By Scott Calvert
Most U.S. cities say continuing economic damage from the coronavirus pandemic will leave them in worse financial shape in the coming year than they were earlier in the crisis, raising the odds of deeper municipal layoffs and service reductions, according to a new survey.
Nearly 90% of the 485 cities polled by the advocacy group National League of Cities said they will have a harder time meeting the needs of their communities in fiscal 2021 than in the prior fiscal year, the highest share since the depths of the 2007-09 recession. In 2019, just 24% of finance officers reported that their city was less able to meet fiscal needs, compared with the previous year.
For many cities, the 2021 fiscal year began in July, though some cities start the fiscal year in January or October.
The survey found that all major sources of local tax revenue slowed in fiscal 2020, including an 11% year-over-year decline in sales tax receipts and a 3.4% drop in income tax revenue.
Municipal budget officials on average anticipate that general fund revenues for fiscal year 2021 will come in 13% below 2020 levels, the survey said. General funds typically account for more than half of all city spending and are fueled largely by property and sales taxes, along with income taxes in some cases.
Cities that depend more heavily on sales tax are most likely to suffer financially during both 2020 and 2021, the survey found. Sales taxes are more sensitive to economic shifts than property taxes, which the report said typically reflect property values from 18 months to several years prior.
State and local governments reduced spending at a 5.6% annual rate in the second quarter to offset plunging tax revenues, as the pandemic spurred a shutdown of much of the economy.
Many cities “skimmed from the top” through moves such as hiring freezes or furloughs, said Christiana McFarland, the National League of Cities research director and co-author of a report on the survey. Personnel costs account for a large share of city expenses, so additional budget cuts will likely mean laying off more government workers, she said.
“If the workforce is cut,” she said, “it will have negative consequences on services as well.” Those could include trash pickup, code enforcement, public safety, and parks and recreation, she said.
Ms. McFarland said the survey findings likely understate the seriousness of the concerns, because city officials responded in June, when there was greater hope for a speedier recovery from the pandemic and for substantial federal aid to local governments. “Now, those clearly are either stalled or looking pretty grim for the fall,” she said.
Efforts in Congress to craft a fresh economic relief package have hit a wall, and aid for state and local governments is a key sticking point. Democrats are seeking $950 billion, while Republicans have offered $150 billion.
“Government investment in the economy is exactly what is needed during downturns, meaning that the future economic health of our nation relies on fiscally strong cities, towns and villages, along with state and federal investments,” the National League of Cities report says. “Without them, the road to recovery and reopening will be long and tenuous.”
Write to Scott Calvert at [email protected]
(END) Dow Jones Newswires
August 13, 2020 06:14 ET (10:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
