Sept 13 (Reuters) - U.S. cities face falling revenues for a sixth straight year but their finances have passed the worst point since the recession, according to a report released on Thursday by the National League of Cities.
The group's City Fiscal Conditions Survey, which is based on data from 324 cities, found that a key revenue source, property taxes, continued to decline this year, reflecting a lagged impact from the real estate market's decline.
Cities' general fund revenues are expected to drop by 3.9 percent in 2012, after falling 2.3 percent in 2011, according to the report.
Expenditures, meanwhile, are expected to rise slightly by 0.3 percent this year after declining by 4 percent in 2011.
But cities may be climbing out of the hole created by the 2007-2009 recession as 57 percent of city finance officers reported that their cities were better able to meet financial needs in 2012 than in 2011, when a majority said they were less able to do so.
"That's a good sign for where we are on the trend line for city fiscal conditions," said Chris Hoene, director of the group's Center for Research and Innovation, in a conference call with reporters.
Health care and pension costs were cited by more than three-fourths of the officers as negatively affecting budgets. Other budget-busting issues such as lower state and federal aid and falling revenue were cited by about half of the officers.
To cope with those factors, city budgets have been relying on reserves. For 2012, ending balances were projected to fall to 12.7 percent of expenditures from 18 percent in 2011.
"What we've seen happen over the last four to five years because of the economic downturn, there is a drawdown of those ending balances. The cities have used those funds to help weather the storm," Hoene said.
Cities, which have taken steps to reduce their work forces and services and delay or cancel infrastructure projects, will likely face weakened fiscal conditions again next year due to the lingering effects of the housing market decline, high unemployment, questionable consumer confidence and an economic recovery that could become even more sluggish if the federal government slashes spending, the group reported.
"Even if we may have turned the corner here for city governments in terms of the overall fiscal conditions, they have a ways to go before they are out of the woods and on a clear path toward recovery," Hoene said.