The blog of the Urban Institute
November 6, 2019

Understanding the Link between Residents’ and Cities’ Financial Health

Resident financial insecurity can be costly to municipal budgets, but that effect varies widely across cities. In updated analyses released today, the Urban Institute evaluated the cost to cities of residents’ unpaid public utility bills, unpaid property taxes, and evictions.

Among the 10 US cities we analyzed, the costs range from as little as $6 million a year in Miami to as much as $1.23 billion a year in New York. Although this is a fraction of a percent of each city’s total annual budget, these costs can reflect substantial instability in residents’ lives and can increase volatility within city budgets.

Several factors affect how much residents’ financial insecurity costs cities, including the financial health of residents and each city’s deliberate budget choices and priorities.

Here we break down three examples that illustrate how unpaid property taxes, supportive services for families experiencing eviction and subsequent homelessness, and unpaid utility bills affect city budgets. These updated findings have deepened our understanding about how residents’ financial health is tied to city budgets and how cities balance the needs of their most financially insecure residents with other fiscal responsibilities.

Small variations in property tax revenue have a big impact on cities’ bottom lines

In 5 of the 10 cities analyzed, lost property tax revenue was the biggest cost to cities of financially insecure residents. If residents can’t afford to pay their property taxes, cities may be at risk for a revenue shortfall.

This fits with what we know about city budgets: 30 percent of general fund revenue at the local level comes from property taxes. Although this percentage varies among types of local governments and across states, all local budgets are sensitive to fluctuations in property tax revenue, making cities sensitive to the financial security of residents, particularly homeowners. 

Property taxes are the largest revenue stream for Chicago, making them integral to the city’s overall finances. Chicago has a large share of homeowners, and that share has been inching up in recent years to 44.9 percent in 2017.

Although this uptick offers some fiscal and social (PDF) benefits to residents and the city, it may also increase Chicago’s reliance on financially healthy residents to support its budget. Chicago’s budget already faces a serious deficit, and the city doesn’t have popular support from residents to increase this revenue stream through higher property taxes.

How cities spend money on services for their most financially vulnerable residents matters

Residents experiencing financial insecurity may lose their homes or get evicted. Evicted residents often rely on government services to help them get back on their feet. Some may experience homelessness as a result of eviction (PDF).

As cities struggle with homelessness rates that remain stubbornly high, an increasing number have created city-level homelessness agencies and have implemented rehousing initiatives. In fact, all the cities we studied provided homelessness services using a combination of local and federal dollars. Although some cities’ investments in affordable housing have reduced homelessness, these support services remain costly outlays in city budgets. 

In New York City, our data show a sharp increase in the cost to cities of residents’ financial insecurity in 2019, partly because of the high costs of providing homeless services. Homelessness spending has doubled in New York since 2014, reflecting an intensified focus on addressing homelessness (PDF).

Despite that investment­­—which focuses on crisis interventions, not long-term solutions like affordable housing—the number of residents experiencing homelessness increased from 2014 to 2018, and New York City continues to have the largest population of people experiencing homelessness in the US.

Evictions stem from the long-term financial insecurity of residents (PDF) and the failure of the housing market to provide housing that is affordable to families with low incomes. Cities like New York should consider investments in housing subsidies, affordable housing preservation and production, and programs that support the financial health of their residents before they reach the point of eviction and homelessness.

Changes in utility use and rates vary widely and can affect residents’ and cities’ financial health

Cities routinely increase water rates, among other public utilities, which can affect the well-being of financially vulnerable residents. High utility costs may place a larger burden on low-income residents.

Among the cities we studied, Seattle had the highest reported water bill, and data indicate that residents in the city’s poorest zip codes may struggle the most to stay current on their payments. Fluctuations in rates can make it challenging for residents to pay their utility bills, which makes city budgets vulnerable to shortfalls. For many localities, “charges,” which include utility revenue, are the second-largest source of own-source revenue.

The variation in public water use and rates between cities underscores the importance of reliable data for understanding the link between residents’ and cities’ financial health. In our previous release, we included utility data from a single standardized source.

To update the data this year, we used multiple data sources, including recent news stories, city utilities’ own information, and our own calculations. This allowed us to better pinpoint use and rate information within local areas but made comparisons between cities more challenging because residents in different cities don’t use similar average amounts of water, and they pay different prices. We know that high utility bills affect residents’ financial security, so reliable data can help us better estimate how unpaid bills impact city budgets.

Cities have different choices and constraints when considering how to best serve their residents. Among the hardest but most important ways cities can improve residents’ financial health is addressing long-standing structural barriers, including residential segregation, lack of access to capital flows (PDF) and affordable housing, and predatory financial practices (PDF).

In the meantime, cities can pair (PDF) financial coaching, counseling, and incentivized savings interventions into other government programs to help improve the financial security of their residents. Our findings show that when cities tackle the challenges of addressing financial insecurity, all residents—not only the most vulnerable—can benefit.

A man and a child place cans in a recycling machine for money outside of a grocery store in the Bronx on July 11, 2018 in New York City. (Photo by Spencer Platt/Getty Images).

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