage systems. State control was also motivated by a series of municipal bankruptcies from poorly thought out and executed capital and economic development projects.

Cities were growing and their economies were becoming more complex economically and, as mentioned, their citizen and business leaders were seeking more modern services and infrastructure. Under our fiscal federalism system, localities were in keen competition with each other. They began taking on increasing amounts of debt. A series of financial crises and a major economic slow-down or depression in the 1870s revealed the precarious state of these cities finances. The response was state legislatures imposing those restrictions on city operations.

Modern City Financial Crises

Things didn’t improve much in the 20th century. The public administration revolution brought a more professional civil service to the national and some state governments. The initiative had less impact on localities. Local accounting practices were still poor. This made oversight very difficult. initiatives at There have been a series of financial crisis phases in American cities so that it is questionable whether there has ever been a time when cities were financially sustainable.

Localities also innovated ways to circumvent state debt restrictions. Again, much of the debt was for capital projects, but increasingly cities turned to debt to fund their newly professionalized police and fire departments and to support growing park and library systems. Poor management practices and lack of reporting or oversight requirements meant cities were operating recklessly. This behavior was exposed by the Great Depression.

Following WWII there was another, more surprising fiscal crisis era. Our metropolitan areas were generally booming. The problem, however was that within metropolitan areas, central cities were reaching their peak population. They became land-locked, unable to annex land because they were being surrounded by newly incorporating suburban cities. At the same time, older central cities were losing middle-class households to the suburbs. In addition, there was increasing out-migration from older cities to southern and western states. These changes brought about a period of sever central city financial crisis, especially in older regions of the country.

In the last half of the 20th century, the sunbelt boomed as formerly small cities grew into large multimodal metropolitan areas. New suburban expansion in the form of homebuilding and a retail explosion fueled city coffers in the South and West. Throughout the period, many older cities either continued to decline. As in the past, economic recessions revealed that U.S. cities were not so financially sustainable, even in the Sunbelt.

The 2001 and Great Recession finally saw a change in municipal philosophy. Cities were no longer able or willing cover financial crises with a mixture of tax increases and budget cuts. Cities North, South and West used mostly budget cuts to get through the dotcom recession. The situation was even worse in the Great Recession. Throughout the 21st Century, city spending levels bounced up and down, but in most cities they have not broken through to new highs. It appears that cities seem to have entered a period of sustained fiscal stress in the good and bad years.

What’s Next?

Given this timeline, we can see that there have been city financial crises as long as there have been modern cities. As cities have grown, they have continually run up against external economic pressures that challenge the traditional ways of doing business. Changes in the larger economy have continuously threatened cities as they first scrambled to modernize to serve an industrial population, and in recent decades, as population migration and economic change pulled the rug our from under these cities again. What can be done about it?

The answers are likely to be different for each community. Our brief fiscal history here only hinted at some of the many causes of fiscal stress for U.S. cities. The solutions will involve addressing the ways cities operate, their financial practices and the way they deliver services. A better way forward also means shifting away from the high-cost, subsidized economic development practices that more than once have undermined the fiscal health of communities they were attempting to help. In the following weeks, we will take a closer look at specific fiscal threats to our cities and what can be done about them.

City Priorities in Hard Times


In this post, we share our latest research on city budget trends. The Great Recession (2008/2009) was the most traumatic downturn for cities in a generation. City’s budget responses to the recession help us understand city priorities. What happened to high-profile city services? We focus on police, fire, park and recreation, and libraries across the U.S. and in Texas.

Data Source

We used data from the U.S. Census Bureau Census of Governments for 2007 and 2012. These are the most comprehensive and accurate measures of local government spending. These Census years let us measure the change one year before the downturn to three years after the bottom. Because of the lag in property tax decreases, most cities saw their worst economy three years after the recession. This should mean that 2007 and 2012 represent the best and worst budget years since the 1980s for most cities.

We are reporting percentage changes in spending that have been adjusted for population growth and inflation. First, we calculated per-capital spending for each year, then changed the 2007 values into 2012 dollars using the state and local price deflator from the U.S. Bureau of Economic Analysis.

Core City Services

In this first look, we wanted to know what happened to the most high-profile city services. We included the two largest operating expenses for most cities: police protection and fire protection. We also looked at two other visible services: park and recreation (parks) and libraries.


Overall, cities nationally cut these four services more than did cities in Texas. Cities in the U.S. and in Texas saw much larger decreases in parks and library spending than in the two public safety areas. In the U.S., spending changed as follows: police (-0.1%), fire (-1.3%), parks (-8.5%) and libraries (-10.2%). The respective changes for Texas were: police (+4.0%), fire (+4.1%), parks (-9.3%) and libraries (-4.0%). So Texas public safety actually experienced higher funding levels after the recession. Remember that this calculation is adjusted for inflation and Texas’ faster growing population. While still cutting, Texas cut libraries less than U.S. cities overall. The U.S. and Texas had similar reductions in parks spending.

