09/13/2012 12:00 am ET Updated Nov 12, 2012

U.S. City Budget Woes Easing But Challenges Remain

Sept 13 (Reuters) - U.S. cities face falling revenues for a sixth-straight year but their finances have passed the worst point in the wake of the recession, according to a report released on Thursday by the National League of Cities.

The group's City Fiscal Conditions Survey, which is based on data from 324 cities, found that a key revenue source, property taxes, continued to decline this year, reflecting a lag in the impact from the real estate market's decline.

Cities' general fund revenue is expected to drop by 3.9 percent in 2012, after falling 2.3 percent in 2011 from 2010 levels, according to the report.

Expenditures, meanwhile, are expected to rise slightly by 0.3 percent this year after declining by 4 percent in 2011.

Still, 57 percent of city finance officers reported that their cities were better able to meet financial needs in 2012 than in 2011, when a majority said they were less able to do so.

"The 2012 findings suggest that city fiscal conditions have passed the low point of the effects of the recession, with conditions beginning to improve relative to previous years, which were the trough of the Great Recession," the report said.

More than three-fourths of the officers said health care and pension costs were negatively a f fecting budgets, which have been relying on reserves. For 2012, ending balances were projected to fall to 12.7 percent of expenditures from 18 percent in 2011.

Cities, which have taken steps to reduce their workforces and services and delay or cancel infrastructure projects, will likely face weakened fiscal conditions again next year, the group reported.

"Looking to 2013, all indications point to continuing challenges for city budgets, with national economic indicators pointing to slow growth and the possibility of federal budget cuts that may further dampen economic recovery," the report said.