Guest Contribution: “The Fiscal Effects of the Covid-19 Pandemic on Cities: An Initial Assessment”

Today we are fortunate to present a contribution written by Andrew Reschovsky, Professor Emeritus of Public Affairs and Applied Economics at the University of Wisconsin-Madison. 


In a paper that will appear in the September issue of the National Tax Journal, Howard Chernick, David Copeland, and I evaluate the likely fiscal impacts of the coronavirus pandemic on a sample of 150 major U.S. central cities. Although we discuss the additional Covid-19 related costs that cities will face, our primary focus is on forecasting the fiscal year 2021 revenue shortfalls attributable to the coronavirus-induced recession.

Our analysis is based on data on fiscally standardized cities (FiSCs). The dataset, which can be accessed at https://www.lincolninst.edu/research-data/data-toolkits/fiscally-standardized-cities, combines fiscal data from a central city municipal government with a prorated share of both expenditures and revenues from all overlying school districts, counties, and special districts. FiSCs reflect the total expenditures and revenues raised on behalf of central city residents and businesses.

Based on past trends we projected FY 2021 revenues in each FiSC under the assumption that there was no pandemic (and hence no recession). For each source of revenue in each city, we then project the percentage change in revenue due to the Covid-19 pandemic under two scenarios—less severe and more severe. Figure 1 illustrates the revenue sources of the average FiSC and indicates the number of cities relying on each revenue source. The mix of revenue sources varies substantially across cities. Property taxes provide less than 35 percent of tax revenue in 8 cities, but over 90 percent of tax revenue in 20 cities. Intergovernmental revenue, from state and federal aid, make up under 20 percent of general revenue in some FiSCs, but over half of general revenue in other FiSCs.

There is substantial empirical evidence that due to the way property taxes are administered, changes in the market value of real property takes about three years to be reflected in changes in property tax revenues. So, even if reduced demand for dense residential locations and particularly for central city office space declines sharply, the impact on property tax revenues won’t be felt for several years. We thus assumed that property tax revenue would either not change or would be reduced by 0.5 percent in fiscal year 2021.

Local sales tax revenues fell sharply during the Spring reflecting both strong supply-side effects caused by widespread economic shutdowns as well as demand-side effects. Our estimates of the percentage shortfalls in sales tax revenues in the FiSCs utilizing local sales taxes depends on our estimates of wage declines in each city and state-specific sales tax elasticity estimates. Under our more severe scenario, the average FiSC will face a FY 2021 sales tax revenue shortfall of 11.7 percent. However, we forecast that 15 FiSCs will experience sales tax reductions in excess of 20 percent.

To forecast reductions in state aid, we relied on estimates of state government revenue shortfalls generated by Moody’s Analytics and information on the size of state governments rainy day fund balances. Based on the experience with the Great Recession, we know that state revenue shortfalls translate into widespread cuts in state aid. Though they may do so later, we assume that at least in 2021, states do not address revenue shortfalls by raising tax rates. We project state aid reductions in the average FiSC of 9.6 percent in the less severe case and by 13.8 percent in the more severe case.

Our projected FY2021 revenue shortfalls for each FiSC are calculated by summing up predicted shortfalls for each source of revenue weighted by their share of total general revenues. The results are summarized in Table 1. Under our two scenarios, we predict declines in general revenue in the average FiSC of 5.5 percent and 9 percent, respectively. Under the more severe scenario, 47 FiSCs would experience revenue reductions of 10 percent or more. In dollar terms, these percentages generate revenue shortfalls of $34.2 and $55.3 billion, respectively. Expanding these estimates to all local governments in the U.S. yields aggregate revenue shortfalls of $102.9 and $165.2 billion. These are substantial cuts, which would lead to significant declines in government employment and public service provision.

The appendix to our National Tax Journal article provides a list of our projected revenue shortfalls in each FiSC. There are no distinct regional patterns, with large revenue shortfalls anticipated in some cities in each part of the country. Contrary to the claims of some politicians, large revenue shortfalls will occur in cities in both Red and Blue states. For example, large shortfalls are projected for cities in both Florida and New York State. In previous work conducted with Howard Chernick, we developed a measure of the fiscal health of fiscally standardized cities based on the gaps between their expenditure needs and their revenue-raising capacity. Comparing our measure of city fiscal health with our projected revenue shortfalls, we find zero correlation. Thus, among the set of fiscally standardized cities in the weakest fiscal health are cities that we project will face relatively small revenue shortfalls, such as Springfield, MA and El Paso, TX, and cities facing large revenue shortfalls, such as Kansas City and Detroit.

