Financially Insecure Residents Can Cost Cities Millions

by Diana Elliott / Urban Institute / February 2, 2017


No matter how robust a city’s economy, its budgetary bottom line is affected by financially insecure residents. For 10 American cities, we can now put a number to that loss. According to a new Urban Institute analysis, the cost to municipal budgets of family financial insecurity ranges from $8 million to $18 million in New Orleans to $280 million to $646 million in New York City.

Financially insecure residents (those with less than $2,000 saved) are less able to recover from a job loss or financial emergency. When families are evicted or miss bills, it can cost cities in lost tax revenue, unpaid public utility bills, and public benefit use.

Looking at those costs proportional to city budgets, we found that residents’ financial insecurity costs cities between 0.3 percent (San Francisco) and 4.6 percent (Seattle) of their total annual budgets. Residents’ economic insecurity can take a toll on city budgets.

Here are five reasons cities should care about families’ financial health.

  1. Property taxes make up a sizeable portion of city revenue.In Chicago’s proposed 2016 budget, 18 percent of the city’s revenue was anticipated to come from property taxes. But what if many of the city’s homeowners are financially insecure and cannot pay their tax assessments? In Chicago, where the homeownership rate is around 44 percent (above average for most cities studied), 62 percent of families are financially insecure, and 38 percent have subprime credit scores, exposing the city to the risk of a revenue shortfall if some residents cannot pay their property taxes.

  2. Unpaid bills shortchange public utilities and cost cities tax money. For cities with public utilities, unpaid bills can directly affect operating costs. In Seattle, where the city has public electricity and water services, we estimate that the city collected $4,411, on average, from each household in 2015. Los Angeles and Chicago collect an annual tax from their residential electricity users, so unpaid bills directly affect city revenue. We know from prior research that families without savings are more than twice as likely to miss a utility payment after an economic shock, compared with families with $2,000 or more in savings, so residents’ financial insecurity has implications for public utilities and city revenue.

  3. Homeless services are intensive and costly.When families get evicted or lose their homes—a potential consequence of financial insecurity—they don’t always have friends or relatives to help them. City-provided homeless services can support these families, but are intensive and cost cities tens of thousands of dollars a year. While federal funds also cover homeless services, all the cities we studied provided homelessness services.

  4. Boosting homeownership depends upon creditworthy residents. Many cities make homeownership a policy priority and for good reason: homeownership conveys personal and community benefits. Homeowners are invested in their communities and pay property taxes every year. But cities would be well served to also prioritize improving residents’ basic financial needs.

In seven of 10 cities in our study (ChicagoColumbusDallasHoustonLos AngelesMiami, and New Orleans), one-third or more residents have subprime credit, making home loans nearly impossible to secure. Even when financially vulnerable residents secure mortgages, they often pay higher rates. Why couldn’t a city-led homeownership program focus on residents ready to buy a home today and on those who aspire to own in the future? Helping families save for a home and improve their creditworthiness could boost city homeownership rates in the long term.