States and Cities Crippled by Pandemic Push for Next Bailout

(Bloomberg) -- U.S. states, cities and towns say they need a bigger bailout.

The federal government’s $2.2 trillion stimulus is doing little to help municipalities deal with their worst fiscal crisis in decades, leaving cities even far from the pandemic’s hardest hit areas facing stark choices to make ends meet. Dayton, Ohio, furloughed water employees to avoid first responder cuts. York County, Pennsylvania, sidelined workers to help avoid a debt default, and El Paso, Texas, may cut salaries to instead fund a local food bank.

“We need a bailout,” said Adrian Perkins, mayor of Shreveport, Louisiana, who slashed his own pay in the face of a $25 million revenue shortfall. He said the city doesn’t want to raise taxes on residents reeling from the economic impacts of the pandemic, so it will be forced to make cuts. “We’re planning ahead without the aid of the federal government, but we desperately need it.”

The nationwide shutdown has decimated virtually every source of tax collections, with businesses shuttered and more than 22 million people thrown out of work in the last four weeks alone. The Center on Budget and Policy Priorities projects a historic $500 billion shortfall for states through June 2022, while a survey of 2,400 local officials found nearly all of them expect deficits from the virus.

The federal stimulus provides $150 billion for municipalities’ virus expenses but doesn’t go to budget shortfalls and only helps states and cities greater than 500,000. The Federal Reserve announced loans to states and only cities with over 1 million residents.

‘Broke’ NY

That’s prompting calls for both Congress and the Federal Reserve to step up their aid efforts, with New York Governor Andrew Cuomo saying his state is “broke” with a $10 billion deficit. Governors, mayors and other local officials say it’s their turn for the federal government to save them from the financial upheaval caused by the pandemic.

The needs could be massive, with governors calling for Congress to provide $500 billion for state shortfalls alone. Local and state officials say the stakes are high. If they’re struggling, it could make the nation’s economic recovery harder. State and local governments contributed to 8.5% of GDP in 2019, more than the federal government, according to the Bureau of Economic Analysis.

“Everyone has the goal of getting the economy moving again -- we’ll be having to do things that will undercut that unless there’s more federal assistance,” said Rob Dubow, finance director for the city of Philadelphia, in an interview. The city is facing a still-uncertain revenue hit of hundreds of millions of dollars and is looking at the potential for “painful” cuts, he said.

Historic Hit

Leaders in the epicenter of the virus, Cuomo and New York City Mayor Bill de Blasio, warn the federal help so far doesn’t go far enough. The Independent Budget Office said in a report Wednesday that the most-populous U.S. city could see a $9.7 billion shortfall in tax revenues in fiscal 2020 and 2021 compared to what the office had forecast in January. The 475,000 jobs the city could lose in a year would rival what it saw in the 1970s when it was near bankrupt, the office said.

The federal aid is also limited to cities and counties with more than 500,000 residents, which accounts for 171 governments, according to the Treasury department.

Greg Fischer, mayor of Louisville, Kentucky, said the assistance ignores smaller communities’ needs. “The cold reality of this pandemic is the cost of these actions to take care of our city right now are blowing massive holes in our budget, and our experience in Louisville is playing out in cities of all sizes throughout America,” he said in a call with reporters.

Meanwhile, the Federal Reserve’s $500 billion short-term lending program to help governments get over short-term cash crunches is only available to states and the 10 cities and 16 counties that are big enough to meet the minimum population requirements, according to Census figures. It will offer little relief if governments don’t have the revenue to back such borrowings.

The central bank’s loans are “no substitute for direct grants to states,” said Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities, a liberal-leaning think tank that says state budget shortfalls could eclipse what was seen in 2008.

McNichol said some states may not be in the position of paying back the debt to the Fed while they’re still in an economic downturn. “Grants are what is really needed now,” she said.

Maryland may see a $2.8 billion shortfall, causing Republican Governor Larry Hogan to institute a hiring freeze and tell state agencies to prepare budget cuts. In Kentucky, Democratic Governor Andy Beshear says he will have to abandon a budget proposal that would give teachers a $2,000 pay raise and boost education spending. In Wisconsin, the state could see a $2 billion drop in revenue, which Governor Tony Evers said will hurt its ability to help the growing number of unemployed residents.

‘Gone Tomorrow’

Cities and states are having to figure out how to balance the need for budget cuts with trying to minimize the impact on residents that are sick, losing their jobs or seeing pay cuts. El Paso Mayor Dee Margo said in a call with reporters that he’s expecting a shortfall of $26 million, leaving him looking for ways to cut services.

At the same time, El Paso is trying to support residents affected by the economic toll of the virus, expecting that cuts to city employee pay will help cover a $100,000 payment to a local food bank.

“Everyone’s going to feel a financial burden,” Margo said.

Even some of the most financially-sound cities are struggling. Arlington, Virginia, which has a AAA credit rating and wealthy tax base, is facing a $100 million budget shortfall from the virus, forcing City Manager Mark Jinks to cut his fiscal 2021 budget proposal by almost 6%.

“With recessions, usually you see it coming, you get warning signs. You slide into it, you slide out of it,” Jinks said in an interview. “This was literally revenues here today, gone tomorrow.”

The National League of Cities surveyed over 2,400 local officials and found three-fourths of large municipalities that responded to the survey are planning to cut public services, according to a report released Tuesday. Almost half of communities with more than 500,000 residents say they will have to lay off employees.

Those cuts may have important ramifications during the public health crisis. Cincinnati furloughed as many as 1,700 workers, including about 28% of the city’s health department.

‘Locally Executed’

House Speaker Nancy Pelosi, a Democrat, has said she wants the next stimulus to provide aid to states and cities. There’s growing pressure on Congress to agree to more money before localities start slashing budgets, but negotiations are complicated by social-distancing and shelter-in-place orders keeping most lawmakers out of Washington.

In 2008, cities unsuccessfully sought to get some of the $700 billion that was doled out as part of the federal government’s bailout of corporations. The 2009 American Recovery and Reinvestment Act later went on to give states $300 billion.

“Every city in America is under enormous strain,” said Mayor Bryan Barnett of Rochester Hills, Michigan, who serves as president of the U.S. Conference of Mayors. “The federal game plan was simple, four words: ‘federally supported, locally executed.’ Well, we’re holding up our end and we need our federal colleagues to hold up theirs.”

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