As I write this in late August, it is unclear whether the Congress and the Administration will provide additional federal aid to state and local governments. Given that state and local governments are required to balance their budgets, there is little question that unless the federal government replaces a substantial proportion of the current and forecasted drop in local government revenues, cities will be forced to implement substantial reductions in  services and capital expenditures, including large cuts in public employment, while at the same time facing additional costs associated with the pandemic. The consequences will be clearly deleterious for city residents and for the local and national economies.

 


This post written by Andrew Reschovsky.

37 thoughts on “Guest Contribution: “The Fiscal Effects of the Covid-19 Pandemic on Cities: An Initial Assessment”

  1. Barkley Rosser

    I was aware that state aid to cities was in the neighborhood of a quarter of their revenue, but I was unaware that it actually exceeds property tax revenue, even if by just a small margin. Given that you predict more stability for the latter than the former, this is important in terms of aggravating the fiscal problems cities are facing.

  2. Moses Herzog

    This is a stream link to a Congressional Committee Hearing that is supposed to start Monday at 9:00am, maybe that is 10am central?? But near that time. It relates to US Postal Service Mail and how that relates to mail-in voting ballots and delivery of medicine to the elderly etc.
    https://www.youtube.com/watch?v=Tbg6sjRnF-8

    There are still people who pay their bills and house payments through the mail—people, they exist and probably in larger numbers than you imagine.

    1. pgl

      I just turned on MSNBC to watch their coverage and DAMN IT they are showing Pence address the RNC convention. ZOOM was having problems today and I was so hoping it was some foreign power trying to screw up the RNC’s ability to hold this stupid affair.

      1. pgl

        The only damage the protests (not riots) are doing is to our civil liberties. Of course Sammy supports the end of civil liberties for those who stand up for minority rights.

        1. sammy

          pgl,

          You sound like that CNN reporter stating that “it is amazingly peaceful and remarkably orderly” while a two story fire rages in the background.

          1. pgl

            What a pointless little tweet. Come on Sammy – even the preK kids know how to behave better than you.

      2. pgl

        Sammy falsely claims that the Black Lives Matter protests are riots hurting the nation. I wonder if Sammy has a clue what is going on in Kenosha, Wisconsin:

        https://www.cnn.com/2020/08/24/us/kenosha-police-shooting-jacob-blake/index.html
        Wisconsin police shoot a Black man as his children watch from a vehicle, attorney says

        “Two Wisconsin police officers are on leave Monday as state authorities investigate why a Black man was shot multiple times in the back as he entered the driver’s side door of an SUV, officials said. The man’s three children — 3, 5 and 8 — were in the car, a family attorney said. Identified by Wisconsin’s governor as Jacob Blake, the man is in serious condition and fighting for his life. Attorney Ben Crump, who now represents the Blake family, posted a video of the Sunday evening shooting in Kenosha. The footage spread across social media, sparking protests and leading county officials to institute a curfew that remained in place until Monday morning.”

        We should all pray for Mr. Blake. These two policemen should also be charged with attempted murder. Of course, people like Sammy would make these two policemen heroes.

      3. Moses Herzog

        Here’s a stat sammy might enjoy ignoring. Oklahoma City—Republican mayor and Republican Governor—87 homicides in 2019

        Portland—Democrat Mayor and Democrat Governor—36 homicides in 2019

        Portland population 2,480,000
        OKC population 1,400,000

        Any lightbulbs popping up over your head dumbsh*t sammy??? No ICE/Fed agents sent to OKC by special order of donald trump sammy. How “strange”, eh sammy??

    1. pgl

      I will not pretend this is the dumbest thing you ever said as you say a lot of really stupid things. But it is based on a lie and it is beyond disgusting. Enjoy the racist show tonight at the RNC!

