Mar 25, 2020 - Politics & Policy

Exclusive: Elected city officials brace for fiscal blow

Reproduced from National League of Cities; Chart: Axios Visuals
Reproduced from National League of Cities; Chart: Axios Visuals

U.S. cities of all sizes are facing significant fiscal pressure as they try to fight the coronavirus. Many local elected officials expect that they'll have to curtail services, raise fees or draw down reserves to absorb the blow.

Where it stands: Congress and the White House reached a deal overnight to inject $2 trillion into the economy, with $150 billion set to be allocated to state and local governments, including $8 billion for tribal governments.

  • Details of how that money will be allocated are still unclear, as the text of the bill is not yet available. A Senate vote is expected today.

The big picture: Most cities have taken aggressive steps to try to control the spread of the coronavirus, according to a survey of elected leaders of 326 cities conducted by the National League of Cities.

  • 89% have closed public places, and 84% have banned large gatherings.
  • 70% have halted utility shut-offs, and 49% are funding food delivery programs, like school meal replacement.

Yes, but: Essentially shutting down their economies while also expanding safety-net programs comes at a huge cost.

  • When asked how much their city, town or village would likely be requesting from FEMA's Public Safety Assistance Program, 12% of respondents anticipated seeking $1 million or more in reimbursements.
  • 50% of city leaders expect to have to draw down their reserves to pay for their coronavirus response.
  • When ranking relief measures that would help the most, city leaders prioritized targeted funding to assist local employers (60%), block grants directly allocated to local governments (50%), and targeted funding for housing, including emergency mortgage or rent payments (45%).

A separate Morning Consult poll of 2,200 adults commissioned by the National League of Cities found that Americans overwhelmingly (86%) support the federal government providing funds directly to cities to help support coronavirus challenges.

  • 80% support local governments spending money to control the spread of the virus, even if it means raising local taxes.
  • Overall, a majority of respondents support local governments' policies to help stem the pandemic, including supporting at-risk residents.

Between the lines: Typically, emergency relief legislation directs money to state governments to then dole out to local jurisdictions. But counties and cities say there's simply not enough time to go through that extra procedural step — they need aid immediately.

  • Local officials worry that the legislation limits direct aid to jurisdictions with populations that exceed 500,000, leaving out smaller localities.

County governments, which run 1,900 public health departments, expect the crisis to cost billions.

  • Los Angeles County, the most populous in the country, is estimating $290 million in costs over six months, and 50 of the 88 cities in the county will face additional expenses of $145 million.
  • That doesn't factor in lost tax revenue due to businesses shutting down for weeks if not months.

What they're saying: "If there ever was a scenario where state and local governments needed a strong stimulus injection, it is now," Tom Kozlik, Hilltop Securities' head of municipal strategy and credit, in a client note.

  • He said this crisis is more dire than the Great Recession of the 2000s.
  • "What is facing them now is happening quicker, there is a national health care crisis to battle, and the economic and financial fallout is likely to be unprecedented."

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