Adapted from the National League of Cities

COVID-19 HAS DIRE implications for the vitality of US cities. While cities play a crucial role in the direct provision of essential services that will affect the health and economic security of millions of Americans, they are also ground zero for a deep fiscal crisis. A recent National League of Cities survey of 485 cities reveals that nearly 90 percent of cities will be less able in fiscal year 2021 than in FY 2020 to meet their fiscal needs. Bluntly stated, without federal aid, Covid-19 will imperil cities’ ability to carry out vital functions. The impacts on local economies and quality of life will be severe.

NLC recently published a report titled “The Human Costs of Local Fiscal Crises During Covid-19.” Leveraging the extensive research and reporting on the Great Recession of 2008–09, we aimed to improve public understanding of the economic and social implications of city financial emergencies created by the Covid-19 crisis.

As a word of caution, these two crises differ in important respects that make a one-to-one comparison challenging. The prolonged public health emergency of Covid-19 did not define the Great Recession. Common to both crises, however, are intense fiscal strain on local governments and the demand for government intervention.

Our research begins with the assumption that not only are cities the “front lines” of emergency responses to Covid-19; they will also bear the brunt of the economic downturn caused by the pandemic. In contrast to Europe, where austerity has operated primarily at the national level, the burden of austerity in the United States has effectively been delegated by the national government to state and local officials.

Here is an overview of our major findings:

In the absence of adequate federal and state support, recessions mean austerity for local governments; no public service is safe from cuts.
Because of legal restrictions on deficit spending and borrowing, recessions confront local governments with limited options. They can cut expenditures through service reductions, layoffs, or hiring freezes, or they can increase revenue through tax increases, additional user fees, or asset sales. In the years that followed the end of the Great Recession, even as sales and income tax collections recovered, falling property tax revenue and decreasing aid from states and the federal government caused cities across the United States to make sizable cuts to public services.

Fiscal crises affect revenues and expenditures across the 50 states, regardless of which party governs.
The Great Recession inflicted economic pain on voters of every partisan stripe and across the ideological spectrum of American politics. A leading 2016 study found that the Great Recession negatively impacted 49 out of 50 Metropolitan Statistical Areas. Similarly, municipal officials across the country—in both Republican and Democratic strongholds alike—were faced with the reality of revenue shortfalls and the prospect of unprecedented budget cuts.

While not immediately visible, massive budget cuts inflict damage on local and regional economies.
Local austerity has had adverse effects on the quality of life in US cities. Most notable in this regard are cuts to basic infrastructure maintenance and repair. State and local governments own 90 percent of all non-defense public infrastructure assets and pay 75 percent of the costs to maintain and improve these assets. Historically, deferring maintenance or capital improvements is a common strategy in fiscally austere times. From 2009 to 2017, state and local infrastructure spending as a share of GDP declined by 0.5 percent to just under 2 percent—the lowest level since the 1950s. Deferred investment has led to predictable deteriorating conditions.

Austerity policies that followed the Great Recession have left cities underprepared for Covid-19.
Despite an unprecedented economic expansion recently cut short by Covid-19, local governments are still grappling with the lost decade created by the Great Recession. Rather than inspire more robust government interventions or countervailing, countercyclical policies, the Great Recession reduced support for government activism on major social problems such as poverty, health care, racism, and income inequality.

Public attention to local fiscal crises was limited during the Great Recession. And when the human costs emerged, media coverage was virtually nonexistent.
However severe, the impacts of the Great Recession on US cities received little public attention relative to other major economic storylines. According to an analysis of media coverage, the effects of the recession on state and local governments accounted for 6 percent of news stories in 2009—the year that Congress passed the American Recovery and Reinvestment Act. Whereas nearly 40 percent of the sources in these stories were representatives of private-sector businesses, just over 10 percent were representatives of state and local governments. Perhaps most troublingly, even as unemployment surged, national coverage of the economy fell in tandem with an increase of major stock- market indices. Thus, by the time local governments began to experience the recession’s effects, they were barely visible in major media outlets.

There are several leading indicators that can help us identify warning signs of local fiscal distress.
Forecasting the effects of economic recessions on local finances is difficult, especially when the pace and scale of economic recovery is contingent on how government policies shape not only economic activity but also the management of a novel health emergency. Nevertheless, there are numerous leading indicators of local fiscal distress that can help to warn policymakers about the possibility of an oncoming crisis. Building on the post-2008 literature, a recent study of 300 cities’ fiscal performance following the Great Recession identifies five key predictors, listed in “Sign Language” (below).

This article summarizes NLC’s “The Human Costs of Local Fiscal Crises During Covid-19,” which can be found in its entirety at nlc.org>.