On June 3, the Federal Reserve Board announced it would expand lending to jurisdictions under its so-called 13(3) authority in response to known budget shortfalls across the country. Governors can designate jurisdictions and others to raise money by selling debt into its municipal bond buying program established in April to soften the blow to state and local budgets from economic activity at the onset of the coronavirus pandemic. It cannot come soon enough.
Testimony in recent congressional hearings before two House subcommittees paint a bleak picture. A now oft-cited survey by the U.S. Conference of Mayors of some 2,400 jurisdictions in April revealed that 98% “irrespective of party, geographic location, financial position ... said they’re gonna have massive budget shortfalls,” Mayor Bryan Barnett of Rochester Hills, Michigan, told members of a select committee established by the House of Representatives.
Can Congress act in June?
“The ability of mayors to govern, to fix the streets, to have the money to pay police, firefighters, teachers, or ambulance drivers” depends on phased reopening, economic activity and resultant tax revenue, Congressman Steve Scalise (R-La.) said on a May 29 videoconference held by the Select Subcommittee on the Coronavirus Crisis.
To that end, the Center on Budget and Policy Priorities found that states and localities furloughed or laid off over 750,000 civil servants in one month.
Seattle Mayor Jenny Durkan told the Subcommittee her government had worked quickly “to help residents stay afloat, from holding evictions to relief grants for small businesses, to creating a food voucher program for families,” but “the suffering is real.” She and others inside and outside Congress have called for massive investments in infrastructure, broadband and other stimulus.
Columbia, South Carolina, Mayor Stephen K. Benjamin asked for “direct and targeted, flexible, fiscal assistance, to cities,” noting $75 billion in resources for local governments in the HEROES Act passed by the House in May. He expects anticipates a 10% loss in revenue by governments across the board. “Cities need real money.”
Barnett, current President of the U.S. Conference of Mayors, made clear that since fiscal year 2021 begins for many governments on July 1, asking Congress to act in June. While the HEROES Act will not pass the Senate, some follow-on to the CARES Act may. CBPP projects fiscal ‘21 budget gaps worse then even 2010 as the great recession receded.
Cities big and small hurting now
“Our funding from services, city services, include fees for permits, building inspections, park fees, all of those came to an abrupt and unexpected halt,” Barnett testified. A youth soccer league in his community canceled its rental fees for fields, Rochester Hills lost $200,000 in revenue that cannot be made up, he said.
Atlanta Mayor Keisha Lance Bottoms said she allocated $7 million to expand food programs for seniors and children, assistance for small businesses and housing, including a moratorium on evictions, established new homeless shelters, suspended utility terminations instituted hazard pay for essential city employees. “We are squeezing every dime.”
At the other end of the spectrum, a third of Mangum, Oklahoma’s 2700 residents are 65 years or older. Mayor Mary Jane Scott said 10% of his population became infected with coronavirus, the highest per capita in his state. Farming and ranching dominate the local, economy, so “even if a business, just one business fails, devastating consequences in our little city.”
The City of Mangum faces a tax revenue shortfall of up to 80%. “We struggle through this right now, but if there is another way this fall, it will be devastating to the city’s ability to provide the needed services to our community,” SCOTT said. “We will need federal assistance of some kind.”
Jacksonville, FL, Mayor Lenny Curry insisted that governments “cannot quarantine and shutdown the nation’s economy indefinitely.” Noting the deterioration in his residents’ mental health resulting from prolonged ‘stay at home’ order imposed the Florida – an early reopening state – CURRY testified that level calls for drug overdoses “outpaced the 2019 numbers, significantly, every single week.”
Los Angeles Mayor Eric Garcetti said 3,000 homeless in his city have stayed in a hotels, motels and shelters. But LA faces its highest documented unemployment in history. “We’re taking $20 million from our reserve funds,” he explained, and “implemented a 10% pay cut for all our nonessential city employees.”
Rainy day funds are far from adequate
“Our city has traditionally been very financially sound but without any mismanagement, we’re going to lose a third of our budget,” Barnett testified. “I’ve got parks employees on furloughs. I’ve got building department employees on furloughs.” Explaining that local governments can either raise taxes, cut services renovate, Barnett said “it’s impossible to raise taxes right now. Cutting services is what were forced to do.”
“We are facing a disaster here that we’re trying to recover from,” Rep. Andy Kim (D-N.J.) said on the videoconference hearing. “My towns in my district are continuing to struggle having to pay off debts to federal Government from the Superstorm Sandy” which struck the Atlantic Coast in 2012.
“What came through loud and clear from today’s panel is that America’s communities urgently need the federal government to exercise leadership in order to beat this virus,” Chairman Jim Clyburn said. Afterall, 85% of Americans live in cities and metro areas where 89% of the jobs are. DURKAN concluded that “cities need sustained, significant, direct relief. Cities are a majority of America.”
As unemployment skyrockets to around 20% and economic recovery is deliberately gradual, the fiscal picture looking ahead is no better for the states. Echoing comments by Senator Rick Scott (R-Fla.) in recent weeks, Curry told Subcommittee members that “local governments deserve access to the dollars they send to Washington, but not as a reward for poor physical decision-making.”
