Apr 22, 2020 - Economy

Budget desperation deepens for local governments

Hundred dollar bill with holes

Illustration: Aïda Amer/Axios

The city and county budget crisis is deepening.

Driving the news: Local governments were left out of the latest coronavirus relief package passed by Senate on Tuesday, despite mayors from across the country asking for $250 billion in direct aid to help cities continue to function as tax revenue plummets and coronavirus-mitigation costs skyrocket.

The latest: A bipartisan Senate bill proposes $500 billion in aid for state and local governments as part of the next comprehensive package.

  • Sens. Bob Menendez (D-N.J.) and Bill Cassidy (R-La.) want the money to be distributed according to a formula taking into account population, coronavirus case numbers and revenue shortfalls.
  • During a Senate Democratic caucus conference call Tuesday afternoon, Sen. Chuck Schumer (D-N.Y.) said there will be a phase 4 bill and that providing more funding for state and local governments is their top priority, a person on the call told Axios' Alayna Treene.
  • But Majority Leader Mitch McConnell (R-Ky.) said in an interview Wednesday that he'd prefer to allow states to declare bankruptcy over giving them a federal bailout.

The big picture: Local governments are required to balance their budgets and can't carry deficits, with a few exceptions.

  • "We're incredibly disappointed that we're left behind and that we're asked to wait until the next package," said National Association of Counties executive director Matthew Chase, who noted counties face a budget impact of $144 billion.
  • "What we're being told is, go ahead and cut your budgets, the federal government isn't going to help you," he said on a call with reporters Wednesday morning.

Only municipalities with more than 500,000 residents can receive direct funding through last month's CARES Act package, which set aside $150 billion for local governments.

  • That represents less than 1% of all municipalities and only 14% of the country's total population.
  • Nearly all cities with more than 50,000 residents expect a revenue shortfall this year, per a survey by the U.S. Conference of Mayors and National League of Cities.
  • The majority of cities with populations above 50,000 said they will have to furlough employees and anticipate having to cut public services, including police forces.

Zooming in: Ohio's major cities rely on earnings or income taxes, which have dropped precipitously in a matter of weeks.

  • In Cincinnati, a quarter of the city's workforce (about 1,700 employees) has been put on emergency furlough, writes assistant city manager John Juech, who was also furloughed, in CityLab.
  • Akron laid off 400 city staff and expects to cut the budget by up to 20%.
  • "If cities do not receive direct funding, it will be an enormous drag on the recovery because we will not have the revenue to keep people working," said Dayton Mayor Nan Whaley, who noted that a large number of city staffers not directly related to the coronavirus response have been furloughed.

Elsewhere, the financial strain is growing.

  • In New York City, Mayor Bill de Blasio has proposed $827 million in education cuts, per Chalkbeat.
  • Miami-Dade County faces a $278 million shortfall, per the Miami Herald, and that's assuming recovery begins by midsummer.
  • In Minneapolis, budget officials predict a $200 million revenue drop (12%), depending on how long the pandemic lasts. St. Paul officials anticipate revenue losses of up to 70%, the StarTribute reports.

What's next: The financial strain comes as city budget officials are trying to set budgets for the next fiscal year, which begins in July for most municipalities.

Go deeper: Cuomo says Trump agreed to push for state funding in next coronavirus bill

Editors note: This story has been updated to correct the sponsors of the Senate proposal.

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