Biden’s Essential Stimulus Won’t Solve State And City Budget Problems

President-elect Joe Biden just announced his economic stimulus plan and it contains good news—and additional money—for economically troubled cities.  But even if Biden gets all he’s asking for, it won’t solve long-term city budget problems.  Cities don’t get a fair share of revenue from their regional economies, and the major political reforms needed for that aren’t likely to happen.

There’s no question cities need this money now.  The Covid-19 pandemic has hit their budgets very hard.  And when Republicans kept budget aid out of December’s relief package, the U.S. Conference of Mayors’ President, Louisville Mayor Greg Fischer, said Washington “chose to turn its back on first responders, police, firefighters, and other essential workers.”

And things aren’t turning around.  In early January, we got a very bad employment report for December 2020.  Aside from an overall national decline of 140,000 jobs, economist Elise Gould at the Economic Policy Institute noted “state and local government employment continued to decline” for the fourth month in a row, feeding a cumulative “shortfall of 1.4 million from pre-pandemic conditions,” especially in education.

Some state and local revenues have held up better than expected—especially from the wealthiest Americans.  They’ve largely kept or recovered their jobs after spring’s economic shock, and combined with the record setting stock market, have contributed higher income taxes than anticipated.  

But other revenues sources are falling, as lower-income workers, especially those in certain sectors (hospitality, education, and a wide range of services) still are far from health.  Noting the better-than-expected fiscal situation, Maryland comptroller Peter Franchot said “we have a recession for low-wage earners, and we have just a weird situation for everyone else” so budgets remain troubled for big and small cities alike.

Collapsing real estate values for office buildings and hotels mean New York City now expects a $2.5 billion decrease in property taxes.  Smaller towns in Pennsylvania are losing business and parking revenues, and putting off paving streets and fixing sewers, while fearing police and firefighter layoffs.  Similar stories can be found everywhere in the country.

Forbes’ Sarah Hansen reports Biden is proposing a $1.9 trillion federal package, equal to over 50% of the $3.5 trillion total federal Covid spending to date.  States and cities will benefit in several ways:  $130 billion for re-opening K-8 schools (a place where states and cities spend a lot of money), $350 billion for state and local budget relief, extension of emergency unemployment insurance, an additional $1400 in household stimulus checks, and funding for public health measures related to the pandemic.

Biden also is proposing raising the federal minimum wage to $15 per hour and expanding child care.  A second proposal will present longer-term proposals for infrastructure, manufacturing, “green” jobs, and other initiatives.

If Biden’s proposals are enacted without any changes (a challenge in a narrowly-divided Congress), it will be a big help to cities.  But it’s a one-time revenue injection, not a fix for chronic city budget problems.  The economics of metropolitan areas are misaligned with their political configuration, and that has long-term impacts on city budget and economic health.

America’s metropolitan areas produce the vast majority of the nation’s economic growth, prosperity, and innovation.  But the cities that anchor these metros are surrounded by sometimes indifferent and sometimes hostile suburbs.  Although they depend on the metro for their prosperity, suburban property values, segregated schools, and housing for wealthier residents mean they get higher economic benefits than they contribute.  Cities are left with the lion’s share of problems—crime, inadequate infrastructure, and substandard education.

Cities are not blameless for budget problems.  They sometimes don’t manage their borrowing appropriately, or tax or regulate efficiently or fairly, especially with their greatest asset—urban land.  The Lincoln Institute of Land Policy offers help and policy advice to cities, calling municipal finances the “invisible challenge,” while noting that “the communities that face the most pressing problems are also the communities least equipped to deal with those problems.”  

Make no mistake, Biden’s new fiscal proposals are critically important.  Continued pressure on state and local revenues will slow the economic recovery through job losses and reduced spending on goods and services.  It also will hurt the most vulnerable among us—poor and disproportionately minority residents of core cities. 

But a short-term revenue injection won’t solve the long-term structural metropolitan dilemma.  As long as cities bear the majority of social costs while not receiving a fair share of metropolitan revenues and prosperity, they will face chronic budget problems.  That in turn will mean less investment in infrastructure, education, public health, and the other things we need for growing and shared prosperity.  Biden’s proposals are absolutely essential for addressing the crisis, but they won’t—and can’t—fix cities’ structural budget problems.