The “City Fiscal Conditions, 2025” report from the National League of Cities was released at the end of last week, showing “external pressures that could reshape local fiscal landscapes.” 

While increased reserves amassed over the pandemic years offer cities some cushion, fiscal officers show a trend toward decreased optimism, according to the report, which is published annually. While 64 percent of NLC survey respondents reported that they felt better meeting city needs in FY 2024 compared to the previous year, that percentage dropped to 52 percent in FY2025 (compared to FY2024). Just 45 percent reported that they expected to feel better meeting city needs in FY2026.

Included in the report analysis are survey responses from fiscal officers and budgetary detail collected both through the survey, as well as from Annual Comprehensive Financial Reports (ACFRs) and budget documents from the largest cities. Participating cities come from across the US and range from under 10,00 population to those that are over 300,000.

Fiscal officers generally reported a positive outlook regarding their local economies, the health of city taxes and population growth. For example, in response to the value of the city tax base, 69 percent expressed a positive reaction compared to 12 percent whose response was negative. When asked about the health of the local economy, 51 percent were positive and 6 percent were negative. The 32 percent positive reaction to population growth was a little less enthusiastic but only 5 percent expressed a negative response.

The report points to a transitionary environment. In constant dollars, FY2024 revenues grew 3.9 percent over FY2023, but estimated FY2025 figures showed 1.9 percent less in constant dollar revenues than the previous year. That was matched with a decline in spending from a 7.5 percent spending jump in FY2024 to less than a 1 percent increase in FY2025.

It's the pressure on the spending side of the balance sheet that appears to raise the most concerns for fiscal officers.

Three worries that stand out are concern for infrastructure needs, inflationary prices, and employee salary pressure. As the report states: “The increasing costs associated with infrastructure maintenance and expansion, coupled with the need to provide competitive wages to attract and retain skilled employees are straining city budgets.” 

Other areas of concern include public safety needs. emergency services, disaster preparedness, the effect of tariffs and potential changes to the Municipal Bond Tax Exemption. With the survey conducted in the beginning part of the summer, these issues are cited as on the radar for fiscal officers.

For example, there is a concern that tariff policies may put pressure on local budgets. Some evidence of impact is already evident. The report states that 43 percent of respondents said that “in their view” tariffs had “influenced their ability to procure certain goods, but just 6.6 percent described that impact as significant.

The potential elimination of the municipal bond tax exemption was cited as more of a topic worth watching because of its effect on the affordability of debt. For example, 43 percent of fiscal officers expressed concern that the elimination of the municipal bond tax exemption would reduce or delay infrastructure projects, 29 percent said they’d seek alternative financing methods and 18 percent pointed to a potential increase in local taxes because of higher borrowing costs. Ten percent said they expected “no impact.”

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