    2. pgl

      The Kenosha shooter is Kyle Rittenhouse

      https://www.jsonline.com/story/news/2020/08/26/kyle-rittenhouse-charged-kenosha-protest-shootings-militia/5634532002/

      Kyle Rittenhouse, the 17-year-old charged with shooting three people — two of them fatally — during a Kenosha protest Tuesday evening, thought of himself as a militia member trying to protect life and property, according to videos, interviews and social media posts. Video shot in the hours before the shooting shows Rittenhouse hanging out with older armed men, who tell the reporter they’re protecting a car lot. Rittenhouse then introduces himself as Kyle. He also did a video interview with the Daily Caller in front of a boarded up building. “People are getting injured and our job is to protect this business,” Rittenhouse says in the clip. “And my job also is to protect people. If someone is hurt, I’m running into harm’s way. That’s why I have my rifle; I’ve gotta protect myself obviously. But I also have my med kit.” Among the armed men in the streets Tuesday was former Kenosha Ald. Kevin Mathewson, who is active in a group known as the Kenosha Guard. Mathewson posted a video selfie of the scene near the Kenosha government center Tuesday night. He did not return a phone message Wednesday. Earlier in the day, the Kenosha Guard created a Facebook event called “Armed Citizens to Protect our Lives and Property.” The invite was picked up by the far-right website Infowars. The Facebook page, which was taken down late Wednesday morning, calls Kenosha Guard a social club. But a post signed “Kenosha Guard Commander,” written to Kenosha Police Chief Miskins, says this: “As you know I am the commander of the Kenosha Guard, a local militia. We are mobilizing tonight and have about 3,000 RSVP’s. Our effort has made the national media. I ask that you do NOT have your officers tell us to go home under threat of arrest as you have in the past. We are willing to talk to KPD and open a discussion. It is evident, that no matter how many Officers, deputies and other law enforcement officers that are here, you will still be outnumbered.” Miskins could not be immediately reached Wednesday. But another video clip shows Rittenhouse with members of the group shown earlier getting bottles of water from a law enforcement officer in an armored vehicle, though they are clearly civilians in violation of the curfew order. The officer thanks them for their help before driving away. “We appreciate you guys,” he says. “We really do.” On Wednesday, before the Kenosha Guard Facebook page was taken down, there was a post suggesting the shootings were not connected to its activity. That prompted a flood of replies, many in support of the shooter, suggesting the victims deserved it for looting and vandalism or that the shooter acted in self-defense. But others were very critical of the Kenosha Guard, accusing the group of instigating the teenager’s involvement, whether or not he was a formal member. “Shame on you Kenosha guard. You allowed a 17 year old to join you from out state and now he may pay for those mistakes for the rest of his life in a prison cell. SHAME ON YOU!!!!!,” wrote one woman. nother militia group, called the boogaloo, also attended all three nights of protests, according to Justin Mishler, a self-proclaimed member who lives Belvidere, Illinois. About a dozen armed boogaloo members were at the Kenosha protests Sunday, about two dozen Monday and more Tuesday, he said. Their purpose was providing security and protection for businesses, he said. Mishler said the Kenosha Guard is not affiliated with boogaloo. “It sounds like a group that’s probably a day old or less,” he said, adding that neither he nor fellow boogaloo boys know Rittenhouse. “He’s not one of us,” Mishler said of Rittenhouse.

      I get that Trumpians like Sammy will try to blame this mess on Antifa but it was someone helping this Kenosha Guard and their good buddies from the Boogaloo that was behind this violence.

  3. 2slugbaits

    There is substantial empirical evidence that due to the way property taxes are administered, changes in the market value of real property takes about three years to be reflected in changes in property tax revenues.

    Not where I live. Property tax bills came out last week and everyone I know saw their property taxes increase 30%-35% since last spring despite not making any improvements.

    1. Barkley Rosser

      2slug,

      I think this estimate of about a three year delay is about right, although in some places it is more like two years. This is something lone in place and understandable given the sluggish way that reassessments occur, not to mention property tax rate changes. We have seen the unpleasant effects of this in previous recessions.

    2. Alan Goldhammer

      Here in Bethesda, MD we are assessed at three year intervals. Increases are phased in over the three years so one does not see a huge increase in property taxes. There is also a cap in place that blocks huge increases. “The Homestead Credit limits the increase in taxable assessments each year to a fixed percentage. Every county and municipality in Maryland is required to limit taxable assessment increases to 10% or less each year. … In other words, the homeowner pays no property tax on the market value increase which is above the limit.”

