"While there are signs of improvement, it is still too early to say that cities have turned the corner," says Christopher Hoene, co-author of the report and director of the Center for Research and Innovation at NLC. "The broader economy is still growing at a slow rate, and housing values, income levels and consumer spending – the main determinants of tax receipts – are not improving significantly. It all points to a difficult 2013 for cities."

Among the top concerns contributing to the fiscal health of cities are health care costs at 81 percent, pension costs at 77 percent, infrastructure costs at 75 percent and public safety demands at 61 percent. Other concerns include a general increase in costs at 83 percent, reduced federal aid levels at 51 percent, falling local tax bases at 47 percent and decreased health of the local economy at 42 percent. 

An especially large concern for respondents is the performance of city tax revenues, the report finds. In fact, property tax revenues are expected to drop for the third consecutive year by 2.1 percent while income tax revenues are predicted to fall by 0.8 percent in wake of the continued high unemployment rate. The one positive indicator is sales tax revenues after it slightly rose in 2011 and is projected to rise by 2.4 percent in 2012.

To counter this, cities are looking for ways to ensure proper funding levels for city services and budget requirements. In doing so, 43 percent of respondents are raising fee levels, 48 percent of respondents are cutting staff, and 21 percent of respondents are reducing human services spending and other public services.  

"Cities have been making significant cuts to their budgets for several years now, and that trend will continue," says Michael Pagano, co-author of the report and dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. "These are serious times for cities and their residents. Difficult but manageable financial hurdles for cities will remain for the foreseeable future."