Cities nationwide are tightening their budgets as revenue growth slows and federal COVID-era aid phases out, according to the latest National League of Cities (NLC) fiscal survey. After enjoying several years of stabilization supported by pandemic relief, many municipal finance leaders now report rising expenses and greater uncertainty heading into 2026.
Spending increased 7.5% in FY 2024, but that pace plummeted to 0.7% in FY 2025, NLC found. At the same time, revenue growth, which rose 3.9% in 2024, is now expected to drop 1.9% in 2025, forcing many cities to consider cuts, hiring freezes or delayed capital projects.
The decline in confidence is stark: 52% of finance officers said they could meet their city’s financial needs in FY 2025, down from 64% just one year earlier. Optimism falls further looking ahead to 2026, where only 45% feel confident.
As Infrastructure Investment and Jobs Act funding winds down and as some programs face reversal from Trump administration efforts, cities are adjusting to what NLC calls a “post-COVID reality.” Inflation pressures, slow consumer spending, and unstable federal policy are also clouding local financial planning.
The survey found that property and income taxes grew sharply in 2024, but sales tax revenue flattened. The NLC report noted that sales taxes remained “mostly flat,” indicating a “shift from the tax revenue boom cities experienced following the reopening of the economy.” That leveling off reflects a “normalization of the economy” after a surge of pent-up spending.
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Municipal leaders are also navigating tariff impacts: 43% of city finance officers said tariffs affected procurement costs, complicating infrastructure schedules, equipment purchases and construction bids.
At the NLC City Summit 2025 in Salt Lake City, local officials echoed concerns from the report.
Thousand Oaks, California Councilmember Connie Gutierrez said her city is “right on trend” with spending pressures and “not very optimistic, sadly.” She added that her city’s revenue projections dipped as sales tax estimates were reduced to $36.7 million, down from $40.9 million.
“I think we’ve learned a lot from the 2025 realities that we’ve faced,” Gutierrez said.
Evanston, Illinois Councilmember Clare Kelly noted that her city is re-evaluating spending priorities without COVID relief funds to lean on. “We’re definitely in a moment now where we’re weighing our priorities in terms of spending,” Kelly said.
Despite financial strain, budget patterns remain consistent.
According to NLC, over 50% of city spending goes to public safety, while 10% supports recreation and culture, and 7% funds capital outlay. Debt service accounts for 3%, and public health just 1%, underscoring how little flexibility most cities have when revenue falls.
Originally reported by Ryan Kushner in Construction Dive.
