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Fewer Police, No Parades: The Squeeze on Local Budgets

Cities and counties face budget shortfalls in the billions, leading to furloughs and hiring freezes. Absent federal aid, further cuts are certain.

A house in New Orleans decorated for Mardi Gras.
Krewe of House Floats decorations in New Orleans. The COVID 19 pandemic caused all Mardi Gras parades to be cancelled, losing the city significant revenue. (Suzanne Grim/Shutterstock)
Mardi Gras parades aren’t happening this year in New Orleans, due to the pandemic. Residents have responded by creating “house floats” — turning their homes into bright, stationary floats decorated with dinosaurs, circus animals and Art Nouveau demi-goddesses. One house features a large painted image of “Saint Dolly” Parton, complete with a sacred heart and holding a vaccination needle. 

It’s a clever and festive way to keep up the fun while staying safe. While raising spirits, however, it’s not the same as holding weeks’ worth of parades that pack the streets and bring in thousands of people to drink and spend money. In New Orleans, the lack of tourists has translated into sales tax revenues falling 43 percent below budget.

New Orleans is not alone in its fiscal pain. “Being a tourist county, we rely on 52 million visitors a year to come into our community,” says Commissioner Marilyn Kirkpatrick of Clark County, Nev., which includes Las Vegas. “We’re about $1.2 billion short in our current budget.”

Across the country, cities and counties are coping with budget pressures. Localities that collect income and commuter taxes have taken a hit, while sales tax collections are soft just about everywhere. At the same time revenues have declined, local governments face additional costs due to the coronavirus pandemic.

According to the U.S. Conference of Mayors, 40 percent of metropolitan economies will not recover all their lost jobs until 2023, with a third not fully recovering until 2024. A total of 1.4 million state and local jobs have been shed since February.

“We cut a couple of hundred positions last year,” says Mayor Nan Whaley of Dayton, Ohio. “This year, we will not have a police or fire class.”

Any city large enough to have a central business district faces the unanswerable question of how soon office workers will return — or how many jobs will remain fully or partially remote forever. Downtowns that were once filled with diners, theatergoers and sports fans don’t know how long streets will stay empty.

“We own an 18,000-seat arena and a performing arts center,” says James Wagner, finance director for the city of Tulsa. “Those buildings don’t have any earned revenues, but keeping the boilers going persists.”

The damage isn’t limited to major cities. “Just like the downtowns are becoming a challenge for the big cities, the small cities have empty storefronts on their Main Streets,” says Michael Wallace, a legislative director for the National League of Cities.

President Biden’s $1.9 billion economic and coronavirus package would offer state and local governments $350 billion in aid, although it’s not clear how that sum might be divided. Senate Democrats took the first procedural steps in advancing the package on Tuesday. The $618 billion counter-proposal released by a group of 10 GOP senators last weekend, however, includes no money for states and localities. 

State and local officials are certainly hoping and lobbying for help, but there’s still no guarantee they will get it. Just like there’s no assurance that the economic fallout from the pandemic will be over once some certain number of Americans are vaccinated. That leaves local officials to deal with budget crunches as best they can.

“It’s kind of a prepare for the worst and hope for the best situation at this point,” says Kevin Pawlos, Pittsburgh’s budget director.

The Picture’s Not Improving

On Monday, San Diego Mayor Todd Gloria released a midyear budget estimate showing that the city faces an $86 million shortfall in its current fiscal year, ending July 1. Its shortfall for fiscal 2022 is expected to be much larger. “It’s about to get worse,” says Chris Cate, who chairs the city council’s budget committee.

Gloria has ordered all city departments to prepare budget cuts ranging from 2 to 8 percent. Although property and sales taxes have remained steady — and cannabis taxes have been a fiscal bright spot — San Diego has taken a hit on hotel and other tourism-related taxes, which are the city’s third-largest source of revenue. “In December, I’m told we had practically zero,” Cate says.

Lots of cities face enormous budget holes. Detroit is projecting a revenue loss of $434 million over two fiscal years. Chicago Mayor Lori Lightfoot announced a budget shortfall of $1.2 billion for 2021. In Pittsburgh, where the budget year coincides with the calendar year, the city fell $57 million short last year and expects to be down $55 million this year.

If federal aid is not forthcoming, Pawlos says, Pittsburgh will need to lay off or furlough 600 employees starting July 1 to save $26 million. “We have anticipated layoffs in pretty much all the citywide departments,” he says.

