The long-term impact of the coronavirus outbreak remains hazy. But it is relatively clear that our parks won’t look as nice, our streets won’t be as clean and our law enforcement won’t be as robust.
The extent of services remains to be seen, but the city of Vancouver has provided a glimpse of the struggles that lie ahead. The latest projections are that the city will miss out on $30 million to $60 million in expected revenue, mostly in lost sales-tax funds with businesses being shut down.
“Until we have a little more information, we don’t yet know what, truly, the final impact will be,” said Natasha Ramras, the city’s chief financial officer. “In this environment, it’s hard to be precise because the data simply is not there yet.”
The situation is playing out for cities and states across the country — trying to project the future with no telling how long the pandemic will ravage the economy. The $60 million shortfall is considered a worst-case scenario — for now — and would represent about one-quarter of Vancouver’s general fund. For the city of Seattle, the projection is a decline of somewhere between $210 million and $300 million.
Vancouver officials are making plans to cut $30 million from the budget, including a halt on fund transfers and discretionary spending, a freeze on new hires, and potential layoffs.
While many people might welcome any cuts to government budgets, believing such budgets are inherently bloated, there is a long-range domino effect. “Whether it’s tax increases or spending cuts, states tend to take money out of the economy during periods of stress,” Josh Goodman, state economic development officer at Pew Charitable Trusts, explained to Vox.com. “That is not only financially difficult for their residents, but it also tends to delay the economic recovery.”
At the state and county level, a prolonged recession will reduce funding for schools and health care and infrastructure. At the city level, it will impact parks and streets and public safety. And while we always are in favor of wise cost-saving measures, at some point that diminishes the quality of life for local residents.
Unlike the federal government, cities and states typically cannot operate at a deficit, and they can’t print their own currency. They can only spend the money they have or can reasonably expect to collect in the future. And while unemployment benefits are doled out by the state, when that money is spent, part of the sales tax comes back to the local county or city. With businesses closed, there are few places where that money can be spent.
Because of that, the federal government’s coronavirus-related spending spree should include assistance for local governments. Keeping people employed, whether in the private or public sector, is essential for mitigating the devastation of a recession.
Senate Majority Leader Mitch McConnell, R-Ky., has dismissed calls for the federal government to assist state and municipal governments, decrying a “blue state bailout.” The hypocrisy is ripe, considering that McConnell’s home state routinely is subsidized by the federal government, receiving far more money than it provides in tax payments.
The difficulty for municipal governments is the uncertainty. There is no telling how long and how deep the cuts will be, nor how quickly the economy will recover. For now, however, one thing is clear. As Vancouver City Manager Eric Holmes wrote to employees: “The fiscal implications of the pandemic cannot be overstated; every part of the organization will be impacted.”
