A Look at Medium-Size Alabama City Budgets

August 7th, 2019

With the current economic expansion providing national and state budget surpluses, how are Alabama cities faring? Where do cities get their money, and how do they use it? Are most city budgets about the same, or are some very different? These questions can be answered by examining city financial reports, but for a state with 444 cities and towns it is a Herculean task. The task is complicated by the uniqueness of each city, which can be seen in differences in geographic location, resources, socio- economic, and demographic factors. However, grouping the cities makes the task somewhat easier. This article looks at Alabama’s medium-size cities—those with 10,000 to 100,000 inhabitants.

Population estimates for Alabama cities and towns in 1998 ranged from seven people in Gantts Quarry to 252,997 in Birmingham. Four cities, Birmingham, Mobile, Montgomery, and Huntsville, had populations of more than 100,000. Forty-nine cities were between 10,000 and 100,000, with nine having populations of more than 30,000. There were 179 cities and towns with populations of 1,000 to 10,000, and 212 towns with less than 1,000 inhabitants. We examined fiscal year 1998 city financial reports for a sample of eleven medium-size cities, using revenue and expenditure classifications for governmental accounting, auditing, and financial reporting.

About half of Alabama’s medium-size cities had budget surpluses in 1998. However, those cities with red ink had deficits that were much deeper than the heights of the surpluses of the other cities. These deficits seem to be the result of large capital outlays. Hopefully, even with large capital expenditures, more of our cities will run budget surpluses enabled by the current economic climate.

City revenues come from taxes, charges for services, intergovernmental transfers, licenses and permit fees, fines and forfeitures, interest, and miscellaneous revenues. From their revenues, cities make expenditures for public safety, public works, and other social services. There are additional charges for capital projects, debt service, running the government, and miscellaneous charges.

Not surprisingly, taxes are the major source of revenues, about 58 percent. License and permit fees are the next major component of revenues, and raise about 15 percent on average. Charges for services and intergovernmental

transfers bring in about 9 percent each, and the remainder is raised through fines, interest, and miscellaneous income. A word of caution in interpreting these findings is that not all charges for services may be reported; some cities have water and sewer boards whose financial statements are not included in their financial reports. What is interesting is the wide range that the top three components of revenues cover. Taxes range between 41.1 and 70.1 percent; license and permit fees, 8.7 to 19.7 percent; and intergovernmental transfers, 4.6 to 21.0 percent.

Social services average 61 percent of total city expenditures, but the range among cities is from 48 to 81 percent. Running city governments averages 12 percent of expenditures, ranging between 5 and 22 percent. The remaining 27 percent of total expenditure is allocated to capital outlay, debt service, and miscellaneous expenses. Expenditures on other services (health and welfare, culture and recreation, education, and economic and urban development) have the widest range, 3.0 to 44.6 percent.

Interestingly, public safety takes up about 25 percent of expenditures, while only 21 percent is spent on health and welfare, culture and recreation, education, and economic and urban development. If communities could reduce crime, perhaps more attention and resources could be devoted to providing good health, schools, libraries, parks, job training, and other quality-of-life services. Alternatively, cities could raise more revenues and devote the additional funds solely to providing social services and raising the quality of life. This look at our medium-size city budgets suggests that if we expect city governments to provide citizens a higher quality of life, the citizenry must expect to pay for it.

What is really impressive is that about half of the cities spend less than 10 percent on running city governments. In addition, more than a third spend greater than 70 percent of total expenditures on social services. These are laudable achievements, and for them, kudos to our city governments. About a fifth of the cities spend more than 20 percent on their governments, and another fifth spend less than 50 percent on social services. For these last expenditure shares, we must be concerned.

Samuel Addy

Sample Cities’ Population, Revenues and Expenditures
Fiscal Year 1998

		Population	Total	Total	Excess
	City	1998 Estimate	Revenues	Expenditures	(Deficit)
1	Anniston	25,524	$32,892,982	$31,475,842	$1,417,140
2	Athens	19,720	13,944,106	14,064,522	(120,416)
3	Cullman	14,437	18,833,149	17,670,597	1,162,552
4	Enterprise	21,663	15,982,949	15,650,885	332,064
5	Eufaula	13,463	10,182,683	14,196,135	(4,013,452)
6	Northport	20,247	13,926,006	13,274,927	651,079
7	Opelika	24,490	22,704,109	29,447,518	(6,743,409)
8	Ozark	12,660	9,553,452	10,673,317	(1,119,865)
9	Phenix City	27,353	17,481,203	20,953,443	(3,472,240)
10	Prattville	25,769	13,964,588	13,491,108	473,480
11	Selma	22,037	21,752,536	20,536,244	1,216,292

Sources: FY 1998 city financial reports; U.S. Bureau of the Census; and Center for Business and Economic Research, The University of Alabama.

Sample Cities’ Detailed Revenues and Expenditures, Fiscal Year 1998
(Percent of Total)

Note: Sums may not total 100 percent due to rounding.

Sources: FY 1998 city financial reports; Alabama Department of Public Examiners; and Center for Business and Economic Research, The University of Alabama.