CNCounty News

Counties still challenged in recession’s recovery

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Counties are struggling with the costs of mandated services rising faster than inflation

Financial recovery from the recession of 2007 continues to confound nearly half of the nation’s counties, according to a just-released NACo report, The State of County Finances, which examines the effect of the recession on counties and the fiscal recovery of county governments.

Building upon the foundation laid by NACo’s Counting Money study on county financial reporting, this analysis, released Oct. 11, sheds light on trends in annual county revenues and expenses between 2007 and 2013, the latest year available for the majority of audited county financial statements. The report is accompanied by data in NACo’s interactive County Explorer for each of the 2,112 county governments reporting their financials in the same format. 

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Read the analysis.

Access companion interactive maps and the individualized county profiles 

The October update of NACo’s interactive tool features fiscal data from the State of County Finances analysis

General revenue recovery has been slow, uneven

General revenues are the backbone of county funding, because they are not restricted to a particular activity and provide flexibility to county boards in allocating funds to needed services. By 2013, general revenues had not recovered to 2007 levels in nearly half of counties (46 percent), when adjusted for inflation.

The recovery has been uneven

In the West, counties recorded the most improvement, with 59 percent of them bouncing back to pre-recession levels. Energy economy counties in North Dakota, South Dakota and Texas recorded higher general revenues in 2013 compared to six years before. The story is different in other parts of the country. Almost half of Southern counties remained below 2007 levels. For example, 2013 general revenues in 62 of the 67 Florida counties were still lower than six years before, showing the depth of the recession that hit the southern state.

Costs of mandated services rising faster than inflation

Almost half (48 percent) of counties recorded overall 2013 expenses above 2007 levels, even when taking into account inflation. In many cases, justice and public safety costs led the way, with two-thirds of counties (65 percent) witnessing increases in these costs above overall inflation. Alaska boroughs and counties in North Dakota and West Virginia had the highest surges of justice and public safety costs between 2007 and 2013. Other mandated services saw rapid increase in costs. For example, the majority of counties witnessed transportation expenses rising faster than inflation between 2007 and 2013.

State and federal funding is increasingly insufficient to cover mandated county services. Most often, about 93 percent of the state and federal funding used by a county is restricted to a specific function (capital and operational grants and contributions, called “dedicated grants” in this study). Fifty-nine (59) percent of counties recorded dedicated grants covering a smaller percent of county expenses between 2007 and 2013.

For example, a majority of counties in Virginia experienced declines in dedicated grants for justice and public safety relative to their restricted expenses between 2007 and 2013. Counties have to fund mandated services more and more with general revenues and charges.

By 2013, 55 percent of counties use more general revenue to cover for a larger share of expenses. Service charges are also used more. Between 2007 and 2013, revenues from charges funded a higher proportion of county expenses in 45 percent of counties.

The recession and slow recovery affected counties’ bottom line

Fewer counties could cover all their expenses in 2013 unlike their pre-recession experience. In 2007, 82 percent of counties achieved an annual surplus (positive change in net position), but by 2013 only 71 percent did so. The ending balances were also lower in 2013. Forty (40) percent of counties had lower ending balances in 2013 compared to 2007, with the largest concentration in the Northeast.

“The recession and slow recovery continues to affect counties’ bottom line,” said report author Emilia Istrate, director of research and outreach at NACo. “Unfortunately, state and federal service mandates on counties increase without significant additional financial support. And in many cases, states limit counties’ ability to raise revenue from other sources.”

“Even if the fiscal situation might have improved in some parts of the country or deteriorated in the energy intensive counties over the last few years, onerous regulations and state limitations continue to have lasting effects,” she added.

Though economic realities remain difficult, counties have addressed challenges by maximizing efficiencies and securing more diverse investments in services that impact residents’ quality of life.

“Counties strive to achieve more with less,” said NACo Executive Director Matt Chase. “Counties deliver essential services like transportation, infrastructure, justice, public health and public safety. We’re continually finding new ways to serve our communities more efficiently.”

In a follow-up study to be released this November, NACo will explore the constrained fiscal environment many counties face due to the proliferation of state and federal mandates, coupled with state limitations on counties’ abilities to raise revenues.  The study will also provide insight into the solutions and innovations that help counties to maintain quality services for residents.

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