Summary observations:

Based on highly visible public services, the recession was a bigger hit to spending nationally that in Texas.

The largest city service in budget terms, police spending, was essentially held flat nationally, but grew in Texas. The recession was certainly a blow to police budgets, but in total, cities’ response was to slow the rate of growth in police spending and cut other services more.

This analysis does not tell us how tax and fee changes impacted cities’ budget strategy. We know that there were many fee increases nationally and some cities raised taxes. Cuts would have been deeper without those revenue strategies, but we will have to consider them another time.

What’s Next

Next week, we will continue our series profiling the economics of major city services when we turn to the service that faired worst in today’s post: park and recreation. In the meantime, let us know how we can help you make more confident economic and fiscal choices for your community. Contact Us.

Economics of Policing


Effective policing is critical to society. The police are the most visible demonstration of government’s monopoly on the use of force. Government’s very legitimacy depends on effective and fair policing. Policing is also critical for economic stability in a community. Public safety and the protection of property are the foundations to any successful economy. Finally, policing is a huge focus of government spending. It usually represents the largest piece of cities’ and towns’ operating budgets. Local leaders and their stakeholders should pay closer attention to the economics of policing. Except where mentioned, the statistics in this post come from the Bureau of Justice Statistics.

Scope of Policing in the U.S.

There are about 700,000 police officers in the U.S. Two thirds are at the local level. Two thirds of local officers are with city departments. The rest are in sheriff’s departments and special districts like transit, university and school district departments. Three fourths of the nation’s police departments have 25 or fewer officers. Fully one-third of all officers work in large forces with 1,000 or more sworn officers.

Context Before the Great Recession

A 2013 report by the Justice Policy Institute reviews trends in policing in the decades before the Great Recession. To summarize, the public response to rising crime rates in the 1970s and 1980s took the form of more resources devoted to policing and new policing policies. Beginning in 1994, the federal government provided funds for local departments to recruit and train 100,000 additional officers in community policing tactics. This strategy coincided with zero-tolerance policies and included among other initiatives, the war on drugs. The result was a dramatic increase in police encounters, arrests and incarcerations. Over the same period, there was a dramatic decrease in violent crime. Reported incidents fell almost 50 percent from early 1990s to the Great Recession.

Conflicting Evidence of the Recession’s Impact

Nationally, total spending on police by local governments continued to grow through the Great Recession. Total spending was $72.6 billion in 2007 and had increased to $84.0 billion by 2012. These national totals contradict survey research and other anecdotal reports from departments at the time. The Police Executive Research Forum began surveying departments in 2008 to assess police department responses to the recession. For various reasons, local government budgets felt the effect of the recession three years after the national economy hit bottom. In 2010 half of the departments being surveyed were still facing reduced budgets and 40% planned to have additional cuts in 2011. This was two full years after the official end of the national recession.

It may be that some of the media stories and survey studies at the time were capturing what were actually reductions in the rate of growth in police spending in some communities. Another possibility is that the uneven impact of the recession caused dramatic cuts in some communities but only slowed spending increases in others. There were dramatic examples of departments in poorer communities reducing their forces.

Nevertheless, across the U.S., police departments reported several other strategies they were implementing to manage budgets after the recession. These included: prioritizing calls and not responding to low-level crimes, hiring private security officers for some services, civilianizing portions of the police process, mergers of local departments and sheriff’s offices. It may be that departments faced with several years of lower than historic budget growth were increasingly scrutinizing their spending.

Future Efficiency and Effectiveness Concerns

Regardless of whether a given local department had to actually cut its budget or just slow the rate of growth, several challenges remain for local leaders who will be making the decisions on police policy and spending. Three in particular include:

Continued competition for talent among some departments and with the private sector. Talent is the number one issue when it comes to more effective policing. The key to effective use of that talent is better, ongoing training and better human resource management, particularly supporting officer health.

Improving community relations. Communications, engagement and transparency are perhaps some of the best ways to build a baseline and track police effectiveness and efficiency. Citizen involvement and departmental transparency help improve public perception of policing.

Better use of technology is a third key efficiency and effectiveness focus. Recent work by the RAND corporation highlights that the human factor in technology is an essential gap. Needs include better information on best practices, training on the use of technology including social media, and procurement and deployment of new tools.

All three issues are key drivers of police spending. They will need to be addressed by local leaders who want their governments and police forces remain effective and be even more responsive to unique community needs. There is a role for analysis in each area. This includes a focus on efficiency that goes beyond typical pay and pension debates that surround police finance. Long-term sustainability of effective policing requires better police practices that address community needs, fairness and efficiency.

What’s Next

Next week, we will highlight some of the most interesting local government finance trends and studies we discovered over the last month. In the meantime, let us know how we can help you nurture your community through better decisions.