Editor's note: The following is the fourth of a five-part series on government budgets and government spending that comprise the 2012 Keating Report. The topics we are covering include: federal budgets, state budgets, public-private partnerships, local government budget trends and government construction.

City officials are managing tough fiscal conditions with a variety of strategies, according to the latest "City Fiscal Conditions Survey," issued last fall, by the Washington-based National League of Cities (NLC). The report, based on responses from city finance officers, reveals that general city revenues are continuing to fall, with a projected 2.3 percent decrease by the end of 2011. This is the fifth straight year of declines in revenue with probable further declines in 2012.

Cities are responding by cutting personnel (72 percent), delaying infrastructure projects (60 percent) and increasing service fees (41 percent). One in three (36 percent) cities report modifications to employee health care benefits. Fifty-seven percent of city finance officers who responded to the survey reported that their cities were less able to meet fiscal needs in 2011 than in 2010.

"The cuts in personnel and the delaying of infrastructure projects are prudent and responsible actions by local officials," says Donald Borut, executive director of NLC. "City officials are making difficult decisions and are working hard to find innovative solutions to reenergize their communities. But without more resources and more cooperation, the outlook will continue to be challenging."

The 3,143 counties in the U.S. are scaling back or deferring spending to balance their budgets, according to a recent National Association of Counties (NACo) report, "Coping with the New Normal: An Economic Status Survey of Counties." A total of 233 counties, representing 38 states, responded to the survey.

In the survey, 51 percent of counties reported that declining revenues from the state and federal government was the No. 1 contributor to their county's budget shortfalls. Counties are using rainy day funds, imposing hiring freezes and freezing pay, and adjusting staffing levels to address their current shortfalls. Counties, according to the report, are delaying purchases, repairs and capital investments, as well. More than half of the responding counties (52 percent) have instituted salary and/or pay freezes, and 50 percent have used their rainy day funds to pay current bills.

About 44 percent of responding counties have delayed purchases and repairs to county equipment and facilities. Meanwhile, about half (49 percent) of responding counties report that cities have contracted with them to perform some services, such as law enforcement and tax billing. The full report (in a PDF) is available on the NACo website at www.naco.org. The Washington-based NACo represents county governments in the U.S.

View additional installments of our 2012 forecast as well as the 2011 Mid-Year forecast.

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