The nation's cities reported Monday that they are in serious financial stress from a combination of lower tax revenues and higher costs — and predicted that their budgets may suffer for years.

"Even if economic conditions improved immediately, the nation's cities are likely to be realizing the effects of the current downtown through 2010," said Michael Pagano, co-author of a study by the National League of Cities about their current fiscal conditions.

The report says a "perfect storm" of financial trouble has formed for cities.

Their property-tax revenues are down by 3.6 percent amid record foreclosures and declining home values. Sales-tax revenues are down by 4.2 percent as residents have tightened their belts in tough times and buy less. And cities' costs are up amid record fuel costs and increases in such things as health benefits for city workers.

"Because of these declining financial factors, cities are going to have difficulties meeting budget requirements with their normal revenue streams this year," said National League of Cities President Cynthia McCollum, a City Council member in Madison, Ala.

But, she added, that cities "have prepared responsibly and many have historically high rainy day funds to get them through these tough economic times."

The report said its survey of cities shows that those in the West are being hit hardest, with 74 percent of finance officers saying their cities are worse off financially this year than last, followed by cities in the Midwest (67 percent), Northeast (61 percent) and the South (53 percent).

City finance officers nationwide project a budget gap of 2.8 percent this year, with revenues declining by 4.3 percent overall and spending declining by 1.5 percent in inflation-adjusted dollars over 2007.

To meet budget shortfalls, 49 percent of cities surveyed have increased fees, 28 percent have increased the number or types of fees and 23 percent increased development and impact fees.

"Cities have implemented creative solutions for making do with less, while managing their budgets responsibly in the face of legal requirements that they be balanced annually," said Donald J. Borut, executive director of the league.

"There is, however, only so much cities can do when faced with the macro-economics of a housing market in crisis, flat revenues and soaring health-care and energy costs," he said.

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