That sets up a clash between states already heard repeatedly in the Senate as so-called red and blue states, but also big and small states teed up for a fight over allocations in the next bill. “States will first draw the rainy day funds and other budget reserves to address the shortfalls but, as in the last recession, those reserves will be far from adequate,” CBPP wrote in June.
States face similar circumstances
In fact, former governor Scott has repeatedly pointed to New York as losing population to Florida for years even as Medicaid and recent relief are disproportionate. Scott has had a kind of rivalry with neighboring Senator John Kennedy (R-La.) for weeks on the issue, repeatedly objecting (May 7 and May 20) to Kennedy’s request to take up and pass his Coronavirus Relief Fund Flexibility for State and Local Government Act.
House Budget Committee Chairman John Yarmuth (R-Ky.) said at a June virtual hearing that while “working parents are trying to fill the roles of teacher, provider, and employee, all while striving to make ends meet… More than 40 million unemployed Americans will lose emergency benefits that have kept them afloat” in July.
State, local governments will continue to shed jobs and cut critical resources as they strain to balance their budgets, said Yarmouth.
Reopening has been tied by many leaders – to the point of refrain by House Speaker Nancy Pelosi (D-Calif.) – to testing and tracing. Frustration with the Trump administration’s response was heard loudly in a June videoconference hearing held by the House Energy and Commerce Subcommittee on Oversight and Investigations with a trio of governors.
Promised COVID-19 testing not delivered
“Back in the first week of March, Vice President Pence estimated that 1.5 million tests would be available by the end of the week. But a week later only 4,000 tests had been conducted,” Chair Diana DeGette (D-Colo.) said. The Department of Health and Human Services said the next week that 1.9 million tests would be available next week, but instead only 250,000 tests were conducted.
The Trump administration aims for upwards of 50 million tests per month by September. “I would like to give the benefit of the doubt, but with this track record,” DeGette said, the administration simply has no credibility in this matter.
Noting that more than 400,000 tests a day were achieved “several times” in May, full committee making Republican Greg Walden (D-Ore.) said that with “vastly more rapid point-of-care testing, at home and saliva based testing and antigen testing are expected to be rolled out in the coming weeks, this benchmark is expected to rapidly increase.”
All states have handled the pandemic differently, there was unanimity from governors Jared Polis (D-Colo.), Gretchen Whitmer (D-Mich.) and Asa Hutchinson (R-Ark.) that coordinating personal protection equipment and other healthcare resources is a top priority. Each have contact tracing programs underway.
Testing and tracing demands for local and state resources
“We need to make these improvements in real-time as were going,” Polis emphasized. His state was the first was one of the first with drive-through testing, including a site at the Pepsi Center in Denver where 2,000 people a day can administer their own swab without the need to interact with healthcare professionals.
Massachusetts established a virtual call center with roughly 1,000 contract tracers in April, Rep. Joseph Kennedy (D-Mass.) said, adding that the country may need as many as 180,000 contract tracers to effectively mitigate community spread despite reopening. “Clearly, we obviously have a long way to go and investments to make to build this critical workforce.”
But there are challenges to creating an adequate contact tracing, such as training and funding for that and building up an army of tracers. “It takes a little bit of a unique personality to be able to call somebody up and start asking questions,” Hutchinson said. “That takes some training to be able to handle those calls because it’s a very sensitive area and it’s very critical.”
Polis said testing and tracing benefits states “two-fold” by identifying asymptomatic cases and establishing a carrier’s epidemiology “so that we can have targeted isolations and quarantines” rather than “society-wide quarantines and isolations… devastating for the economy as well as our psychological health,” he explained.
As of early June, Whitmer said her state had the capacity but had not reached yet that 25,000 Michiganders could take a coronavirus test each day. That rate would by back of a napkin reach nearly 8% of per citizens in a month based on its estimated 2019 population of nearly 10 million. By contrast, Hutchinson set a goal of testing 2% of his population in May, which was successfully exceeded by 20,000.
Infrastructure investment legislation to be proposed
House Transportation and Infrastructure Committee Chairman Peter DeFazio (D-Ore.) is set to introduce the INVEST in America Act, featuring a 46% increase to $400 billion over five years for highways, transit, bridges and safety programs, and another $60 billion to upgrade and expand passenger and freight rail. “We’ve been for too long living off the legacy of the Eisenhower era and there is a very poor bipartisan consensus that the system is falling apart. It’s aging out.”
Understanding that the COVID-related economic shutdown resulted in lost tax revenues from service transportation, gas and diesel taxes and other initiatives, DeFazio’s bill would be a 100% federal share with no local match required in the first year. His is just an opening gambit before the Committee acts in June. The House of Representatives has just 13 working days before the annual August break with remote “Committee Workdays” designated throughout.
A pair of Senate committees has separately begun taking testimony on federally-funded infrastructure investments as one way out – Commerce on June 3 and Public Works the next day.
Hutchinson said he has two missions: To protect public health and “to minimize economic harm to individual families” resulting from the economic shutdown. “We know that the economic crisis will outlast a lot longer the health crisis,” Whitmer said.
Next: ICMA: Fiscal and organizational strategies for pandemic recovery
