A Glimpse Into the Fiscal Gloom Bearing Down on America’s Cities
(Bloomberg) -- In Cincinnati, a city of 300,000 on the banks of the Ohio River, Mayor John Cranley faces cuts to police, fire and sanitation without more help from Washington.
The city has already had to tiptoe back from the fiscal abyss earlier this year by temporarily laying off one-quarter of its workforce and balancing its budget with debt. Seventy percent of Cincinnati’s revenue comes from taxes on wages, and with the coronavirus continuing to spread, leaving record joblessness in its wake, Cranley said he fears permanent declines in essential services.
“Frankly, we need a bridge for an economic recovery,” Cranley said in an interview. “What we’re talking about is stabilizing our existing services and figuring out how they don’t get diminished.”
The pandemic reduced tax collections across the country as safety precautions to limit the spread of the virus shuttered businesses and kept shoppers and tourists at home. A resurgence of the virus has forced states to reverse or slow reopenings. Cities face $360 billion in revenue losses through 2022, according to some forecasts.
Discussion over what to do about America’s depleted cities reaches a climax of sorts this week as congressional leaders say they’ll hammer out an aid package. In May, a $3.5 trillion round of stimulus that includes roughly $1 trillion for state and local governments passed the U.S. House, only to stall in the Republican-controlled Senate. Majority Leader Mitch McConnell has said the Senate will attempt to craft a bill of its own, while the White House has put a $1 trillion ceiling on additional federal aid. McConnell has been working closely with the administration on crafting a bill. Already this year, Congress has approved $150 billion in aid for state and local governments, but the money comes with a condition: It can’t be used to replace lost revenue.
In a presidential election year, Ohio’s pleas for help stand out. Polls in the state, with its 18 electoral votes, show a dead heat between President Donald Trump and Democratic challenger Joe Biden after Trump won the state by 8 percentage points in 2016.
In Dayton, not far from Cincinnati, Mayor Nan Whaley furloughed a quarter of the city’s employees and she’s asking departments to prepare for an 18% cut across the board. Columbus and Cleveland, the two largest cities in the state, have managed to avoid furloughs and cuts so far. But Columbus said in early June its revenue is 4.5% below projections, and Cleveland has implemented a hiring freeze and is saving money by delaying police- and fire-cadet classes.
In Toledo, which expects to lose one-fifth of its revenue by the end of 2021, Mayor Wade Kapszukiewicz temporarily laid off more than 10% of the city workforce and said he’s trying to figure out how to keep the furloughs from becoming permanent.
“We’ll have to lay off police and firefighters if people like Mitch McConnell and the White House can’t put their differences aside,” Kapszukiewicz said in an interview. “What’s being sacrificed in the meantime? Virtually every service we provide is being provided more slowly. The grass in our city parks isn’t getting mowed as quickly as we like. There’s a debate over whether we should eliminate our recycling program. Everything is on the table.”
Both of Ohio’s U.S. Senators, Republican Rob Portman and Democrat Sherrod Brown, have come out in favor of additional aid and for flexibility in how that aid is used. A bill should’ve been passed months ago, Brown said, and the continued delay is stifling recovery.
“The need has only grown,” Brown said in an interview. “Communities have seen their budgets cut from state government, they’ve seen their local tax revenues begin to dry up and then they’ve had more demand on their services. They’re getting it three different ways and the federal government hasn’t been there to help.”
Failing to provide more aid, or not enough, leaves the U.S. at risk of repeating a key mistake of the last recession, said Nick Johnson, a senior vice president at the Center on Budget and Policy Priorities. Federal stimulus prevents job and service cuts at the local level, which can stifle recovery and snowball into lower revenues and more cuts.
States are hurting, too. Ohio Governor Mike DeWine, a Republican, slashed more than $450 million from schools in the face of a $775 million deficit at the close of the 2020 fiscal year. The state is expecting a $2 billion shortfall in the fiscal year that started July 1. In all, states face a $555 billion deficit through fiscal 2022, according to the CBPP.
Cranley teared up when he announced Cincinnati’s furloughs at a March press conference. The workers have gone back to their jobs, but the cuts offer a glimpse into the decisions the city is facing if more federal aid isn’t forthcoming.
Metro Cincinnati’s unemployment rate at the end of May was more than triple what it was a year earlier as some of its largest employers such as TriHealth Inc., GE Aviation and engineering company Belcan laid off or furloughed thousands of employees.
Cranley had to close a $70 million hole for fiscal 2021, which began at the beginning of the month. The mayor balanced Cincinnati’s $415.9 million budget with plans to borrow $10 million and by taking $24 million cobbled together from federal aid and block grants. He reduced spending by $30 million by eliminating vacant positions, freezing hiring and letting retirees go without replacements.
Still, the city may be forced to rummage for more savings. Absent more money from Washington, Cranley said another deficit next year could mean fewer basic services like sanitation, which could worsen the public-health crisis. It could mean shutting down parks and recreation services, and all of that is assuming the city weathers cuts to police and firefighters, Cranley said.
“At first you don’t notice those kinds of declines because they’re small,” he said. “Over time, the services will diminish if we don’t get an uptick in the economy.”
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