Fiscal Stress Faced by Local Governments
"Local governments—including counties, cities, towns, school districts, and special districts—play a significant role in people’s lives and in the nation’s economy. In 2009, the expenditures of local governments equaled 8.7 percent of gross domestic product, and those governments employed just over 9 percent of the labor force. That year, local governments as a group cut their spending in real (inflation-adjusted) terms. This year and in upcoming years, they expect to constrain spending and services—primarily because of reductions in state aid and falling revenues. In particular, revenues from property taxes are poised to decline to reflect lower property values. To the extent that local governments address budget gaps by reducing spending or raising taxes, such changes will partially counteract the federal government’s fiscal support for the economy.

In light of those developments, this Congressional Budget Office (CBO) issue brief describes the economic conditions and budgeting practices that can lead to significant budgetary challenges—often termed fiscal stress—at the local level..."