Tulsa’s Wagner notes that sales tax revenue has declined for 11 straight months, compared to the previous year’s receipts. Like other places, Tulsa is now seeing a bump from use taxes from online sales, but those remain small relative to the broader sales tax and aren’t on a straight upward trajectory. 

Tulsa continues to have hiring and travel freezes in place, after cutting salaries by 10 percent through furloughs. “We’re not back to normal on a regular basis in terms of revenue,” Wagner says. “I don’t think the difficult decisions are behind us yet.”

Chances for Federal Aid

The federal CARES Act last March provided $150 billion in direct aid to states, plus localities with populations over 500,000. Many cities and counties never saw a dollar. States and localities have been left out of congressional legislation since then, including the $900 billion package passed in December.

“It is totally outrageous that direct aid to local governments was left out of the bill in December,” says Mayor Vince Williams of Union City, Ga. “We have heard some members of Congress say it is too soon to provide additional aid through a stimulus package. Aid to local governments cannot come soon enough.”

Speaking to the U.S. Conference of Mayors last month, Senate Majority Leader Chuck Schumer assured mayors that the next package to address COVID-19 would include aid for local governments. On Tuesday, Schumer told reporters that Biden had told Senate Democrats that the Republican plan was “way too small.”

In the meantime, local governments face increased costs, even as revenue collections are down. Kirkpatrick, the Clark County commission chair, says her county has devoted $130 million to rental assistance, yet 31,000 local residents are still facing eviction. The county’s unemployment rate peaked at an eye-popping 34 percent in April and remains in double digits.

“We’re all having to balance budgets with less money,” says Dayton Mayor Nan Whaley. “At the end of the day, you have 10 million Americans out of work. They’re maybe not buying anything, they’re certainly not paying income taxes.”

Downtown: Ghost Town

Downtowns have turned into ghost towns across the country. The occupancy rate for Minneapolis office towers is 16 percent. In Honolulu, it’s 14 percent. In Dallas-Fort Worth, 9 million square feet of office space is available for sublease. 

Nearly a year into the pandemic, some employers are telling workers they’ll remain virtual through Labor Day, or even permanently. It’s quite possible that most people will return to the office, but doubtless some sizable percentage will work from home permanently, if only a few days a week.

That means less office space rented out — translating eventually into lower property taxes — and fewer people downtown buying lunch or getting their hair cut.

“People are staying home, they’re staying in their suburban communities and they’re not coming back to the central city,” says Wagner, the Tulsa finance director. “Nearly all of the suburbs had come back by October to their pre-pandemic levels (of revenue). The central city was behind.”

Downtowns won’t remain empty forever. Some share of the workforce will return and at some point people will be ready to attend shows and sports. “I think there’s still a market for meetings and events,” says Cate, the San Diego council member. “It may not be the capacity we’ve come to know and love, but meeting spaces will still be a revenue generator for us.”

Foreseeable Future Problems

Lots of city officials are holding “what if” conversations. What if people aren’t coming back to conferences, or filling parking garages or pulling licenses and permits?

“I don’t think we’re going to return to the same level we saw in 2018 and 2019 in terms of people going to concerts and sporting events,” Pawlos says. “Unfortunately, I don’t think we’re going to see what the new normal looks like until a lot more of the vaccines are administered and we’re opened up for a sustained period of time.”

Opening up won’t mean all problems are solved. Economic activity might increase, but city and county officials know that they will be faced with problems largely hidden by the pandemic. “When we get out of our houses and see and assess the needs of our communities, we know there are issues like mental health and children’s issues we have not been able to deal with,” Whaley says.

There will be tales of two cities in many places. While downtowns have boomed over the past two decades, some will lose their luster as more people work and shop closer to home. But not all neighborhoods will prosper equally. 

While some are filled with professionals continuing to work remotely, others are filled with residents who are unemployed. Communities filled with unemployed individuals will present, aside from the human costs, challenges for civic leaders in terms of property values and sales tax receipts.

“Particularly in fragmented regions, like Chicago and Pittsburgh and St. Louis, you can identify the neighborhoods that never lost their jobs, and the housing markets are just soaring for them,” says Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. “In communities that are not being called back to work or still are suffering from some pretty bad unemployment, if they’re concentrated, you’re going to have problems.”

Alan Greenblatt is the editor of Governing. He can be found on Twitter at @AlanGreenblatt.
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