The nation's cities are cutting personnel and infrastructure projects as the economic downturn continues to take its toll on city finances according to the National League of Cities' (NLC) 26th annualCity Fiscal Conditions report.

The report reveals that general city revenues are continuing to fall, with a projected -2.3% decrease by the end of 2011. This is the fifth straight year of declines in revenue with probable further declines in 2012.

The revenue decline is mainly due to the suppressed property market that is negatively impacting property tax revenue. Property tax collections are expected to decline by -3.7% with further declines likely in 2012 and 2013.

Income tax receipts are also experiencing a decrease of -1.6%. Sales tax receipts remained largely flat, but this is at last year's level which saw the worst decrease in sales tax revenue in 15 years.

Cities are responding by cutting personnel (72%), delaying infrastructure projects (60%) and increasing service fees (41%). One in three (36%) cities report modifications to employee health care benefits.

"The cuts in personnel and the delaying of infrastructure projects are prudent and responsible actions by local officials," saidDonald J. Borut, Executive Director of NLC. He continued, "City officials are a making difficult decisions and are working hard to find innovative solutions to reenergize their communities. But without more resources and more cooperation, the outlook will continue to be challenging."

National indicators in the property markets and consumer spending point to continued economic struggles at the local level. Cities will have a difficult time in raising additional revenue for the immediate future.

"The biggest question for cities lies in the uncertainty about the health of the national economy, which is driven by a collection of city-regional economies," saidChristopher Hoene, Director of the Center for Research and Innovation at NLC. He continued, "If regional housing markets, unemployment, and consumer confidence struggle, city revenues will continue to lag, city leaders will face more cuts, and those decisions will act as a drag on the national economy."

Cities have also been forced to contend with significant decreases in state aid, adding to the pressures facing cities. Since 2009, cities report cuts in general aid (50%), shared revenues (49%), and reductions in reimbursements and other transfers (32%). As states make these cuts to balance their budgets, it puts greater budgetary pressure on local governments that must balance their budgets as well.

Confronted with revenue shortfalls, budget cuts, and state aid cuts, 57% of city finance officers report that their cities are less able to meet financial needs in 2011 than in 2010.

"Cities are squarely in the center of the economic downturn. We anticipated that property tax receipts would catch up with declining property values. That they are now falling, while consumer confidence and employment falter, make the budget-balancing decisions of cities more challenging than at any-time in decades," saidMichael A. Pagano, Dean of the College of Urban Planning and Public Affairs at theUniversity of Illinois at Chicago. He continued, "What we may be seeing in this report is evidence of a new normal."