As the recession deepens most local governments face lower tax revenues and cuts in aid. Cities and counties are taking steps to better manage their money, but officials also will have to find other sources of revenue, says Chris Hoene, director of policy and research for the Washington-based National League of Cities (NLC).

Officials in South Kingstown, R.I., are cutting expenses in light of the economic slump, says Town Manager Stephen Alfred. "We must look at how long the recession may last," he says. "If it is one year, we can delay infrastructure projects and cut back on services. If it is multiple years, we must look at bonding projects, and determine what can be delayed. Can the infrastructure project wait? Can we continue to fund open space?"

While cost-cutting measures are not bad ideas, Hoene says, they are unlikely to help the bottom line in a crisis. Instead, he suggests lobbying at the state level to gain the authority to change revenue sources locally. "In New England, for example, the local government has authority over schools, and they are overly reliant on property taxes to pay for everything," he says. "If they could add a local sales tax or income tax, they could diversify their portfolios and be less reliant on one revenue source."

At the same time, Alfred says, officials must be sensitive to their residents. "In this economy, it is not a willingness to pay taxes, but an ability to pay," he says.

When looking for places to cut, Hoene says health savings accounts and retirement benefits must all be on the table. "As much as [officials] like to stay away from cuts here, it is where the money is," he says.

As a last resort, Hoene says municipalities that have been conservative about putting money away can use their reserve funds. "They can draw those down in hard times, though it will change their bond ratings," he says.

Liz Boardman is a Wakefield, R.I.-based freelance writer.