States And Cities Need Washington’s Immediate Budget Help

While former President Trump’s second impeachment trial dominates the news, the Biden Administration is negotiating hard on their $1.9 trillion Covid-19 relief package. And the $350 billion proposed aid to state and local governments remains a major sticking point, with some saying it isn’t necessary.  But even though state budgets may not be as bad as first feared, many still need help.  And cities face a much more perilous situation.   

State tax revenues in some places haven’t fallen as far as earlier forecasts projected, leading many Republicans to reject fiscal aid. This is consistent with their refusal when they blocked state and local aid in last year’s relief packages. 

Republican Senator Rick Scott (R-FL) recently said state revenue reports for 2020 showed a positive picture, and “President Biden and the Democrats…are lying about the need” for federal assistance. Scott relied on a JP Morgan report showing a small average state annual revenue decline in 2020, but that report included strong months prior to the pandemic, so using the annual average is misleading.  PolitiFact’s fact checkers found Scott’s claims “mostly false” on the budget issues, detailing how he cherry-picked the data.

The state revenue picture is complex, given our 50-state economy.  The Urban Institute’s detailed website on state budgets says the pandemic has “dramatically reshaped state economies and budgets” but the effects differ “significantly across states.”  States that depend on tourism (Hawaii, Nevada, Florida) or extractive oil and mining revenues (North Dakota, Oklahoma, Texas, West Virginia) have been hit harder than states with more diversified economies and progressive taxation.

So the state budget picture isn’t as rosy as some claim. But lumping states and cities together also is misleading.  City budgets are very stressed, and if the virus reshapes their economies (especially their real estate markets) the pandemic could hit them harder than states.  And it’s unlikely states will bail them out, given states’ own revenues problems but also the contentious relationship many states have with their big cities.

Several excellent recent stories on state and local budgets have analyzed the slower revenue declines.  But as Aaron Fritschner (@Fritschner) of Representative Don Beyer’s (D-VA) office pointed out on Twitter, most of the articles actually “are all about state revenue,” not cities.

Mayors certainly don’t think their budgets are in good shape.  The U.S. Conference of Mayors says the Biden proposal would provide “desperately needed direct flexible assistance.” Louisville Mayor Greg Fischer, the conference’s president, worries that “without direct fiscal assistance” city budget and economic problems will “drag, not drive the economy for years to come.”

It’s depressingly easy to find troubled city budgets.  Baltimore’s budget director warned the City Council that the budget is “going to look ugly for a long period of time” due to lost hotel, parking, and other revenues along with large additional costs for dealing with the pandemic. New York City’s Independent Budget Office sees significant “economic and fiscal risks” going forward, and also notes that “neither Washington nor Albany (the state capital) has ridden to the city’s aid to replace the lost revenue.”

This last point is essential for understanding city budget problems.  Cities often are disfavored by their state governments, which historically have been dominated by rural and suburban interests.  Cities are the drivers of regional, state, and national economic prosperity, but bear many costs of urbanization and don’t share fully in the revenues produced by metropolitan growth.

The problem could get worse if Covid-19 changes metropolitan economies.  Urbanists @Richard_Florida and @bruce_katz worry a major shift to homework for high income employees that weakens central business districts (CBDs) may do long-term harm to city budgets.  As Katz points out, “CBDs are (a) large source of municipal tax revenues.”  And labor economist David Autor foresees a shift away from offices eliminating many service jobs which would contribute to a lack of jobs for low-wage employees.

It may be that rapid vaccination and control of the virus can buffer the economic impacts on cities, especially on office work and associated service and support jobs.  But there’s no question cities in particular are suffering immediate budget harm from the pandemic that only the federal government can address.  Cities, states, and our economy need the budget package that the Biden Administration advocates.