Truth in Accounting estimates that 53 of the largest cities in the U.S. were not generating enough revenue to pay their bills at the end of fiscal year 2022. The list also highlights fiscal challenges facing cities like Chicago, Houston and Portland, Oregon.
“I think we can all agree that we’re broke,” said Houston Mayor John Whitmire in a March 2024 City Council budget hearing.
Truth in Accounting believes that underfunded pension obligations and retiree health benefits are straining municipal governments nationwide. Detroit’s 2013 municipal bankruptcy was a potent example of the potential effect when the city temporarily suspended pension payments to pump more cash into reserves.
“I believe this is a big problem throughout the country,” said Weinberg. “The voters think, oh, they must be living within their means. And they’re not.”
Weinberg told CNBC that cities and state governments are, in effect, spending tomorrow’s money today in unsustainable fashion.
Meanwhile, in the case of New York City, leaders remain optimistic about future returns.
“We’ve got to be careful because you don’t want to get into too much debt,” said Lander, the city comptroller, while referencing the trade-offs between bond/debt-powered spending and other revenue raising measures like tax increases.
Lander in 2024 voiced support for a $12 billion expansion of New York City’s debt limit to fund existing city services like community colleges and the police department, alongside an expansionary capital program in the face of issues such as the climate crisis.
“You have to make hard choices in budgeting. But it really is important not to be penny wise and pound foolish,” said Lander in an interview with CNBC.
In the meantime, rising debts may lead to dirtier streets, fewer public services and tough decisions from public officials to make ends meet. In New York City, Mayor Eric Adams has introduced a “Program to Eliminate the Gap” which called for three separate 5% city program spending cuts that will affect services including sanitation, library access, public education, stewardships of jails and more.
“To the extent that [New York City] can’t issue debt to finance a portion of their capital plan, that could mean unsafe school conditions, overcrowding and other issues,” said Rinaldi at Fitch Ratings.
In the spring of 2024, Adams walked back from portions of his spending cuts proposal, citing unexpectedly strong economic performance within the city.
“But we’re not of out the woods,” he in a January 2024 press conference, noting that further steps must be taken to ensure the city’s finances remain sound.
Watch the video above to see why so many local governments in the U.S. have financial issues.
