Emily Badger and Quoctrung Bui
The crisis has arrived faster than the damage from the Great Recession ever did. And it will cut deep in the fiscal year ahead, with many communities likely to lose 10 percent or more of the revenue they would have seen without the pandemic, according to a new analysis. That’s enough for residents to experience short-staffed libraries, strained parks departments and fewer road projects. The hardest-hit cities like Rochester and Buffalo could face 20 percent losses.
“The Great Recession was a story of long, drawn-out fiscal pain — this is sharper,” said Howard Chernick, a professor emeritus of economics at Hunter College and the Graduate Center at the City University of New York, who worked on the new analysis estimating revenue shortfalls for 150 major cities across the nation.
These numbers give a sense of the possible economic pain for cities if Congress and the White House fail to agree on a new relief package that includes aid to state and local governments. It also rebuts some of the prevailing, largely Republican arguments that have stalled those negotiations: that federal help will bail out only blue cities and those that have mismanaged their finances.
The estimates, to be published in the National Tax Journal by Mr. Chernick, David Copeland at Georgia State University and Andrew Reschovsky at the University of Wisconsin, are based on the mix of local revenue sources, the importance of state aid and the composition of jobs and wages in each city. The researchers predict average revenue shortfalls in the 2021 fiscal year of about 5.5 percent in a less severe scenario, or 9 percent in a more severe one.
Rochester already has deferred millions of dollars of nonessential expenses like new uniforms or fire trucks. It furloughed or reduced the hours of about one in 10 city workers, many of whom will return as the city reopens further. Officials delayed an incoming class of new police recruits and canceled the next class of firefighters.
“We can’t produce money, we can’t borrow our way out of this, we can’t tax our way out of this,” Mayor Lovely Warren said. “But our residents expect that the trash will be picked up on trash day. They expect that the snow will be plowed when it snows. They expect that when they call 911 that a police officer will show up.
“For Washington to ignore that reality — “it hurts.”
“It’s wrong to punish the victim,” she added. “The city here is the victim.”
Other city officials around the country say they have tried to plan prudently for down times. But the pandemic has brought added costs, while state laws have limited their ability to raise revenue.
In Detroit, one-fifth of the municipal budget typically comes from casino revenue. And casinos have only just reopened, at reduced capacity. The city managed to save money when its recreation centers closed, and it hasn’t spent as much as usual managing downtown traffic. This coming year, the city will also mow the grass less often on vacant properties it owns.
With such moves, officials believe they will be able to get through fiscal year 2021 with a balanced budget. But after that the decisions will get harder, especially without federal help.
Other cities heavily dependent on sales taxes felt the implosion of the economy more immediately than cities that count on income or property taxes. Revenue from income taxes will lag behind unemployment; property taxes are set a year or two in advance. Consumer spending, particularly by the biggest spenders, dropped sharply early in the pandemic. And it is expected to fall now for millions of workers whose added $600 federal unemployment benefits expired at the end of July.
Broad shifts in how Americans eat during the pandemic have affected tax receipts as well: Restaurant meals are taxed, but in most states the groceries people cook at home are not.
In Colorado Springs, which relies heavily on sales taxes, those revenues plummeted in late March and April. But they crept back in May and, to everyone’s surprise, the city saw slightly more in sales tax revenues in June than it did in June of last year. Mayor John Suthers attributes that to the resilience of the local military and defense sectors — and to all the online shopping residents have been doing.
“Without the Supreme Court’s intervention, in the last three years this would have been a whole different ballgame for us,” Mr. Suthers said.
Orlando, Fla., is projected to suffer about as much as Colorado Springs in these estimates. But with the county responsible for many services, the Orlando municipal government will be spared the worst of the pain. Orlando City Hall’s revenues rely heavily on property taxes, which were already set to grow next year. And, like Colorado Springs, the Orlando area has long benefited from population growth and a construction boom — the other side of broad demographic shifts toward the Sun Belt that have left Northeastern cities like Rochester more vulnerable.
“Maybe Orlando isn’t in the same dire situation as other places,” said Chris McCullion, the city’s chief financial officer. But he, too, is calling for direct federal aid, as is Mr. Suthers, a Republican mayor. “This is really, really important for the long-term health of cities and states,” Mr. McCullion said.
At risk is not just services for local residents in any given city, but the possibility that disparities will widen between cities that can weather this crisis and those that can’t, if they are largely left on their own.
“One legacy of the Great Recession was exposing and increasing inequities between communities,” said Amanda Kass, the associate director of the Government Finance Research Center at the University of Illinois at Chicago. Now those disparities could grow even wider.