Budget Balance: City Rankings

April 5, 2016 |

In Brief: 

One indicator of a fiscally sustainable government is that it maintains a generally balanced or positive ratio of revenues to expenses or “budget balance”. This article explores the relative performance of the 50 most populous U.S. cities according to their budget balance ratio.

Introduction: Why We Measure

Across the United States, governments in severe fiscal distress have consumed our collective national attention. Citizens in Stockton, Detroit, and Puerto Rico are facing the consequences of fiscal short-sightedness: increased taxes, cuts to public services, or unfulfilled promises to public employees. But often, public officials, journalists, researchers, and citizens lack the data and practices to identify fiscal challenges in advance of severe distress.

To combat the challenges of access to, and understanding of, fiscal sustainability data, US Common Sense has created the nation’s largest comprehensive and free municipal finance platform on GovRank.org. The platform includes “top-line” financial figures, understandable measures of fiscal sustainability, and interactive rankings for over 13,000 municipalities nationwide.

In this article, we examine city performance according to one aspect of fiscal sustainability: how well a government balances its budget. For a full explanation of our data collection, analysis, and methodology, please refer to the GovRank project’s Methodology article.

Overview: Fiscal Sustainability and Budget Balance

A government is fiscally sustainable if it can meet the service needs of its current population without jeopardizing its ability to meet the service needs of its future population. We selected a set of three measures to help citizens understand fiscal sustainability: a budget balance ratio, asset flexibility ratio, and pension funding for public employees ratio. A fiscally sustainable government would maintain a generally balanced or positive budget balance ratio, a positive and relatively high net asset ratio, and a low per capita unfunded liability associated with retired public employees’ pension benefits.

Budget balance is the ratio of a government’s total revenues to its total expenses in any given year. The budget balance ratio illustrates whether a government operated in surplus, balance, or deficit in a given fiscal year.

Budget Balance = Total Revenues/Total Expenses

  • Total revenues include all the income a government generated in a fiscal year, as reported in its comprehensive annual financial report (CAFR). The total amount includes tax collections, fees and charges for services, transfers from other governments, and other revenue sources.
  • Total expenses include all the costs a government paid in a year, as reported in its CAFR. These typically include costs for general operations, personnel, infrastructure spending, and services that may include corrections, education, healthcare, and others. Total expenses do not include the cost of public employee retirement benefits. These are reported elsewhere in a CAFR.

Interpretation:              

  • When the budget balance is greater than 1 (total revenues > total expenses), the government has a surplus, with a larger value indicating a greater surplus.
  • When the budget balance is equal to 1, the government broke even (total revenues = total expenses).
  • When the budget balance is less than 1, the government operated in deficit (total revenues < total expenses), with a smaller value indicating a greater deficit.

Budget Balance Ranking: To rank budget balance performance, we calculated the average of a government’s annual budget balance ratios from 2009-2014. The percentile rank for each government is based on the average budget balance ratio.

By their nature, percentile ranks are a relative measure of performance. A city government that ranks in the 98th percentile for budget balance performed better than 98% of the city governments in our sample. A higher percentile rank indicates better performance relative to the sample.

Example: If a city had $1,000,000 in total revenues and $900,000 in total expenses in a given year, then its budget balance was 1.11 ($1,000,000/$900,000). The result tells us that total revenues were 11% greater than total expenses, meaning the city had a budget surplus.

About the Data:

This article assesses total revenue and total expense data among the 50 most populous cities, based on 2014 population figures. We included cities that reported three or more years of data in the sample. 

The data are from Comprehensive Annual Financial Reports (CAFRs). While CAFRs are standardized documents that use consistent reporting standards, underlying differences in government systems remain. For example, a government’s total revenue depends upon its tax structure. If a government relies on a volatile tax source, such as capital gains, its annual revenue may fluctuate more than other governments’. Expenses can also vary widely, depending on the services the government is responsible for providing and also on unusual one-time expenses. Our analysis does not control for the observed differences in circumstances and policy preferences.

Budget Balance Results:

Average Budget Balance Ratio: 50 Populous Cities </br> 2009-2014
  • Overall, the cities’ mean budget balance ratio is 1.04, with a maximum (best performance) of 1.26 for Charlotte, North Carolina and a minimum (worst performance) of 0.87 for Chicago, Illinois. This means Charlotte maintained an average 26% surplus and Chicago maintained an average 13% deficit during the period. S
  • Most of the cities are keeping revenues and expenses approximately equal. Thirty-eight of the 50 cities had an average budget balance ratio between 0.90 and 1.10 for 2009-2014. Eleven of the 12 cities with ratios outside this range have an average surplus larger than 10%. Only Chicago was running, on average, a deficit greater than 10%.
  • Among the worst-performing of the 50 cities, all had budget balance ratios in deficit range. The best-performing cities were usually less populous than the sample average. A similar association occurred with the states’ and counties’ budget balance ratios. Chicago ranked last among the most populous cities, as did Cook County (the county where Chicago is located) in the county rankings, and Illinois ranked second-to-last among the states.

Table 1. Top Performing Cities by Budget Balance (2009-2014)

City

Budget Balance Percentile Rank

Average Budget Balance Ratio

(2009-2014)

Average Surplus (Deficit) per Capita

(2009-2014, 2014 Population)

Overall Fiscal Sustainability Rank

Population

(2014)

Charlotte, North Carolina

87

1.26

$469

74

731,424

Arlington, Texas

84

1.22

$258

42

365,438

Minneapolis, Minnesota

81

1.20

$409

35

382,578

Oklahoma City, Oklahoma

80

1.19

$279

86

579,999

Atlanta, Georgia

80

1.19

$743

21

420,003

Wichita, Kansas

78

1.18

$218

41

382,368

Tulsa, Oklahoma

77

1.17

$191

40

391,906

Long Beach, California

68

1.13

$490

30

462,257

Tucson, Arizona

66

1.13

$209

14

520,116

Raleigh, North Carolina

63

1.12

$174

57

403,892

 Table 2. Bottom Performing Cities by Budget Balance (2009-2014)

City

Budget Balance Percentile Rank

Average Budget Balance Ratio

(2009-2014)

Average Surplus (Deficit) per Capita

(2009-2014, 2014 Population)

Overall Fiscal Sustainability Rank

Population

(2014)

Chicago, Illinois

1

0.87

-$426

1

2,695,598

Mesa, Arizona

3

0.90

-$151

5

439,041

New York New York

4

0.92

-$749

1

8,175,133

Indianapolis, Indiana

4

0.92

-$96

1

858,325

Nashville-Davidson, Tennessee

5

0.93

-$243

NA

668,347

Miami, Florida

6

0.94

-$120

20

399,457

Houston, Texas

9

0.96

-$71

1

2,099,451

Detroit, Michigan

10

0.97

-$150

1

713,777

Portland, Oregon

11

0.97

-$74

1

583,776

Omaha, Nebraska

11

0.97

-$37

1

408,958