Local Governments Have Cut 900K Jobs, More to Come

Nancy Cleeland By Nancy Cleeland September 18, 2020
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Local Governments Have Cut 900K Jobs, More to Come

​The COVID-19 pandemic and related declines in revenues from taxes and fees have hit local governments hard, draining emergency funds and leading to a loss of over 900,000 jobs, according to a new analysis of federal data by the National Association of Counties (NACO).

The NACO analysis compares the level of direct local government employment in August with that of February, just before the pandemic was declared. It doesn't include government-contracted employment for services like road construction, which also saw steep cuts.

"Counties employ the private sector for much of the work that's done, including maintenance crews and infrastructure work," said Teryn Zmuda, chief economist at NACO. "So, when local government suffers, it also hurts local economic development and community economic health."

Counties and cities rely primarily on property and sales taxes and fees for their budgets, along with money from states for earmarked programs. Fees for such things as court appearances and building permits have plummeted along with sales taxes. And 31 states have already told cities and counties they plan to cut funding in the coming fiscal year, Zmuda said.

"We are one emergency away from complete financial catastrophe," said Danene Sorace, mayor of Lancaster, Pa., in a National League of Cities (NLC) press call.

State governments are also hurting. The National Conference of State Legislatures (NCSL) is keeping a running tally of actions already taken by states to close COVID-19-related budget shortfalls this year. They include across-the-board budget cuts as well as elimination of grants intended for education and health care.

Because state and local government budget performance tends to lag that of the private sector, the hit to services and employment is likely to continue even if the public health crisis is resolved soon.

CARES Act Helped, Additional Federal Aid Unlikely Soon

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act signed in March, which helped small businesses keep employees on the payroll and boosted unemployment payments, also provided $150 billion in assistance to states as well as local governments with a population of at least 500,000.

However, the funds could only be used for unexpected expenses due directly to COVID-19, such as preparing hospitals or creating testing sites.

"CARES Act dollars have propped up systems and allowed some counties to cover costs related to COVID-19 but left other counties behind," Zmuda said. "Even some that received funding report that it won't be enough."

The Brookings-Urban Institute's Tax Policy Center estimated local governments alone would need $500 billion or more in federal aid "to stop the revenue bleed and keep their essential workers on the payroll." States would need even more.

However, that hope evaporated when members of Congress were unable to reach a consensus on a second major relief package.

A bill that passed the House in May would have provided nearly $1 trillion in direct aid to state, local and tribal governments, but it was never taken up by the Senate. A far smaller relief bill that was proposed in the Senate but failed to pass on Sept. 10 did not contain any assistance for state or local governments.

Opponents of additional aid argued that state and local governments didn't need more money, and that certain states had mismanaged their budgets. Some, including Senate Majority Leader Mitch McConnell, R-Ky., said the additional aid would be a "blue state bailout."

Seven bipartisan associations that represent states, cities, counties and other local governments, including NACO, NLC and NCSL, lamented the lack of congressional assistance in a joint statement.

"The ability of state and local governments to deliver critical services to the American people is now in serious jeopardy, along with the jobs of millions who work in schools, libraries, police and fire departments, hospitals, road and transit agencies, and other units of state and local government," they stated. "Only the federal government, with its central bank, the world's reserve currency, and unlimited borrowing authority, has the power to avoid these devastating consequences."

Many cities and counties have already adopted budgets for the coming fiscal year, which began in September. Others will face that crisis point at the end of the calendar year.

Infrastructure and Maintenance Suffered First Cuts

The first cuts were relatively easy—cities and counties have canceled or postponed planned infrastructure projects and deferred maintenance. "What is at risk is the deeper cut of services related to health and public essentials," said Zmuda, noting that, among other things, counties support library systems, operate nursing homes and conduct public health campaigns related to the opioid crisis.

A survey of officials and staff at nearly 400 local governments conducted in July by The Atlas, an online community for counties and cities, found that budget priorities are now focused on "community and crisis communications, policing and systemic racism, public health, small business support, and enabling work from home."

Those lower on the priority list, the report said: "climate change, facilities maintenance, traffic and congestion, and homelessness."

Local governments across the country and of various sizes, from New York City to Charlevoix County in Michigan, are already rolling out announcements of budgets cuts. "We're hurting," said Mayor Latoya Cantrell of New Orleans. "The city of New Orleans is hurting."

Economists said those ongoing cuts could impede a broader recovery, even as the private sector adds jobs. "State and local governments are hemorrhaging red ink, and it's coast to coast, it's politically ecumenical. Every state and municipality is struggling and responding by slashing payrolls," said Mark Zandi, chief economist at Moody's Analytics, who spoke in late August at an Economic Policy Institute panel discussion. "There's no more effective way to help the economy and to help these states and support these jobs than providing federal government aid to state and local governments."

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