Another Tale of Two Cities?

Sounds like we should have LED Detroit into bankruptcy, not followed it. - CS
	Another Tale of Two Cities? Source: statedatalab.org Forty nine of the 50 states are required to 'balance their budgets,' either via statute or state constitutions.  Debt loads have been rising sharply anyway, as government accounting standards and budget gimmicks have enabled some states to persistently spend more than they take in.  This is particularly true as retirement obligations accumulated off balance sheets, when true accrual accounting would have included that growth in any valid 'balanced budget' calculation. How about cities?  Cities c...

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Forty nine of the 50 states are required to 'balance their budgets,' either via statute or state constitutions.  Debt loads have been rising sharply anyway, as government accounting standards and budget gimmicks have enabled some states to persistently spend more than they take in.  This is particularly true as retirement obligations accumulated off balance sheets, when true accrual accounting would have included that growth in any valid 'balanced budget' calculation.

How about cities? 

Cities can have similar requirements, in their own city charter or from state constitutions.   Both Detroit and Chicago, for example, are in states with laws requiring balanced budgets for cities within the states.  Like the states, however, ambiguity in the language of the law can couple with accounting practices to allow cities to accumulate debt while they spend beyond their incoming revenue.

At State Data Lab, we calculate and report a metric called 'Net Revenue' for all 50 states.  Net Revenue subtracts total reported net expenses from general revenue.  It can inform whether a state is truly 'balancing its budget,' at least as far as reported results.  States reporting net expenses higher than general revenue have negative net revenue in a given year.  In some states, like Illinois, net revenue has been persistently negative despite a state 'balanced budget' requirement.

Net revenue can also be calculated for cities.  The chart above shows how net revenue in Detroit was persistently negative in the five years before its bankruptcy filing.  The chart also shows an even more alarming trend for the city of Chicago.  And those results can understate reality; they rely on the city's financial reports, which do not include accumulating off-balance sheet retirement obligations.

In 2009, when net revenue in Chicago first dropped through the (negative) $1 billion level, then-Mayor Richard M. Daley included the following observations in his letter introducing the annual report for that year:

Although we do see some signs of recovery on the horizon, city government must operate on a balanced budget, and we have instituted strong management initiatives to ensure that we match our responsibilities to available revenues.  This will continue to be our overriding theme: a smaller, more flexible, streamlined city government that lives within its means and can quickly respond to the needs of its citizens.