Local Governments Hit as Tax Revenue Falters

The Wall Street Journal reports:

Around the U.S., local governments and school systems are facing a one-two punch: The stalled housing market is depressing property-tax collections, often the largest source of local revenue, while states are cutting local aid. Another problem is that rising costs for pensions and employee health care are eating up more of their budgets, leaving less money for services.

Local tax collections, which grew steadily through the recession, have only recently started to falter. Revenue fell 2.34% in the fourth quarter of 2010 compared with the year-earlier period, according to the Commerce Department. That is a modest drop compared with the double-digit one states saw through the recession that ended in June 2009. But unlike state revenue, which is generated mostly from income and sales taxes, local collections are expected to decline or remain stagnant for years because they are tied to the lackluster housing market.

To be sure, local government payrolls are now just above the level in August 2006. But the Commerce Department figures don't include cuts the state and federal governments have made in their aid to localities, which is one reason local governments have more aggressively laid off workers. While states have cut 98,000 jobs since late 2008, or 1.9% of the total, localities have cut 409,000—a 2.8% loss from 2008.

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