Special Briefing: The Year Ahead for Cities

U.S. cities entered 2026 with generally solid fiscal footing but growing uncertainty around economic growth, affordability pressures, and an evolving federal–state–local relationship. While revenues remain elevated after several years of strong economic performance, slower growth, federal policy shifts, and rising service demands are forcing local leaders to reassess budgets, priorities, and long-term risks. For a discussion of the fiscal outlook for U.S. cities amid slowing growth, affordability pressures, and changing federal, state, and local dynamics, Penn IUR and the Volcker Alliance convened a panel of experts for “Special Briefing: The Year Ahead for Cities” on January 29, 2026. 

William Glasgall, Penn IUR Fellow and Public Finance Adviser at the Volcker Alliance, and Susan Wachter, Co-Director of Penn IUR, co-hosted the Special Briefing. The panel included Janet Cowell, Mayor of Raleigh, North Carolina; Fitzroy Lee, Deputy Chief Financial Officer and Chief Economist, Office of the Chief Financial Officer, District of Columbia; Sarah Parker, Senior Research and Strategy Officer for Infrastructure, Environmental and Economic Analysis, New York City's Independent Budget Office (IBO); Nicholas Samuels, Senior Vice President, US Public Finance at Moody's Ratings; and Matthew Stitt, Managing Director, PFM Group Consulting LLC.

Mayor Cowell opened the discussion with an overview of Raleigh’s fiscal and economic status, emphasizing her city’s growth and overall financial stability, while acknowledging potential exposure to federal policy risk. “As mayor of Raleigh, we feel fairly optimistic about 2026,” she said. “First, we are a growing city… Second, we have pretty good and stable financial resources. And the biggest risk…is federal spending and state spending in North Carolina, and how they treat cities.” 

Raleigh’s population growth remains a defining feature of its outlook. Cowell noted that the metro area has “crested a half million people” and expects “another quarter million people over the next 25 years,” adding that the city “topped the U-Haul list this year as the place where most people were renting U-Hauls to move.” She highlighted the city’s $1.8 billion annual budget, its heavy reliance on property taxes, and its available debt capacity, as reflected in its AAA bond ratings. “We have $200 million where we’re trying to do steady-state resources without raising taxes,” she said. Cowell underscored vulnerability to federal actions, including research funding and social services, noting that “$580 million in cuts, which is 25% of the total,” is across major research universities. “We feel optimistic that we're a growing community with a number of levers and ways we can accommodate growth…but the risk does become the federal relationship and how they look at cities.”

Parker provided a view from New York, outlining the scale of the city’s finances and the challenges facing the nation’s largest municipal budget. “New York City’s annual expense budget this fiscal year is $118 billion,” she said, alongside “a $173 billion ten-year capital plan,” noting that the city’s budget “is larger than all but three states in the country.” While the current budget is balanced, Parker emphasized looming gaps: “Our office estimated last month [the city] is facing budget gaps of about $6-8 billion across its financial plan period…about 8-10% of our city’s local tax revenue.” She explained that this gap exceeds those closed in past downturns and will require difficult choices. 

On the revenue side, Parker said property taxes remain stable, noting that the city released “a very strong assessment roll.” Concerns about a commercial real estate “doom loop” have not been realized, with the market “settling into what we’ve termed a new normal.” Recent strong performance by the financial services sector likewise presents “good implications for the city's personal income tax.” She cautioned, however, that employmentgrowth has slowed: “The city only added 40,000 jobs this past year,” roughly half the pace of stronger years, and warned that many new jobs are lower-paying. Parker stressed the importance of state approval and partnership, explaining that proposals on taxes, transit, and child care  “require either state approval or state support financially,” making the relationship with Albany “more important than ever” as federal funding dynamics grow “much more tenuous.”

Lee highlighted Washington's unique exposure to federal workforce reductions and their fiscal implications. “Federal workforce downsizing presents the biggest challenge to the district’s economy for the year ahead,” he said, citing data showing the nation’s capital “lost almost 30,000 jobs…about 4% of all jobs since January,” largely due to federal cuts. Lee reported that unemployment rose from “5.3% in January to 6.5% in November.” Office occupancy in the district has declined significantly since COVID-19, with “weekly office access card swipes at 56% of pre-pandemic level,” Lee said. 

Although “net domestic migration remains negative,” Lee highlighted that “the D.C. population continues to recover from pandemic-related losses.” Turning to the budget, he explained that the city incorporated a “revenue reduction of about $300 million per year” into its financial plan, equivalent to “about 3% of the district’s $11 billion local-source revenue”. Although recent revisions boosted near-term revenue projections due to strong capital gains and corporate profits, he cautioned that these are “among the more volatile revenue sources.” Looking ahead, Lee identified key risks, including the impact of the federal government layoffs, dependence on financial markets, and population growth driven increasingly by stricter immigration policies.

