The pandemic downturn in local economies imperils city budgets, staff, and services.

City governments across the nation provide essential services that keep our economy and neighborhoods strong. From sanitation services, water utilities, and public health to affordable housing, summer youth programming, and public safety, these are the services that make our communities work. Local leaders and municipal workers continue to be on the front lines, working to minimizing the health and fiscal impacts of the virus.

Despite these efforts, the sudden, deep, and all-encompassing pandemic crisis and ensuing economic decline have left city budgets with gaping revenue losses and unexpected expenses. In studying the situation of cities and towns across the country, the National League of Cities has discovered that:

Cities and towns can expect to face a $360 billion budget shortfall from 2020 through 2022.

City budget shortfalls are prevalent regardless of city size, but they vary significantly by state.

Two-thirds of city revenues nationwide are vulnerable to immediate losses due to local economic decline.

These losses are leading to significant cuts not only in critical public safety services, but also in parks and recreation services crucial to a functioning economy.

Over one-third of the 3 million city employees in the nation may be subject to furloughs, layoffs, or pay cuts. Despite significant uncertainty about how long the coronavirus and the economic impacts of the public health crisis will last, one thing that is clear is that the US has entered a period of significant economic decline. From skyrocketing unemployment, jobless claims, and business closures to plummeting consumer spending and income, families and businesses, particularly Americans of color, are burdened with mounting financial insecurity. As city leaders grapple with helping their communities face these new economic realities, they are also working to soften the blow to their own budgets.

To better understand the depths and contours of the fiscal impacts on cities, towns, and villages nationwide, we analyzed finance data from the US Census Bureau and unemployment projections from the Congressional Budget Office. We find that a one percentage point increase in unemployment results in a 3.02 percent budget shortfall for cities, towns, and villages. Collectively, this amounts to over $360 billion in lost revenues between 2020 and 2022, with shortfalls nearing $135 billion in this year alone. Here is a closer look at some of the details.

Cities rely on revenue generated by local economic activity. The vast majority of city revenues are derived from economic activity occurring within a city’s community. These “own source” streams include taxes (sales, property, and income), charges and fees for services, and other governmental revenues on fees from utilities, insurance trusts, and liquor. Property tax revenues and charges, fees, and miscellaneous revenue are the most significant contributors to city budgets.

Multiple revenue streams experience immediate losses due to economic decline. Two-thirds of municipal revenue is immediately vulnerable. Many of the major streams of city revenue have already experienced significant and irreplaceable losses during the first few months of the coronavirus pandemic. In a recent NLC-USCM survey of nearly 2,500 city leaders, nearly all report significant revenue losses during 2020 from most own sources, with at least half of cities reporting that revenues from sales taxes, income taxes, and permitting, utility, and other service fees have seen immediate and significant losses. These “vulnerable” sources of revenue comprise 66 percent of own-source revenues. Cities that generate most of their revenue from sales taxes, income taxes, and fees and charges have been hit especially hard.

Property tax revenues tend to be less responsive to economic conditions generally. However, rising unemployment is dampening real-estate demand and accelerating foreclosures and missed tax payments, leading even property tax–dependent cities to feel the fiscal gravity of the downturn.

Unbudgeted expenditures are on the rise. Overall, city expenditures are a significant driver of economic resilience and activity. In particular, cities support a large public workforce, accounting for nearly half of their budgets. Payroll for essential public safety positions, including police and fire, makes up over half of payroll for city government employees.

As city leaders grapple with helping their communities face these new economic realities, they are also working to soften the blow to their budgets.

With the onset of the public health crisis, cities have taken on unprecedented increases in unbudgeted Covid-19-related expenditures. The most significant expenses have resulted from critical purchases of personal protective equipment (PPE) and hospital beds and overtime pay for front-line workers. State and local governments may face nearly $4 billion in unanticipated expenses over the next six months.

To respond to these costs, Little Rock tapped into its emergency relief fund to purchase PPE and benefit the city’s World Central Kitchen food relief efforts. In New York City, drastic Covid-19-related spending increases have resulted in $1.3 billion cuts over the next two fiscal years to non-Covid-19 programming and services. That’s nearly $60 million a month not going toward essential city services on the precipice of a severe economic downturn, when residents will rely on these services most.

Essential services and workers are on the line. As necessary increases in spending continue and revenues decline, cities are being forced to severely cut services, lay off and furlough employees, and pull back on capital projects, further impacting local employment, business contracts, and overall investment in the economy. Based on a recent survey, the city government functions that cities anticipate being significantly affected include parks and recreation (71 percent cuts), public works, and public safety (52 percent for police and 38 percent for fire/EMS). Cuts to parks and recreation services in particular will negatively impact economic reopening, as many families rely on local summer camps and programs for affordable childcare and youth enrichment during the summer months that likely will not be available.

Municipal employees are being hit hard. City workers are being affected directly, as the economic shutdown has caused massive layoffs, furloughs, and pay cuts. These cuts are affecting services of all kinds and cities of all sizes. Yukon, Oklahoma, has furloughed 18 employees, while Cincinnati has furloughed 1,500. Many cuts have been to seasonal and temporary employees in parks and recreation departments. But in cities like Dayton, Ohio, and Portsmouth, New Hampshire, critical services such as public works are facing strains on human resources. Based on an NLC analysis of best case (10 percent impact) and worst case (33 percent impact) scenarios regarding municipal furloughs, pay cuts, and layoffs, nearly one million employees stand to be affected.

Essential infrastructure spending is being slashed. Cities spend 18 percent of their budget on infrastructure. Half of all infrastructure expenditures go toward electric, gas, transit, and water utilities, followed by sewerage and solid waste management at 23 percent. But these expenditures are being dramatically altered. Detroit cut its demolition funding by 80 percent, totaling $40 million. Fargo, North Dakota, slashed its improvement budget by $7 million. Lansing, Michigan, postponed its construction projects. Round Rock, Texas, postponed its capital improvement projects. And St. Cloud, Minnesota, postponed its deferred maintenance. In total, nearly 20 percent of cities indicate public works functions could be significantly affected by revenue shortfalls.

Anita Yadavalli is NLC’s program director of city fiscal policy, Christiana K. McFarland is research director, and Spencer Wagner is program specialist of local democracy in NLC’s Center for City Solutions.