The Fiscal Health of American Central Cities, 2000 and 2021

This paper analyzes the fiscal health of 148 US central cities using data from 2000 through 2021 from a specially constructed fiscally standardized cities (FiSC) database that accounts for the revenues and spending of all the governments that provide public services in cities. The fiscal health of a city is defined as the gap between its expenditure needs and its revenue-raising capacity. The expenditure needs calculations are obtained from regressions of six separate spending categories. Tax capacity is measured by applying average tax rates to the major tax bases used by each FiSC. User charge capacity is based on residents’ ability to pay. Own-source fiscal capacity is supplemented by the actual receipt of grants from the federal and state governments. The results indicate that a substantial number of cities were in weak fiscal health in both 2000 and 2021. The variation in fiscal health across cities grew over this period, primarily because of uneven growth rates in own-source revenue-raising capacity, with the fastest growth in coastal cities.

Targeted increases in federal and state grants could play an important role in improving the fiscal health of central cities and in reducing fiscal disparities among cities.