The pandemic is hitting city budgets harder than the Great Recession
With tax revenue in free-fall and expenditures dramatically rising, the coronavirus pandemic is on pace to hit cities' finances even harder than the Great Recession.
Why it matters: Almost all cities are required to balance their budgets, and at this rate they'll have no choice but to cut more services, layoff or furlough more workers and freeze capital projects.
The big picture: The 2019 fiscal year was the first year that most cities regained the levels of general fund revenue they'd lost due to the Great Recession.
- Those gains going into the 2020 fiscal year were wiped out in a matter of months once the pandemic forced local economies to shut down, and it could take another decade or more to recover from the sudden, deep free-fall.
- Between the lines: During the Great Recession, cities' year-over-year decline occurred over six years. The rapid fiscal plunge cities have felt over the past six months has been a much greater shock to cities' budgets.
By the numbers: Almost 90% of the 485 cities surveyed by the National League of Cities expect to be less able to meet their communities' financial needs this year than they were last year — the lowest level of confidence among local budget officials since the low point of the Great Recession.
- Cities, on average, expect a 13% decline in general fund revenues in the 2020 and 2021 fiscal years.
- All local revenue sources shrank in the 2020 fiscal year, which ended in June for many cities. Sales taxes saw the steepest drop, at 11%, and income tax fell 3.4%.
- Revenues from property tax showed the slowest decline, but property taxes are a lagging economic indicator and typically take at least 18 months to show up on balance sheets.
What they're saying: "Cities that rely on both sales and property tax — a pretty common mix — expect the biggest hit because they're getting squeezed both in the short term and the long term, having an even more damaging impact on their bottom lines," said Christy McFarland, National League of Cities research director.
For example, Pittsburgh Mayor Bill Peduto on Wednesday said the city has spent its entire reserve fund to pay the bills and currently faces a $100 million budget deficit. Massive cuts and layoffs are coming across every department, he said.
The bottom line: With the pandemic showing little sign of abating and negotiations over federal stimulus relief for local governments stalled, cities will be forced to make even harder decisions in the coming year.