Stitt offered a national perspective, drawing on his experience advising cities across the country, and highlighted common themes shaping local budgets. “Affordability is a big theme,” he said, alongside “resiliency…particularly related to infrastructure spending,” and continued efforts to restore “growth and vibrancy” in downtowns. Many cities and counties, Stitt noted, are “preparing for how to maintain service delivery despite federal cuts,” often by strengthening reserves and reexamining five-year forecasts. He described widespread reassessment of tax bases and incentives, stating that cities are “looking at both sides of the ledger” through “what costs could be eliminated or shared…potential changes to existing taxes...and alternative revenue streams.” 

Stitt emphasized that housing, transit, workforce challenges, and childcare remain top priorities, citing Philadelphia’s plans to invest “upwards of $2 billion in affordable workforce housing in the coming years.” In long-term forecasts, cities remain “concerned about shifting tariff policies,” said Stitt. He concluded that cities are increasingly focused on “maximizing fiscal return in order to avoid raising other taxes,” while adapting to post-pandemic structural changes.

Samuels provided Moody’sU.S. credit and macroeconomic outlooks for cities and counties nationwide. “Overall growth will be slower,” he said, forecasting that real GDP in calendar 2026 “will be 1.8%,” remaining “below 2% in 2027.” For local governments, he projected revenue growth of “between 3 and 4%, but… at the lower end of the range,” marking “a return to the long-term trend” after several years of unusually strong gains. Samuels warned that federal policy risk remains central, explaining that “federal funding is a meaningful share of local budgets, particularly for social programs and infrastructure programs like Medicaid and transportation grants.” 

He highlighted emerging credit risks from disaster-response policy changes, potential federal shutdowns, and volatility in wealth-linked revenues. “The job market is becoming soft,” Samuels said, and affordability pressures, he argued, are becoming structural: “In 3 of the 10 largest U.S. cities, the combination of rent and childcare, transportation, and taxes consume more than 60% of household income.” These pressures, Samuels said, “dampen consumer spending, reduce tax revenues, and can influence migration patterns,” posing long-term risks to fiscal stability if not addressed.

Wachter opened discussion with a question to the panel: “How much is consumer weakness a concern, particularly around affordability going forward?” Panelists broadly agreed that affordability pressures are emerging as a structural constraint on local economies and fiscal health. “Affordability is absolutely the number one issue in Raleigh,” said Cowell, highlighting the city’s estimated $100 million budget “to enhance subsidized housing” over the next fouryears. Samuels emphasized that affordability pressures are increasingly intersecting with broader economic performance, noting that municipal bonds are “only one tool in an array” of strategies to address affordability. “The real problem is this imbalance where demand vastly exceeds supply,” he said. 

Wachter asked whether Samuels’ GDP growth forecast of 2% is consistent across cities. Lee concurred: “We're looking at lower employment, lower wages and salaries, and so we're not looking at more than 2% or so growth going forward.” Parker underscored that consumer resilience is being tested even as employment remains high, explaining that “many of the jobs that are being added are in lower-paying sectors,” which constrains household spending power and complicates local revenue forecasting. Turning to the topic of disaster response, “there’s going to be a real need for intergovernment relations,” said Parker. “The longer term [issue] is how a government itself addresses its own adaptation needs relative to its physical climate risk,” said Samuels. 

Wachter concluded with a question about the impact of federal retrenchment, asking whether cities are constrained in their ability to serve local constituents because of their relationships with their respective state governments. “In North Carolina and in many states in the South,” said Cowell, “the State General Assembly has a lot of authority and power, and they have taken away a number of revenue sources for local government… They are setting the rules, and it definitely impacts how we do our job as mayors.”

Moderated by William Glasgall, Volcker Alliance Public Finance Adviser and Penn IUR Fellow, and Susan Wachter, Co-Director of the Penn Institute for Urban Research and Wharton Professor of Real Estate and Professor of Finance, this briefing is the sixty-fifth in a series of sixty-minute online conversations featuring experts from the national research networks of the Volcker Alliance and Penn IUR, along with other leading academics, economists, and federal, state, and local leaders. 

Special Briefings are made possible by funding from The Travelers Institute, the Volcker Alliance, and members of the Penn IUR Advisory Board. Recordings of the entire Special Briefings series are available on the Volcker Alliance or Penn IUR websites. 

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