At first, I was a little surprised at how tight local governments are being as they put budgets together this fall. When I looked closer, though, it made sense. Local government revenues depend mostly on local payrolls and real estate values. These have declined and will continue to fall. They may not improve for two or three years after the economy starts to turn around. So instead of stretching their budgets this year with the idea of fixing any gaps with next year’s budget, local governments have to make this year’s budget stand on its own and be prepared to cut again next year.
Local governments can’t count on any help from squeezed state budgets. States are canceling social service programs and leaving communities to pick up the pieces — and state budgets will be squeezed even more in 2011 after federal help expires.
The wild card in local budgets is the possibility of a severe flu season. The new H1N1 flu virus isn’t showing signs of mutating into something more deadly, but that all could change in November when the weather gets colder. Local governments will be on the front lines if a deadly flu outbreak strikes, and they can’t risk being caught flat broke when that happens.
For these three reasons, we can’t expect local governments to take chances trying to stretch their budgets. Instead, services that seem essential will have to be cut back.