Cities around the world face a serious fiscal crisis following the Great Recession of 2008. Five years later, the after-effects of this crisis continue to be felt and limit economic opportunities in cities.
Revenue of cities around the world—either generated by municipalities or derived from State transfers—have decreased sharply because of the economic slowdown, as did the fiscal value of real property. Some local governments also lost major assets that they invested in risk funds and banks that collapsed during the crisis. City expenditures—especially spending to address social needs—rose because of the slowdown in economic activity and the corresponding increases in unemployment and social welfare needs. The decline in revenue and increase in expenditure led many cities to experience the worst “fiscal crunch” in decades. Financing capacities shrank owing to the difficulty in obtaining loans and the increase in the cost of money. Banks and bond issuers—the main financiers of cities—have been heavily impacted. The credit rating of cities was heavily impacted because of declines in the tax base, expenditure pressures and increasing debt. Foreign investment to finance infrastructure has declined; operations underway have been put on hold and many projects have either been cancelled or delayed.