      Our home has increased in value primarily a result of the land size as the dwelling is a 1955 split level with screwball heating/AC. The minute we leave, the house gets bulldozed and a bigger one built.

      1. noneconomist

        Property taxes in California are relative easy to figure but may diverge wildly based on year of purchase. We’ve been in our home. (1500 sqf on 3 acres) since 1979.
        Our 19-20 property tax was $1540. House down the road (1250 sqf, smaller lot, little level ground) just sold for $360K, meaning the minimum property tax will be $3600 (plus any voter approved additions).
        Nearest neighbor with smaller home than mine but large detached garage and large detached workshop is taxed around $2600. He’s been here since late 90’s.
        But…..while property tax is reasonable with a max 2% yearly increase, homeowners insurance has tripled since 2017. Current events and events of past few yearsdictate why.

    1. Alan Goldhammer

      Too bad George Conway is stepping away from the Lincoln Project but it was given with the family situation disintegrating.

  4. sammy

    pgl et al:

    I have lived in Downtown Portland for the past 25 years. To an extent the media has exaggerated the riots here, but it is extremely bad publicity, worldwide. The graphic images of Antifa beating people and destroying property while the cops do nothing is jarring. No one from the suburbs wants to come downtown now for any reason. If someone were to say “I’m thinking of opening an office in Downtown Portland” the first response would be “Are you nuts?” Tourism is going to go to zero. With no tourism, no office workers, and no people coming in from the suburbs, retail and restaurants will fold, leaving vacant storefronts and fiscal holes in the city budget.

    The police are preoccupied with the protesters, and allowing other crime and the homeless problems, without policing, are exploding. People usually say they don’t want to come downtown because they are scared or repulsed by the homeless. They are everywhere, pitching tents on the sidewalks or small patches of open ground, and throwing their garbage on the ground. I would say the homeless are a bigger factor than the COVID for the destruction of downtown

    In my apartment building,, located about 10 blocks from the epicenter, normally there are 5-6 vacancies, last time I counted there were 29, or a five fold increase in people moving out.

    1. Moses Herzog

      @ sammy
      What happened to your redneck white trash mating call?? “If you don’t like the USA, get the Hell out”. Trace back your lineage (European or otherwise) and go back to where you came from. If you don’t like America get the Hell out. We don’t want you here anyway. Sammy gone, problem solved. Go back to where you came from.

      @ Menzie
      Just for fun, did you wanna check the archives and see if you could find any complaints from MAGA patriot sammy about white people beating up blacks in Charlottesville for no reason?? Violent footage could be upsetting to some viewers. Video not suitable for children:
      https://youtu.be/a2lhyQrlaPs

      https://www.washingtonpost.com/local/white-supremacist-is-guilty-in-charlottesville-parking-garage-beating-of-black-man/2018/05/01/033396b4-4af9-11e8-8b5a-3b1697adcc2a_story.html

      I know sammy is for law and order and keeping the streets safe for everyone, so surely you can find an archived comment from sammy expressing being troubled by events in Charlottesville Virginia. I bet sammy had deep deep heartache over Charlottesville.

      https://www.washingtonpost.com/graphics/2017/local/charlottesville-timeline/

      Shall we offer a monetary award for anyone who can find an archived comment on this blog between August 11, 2017 up to today where sammy expresses being upset about blacks being beaten in Charlottesville??

    2. pgl

      “To an extent the media has exaggerated the riots here”. And so you continue to amplify this? OK! Antifa? I doubt it. These riots are being carried out by Trump supporting racists – your kind of people.

        1. pgl

          I’m sorry. I did not see your evidence that Antifa was involved. Sammy – either put up or shut up.

        2. Barkley Rosser

          Well, a white nationalist militiman, only 17 years old, just shot dead two protesters in Kenosha, although perhaps he is actually a Biden supporter.

      1. pgl

        Interesting story on the Portland scene, which explains where Sammy got his dumbass idea that Antifa was causing the riots. It seems this is what Trump and Barr have been saying. Of course all sane people know Trump and Barr lie 24/7. The investigators on the ground has dismissed these false allegations.

        https://www.reuters.com/article/us-global-race-protests-antifa/us-prosecutors-do-not-charge-portland-protesters-with-antifa-ties-idUSKCN2502NQ

        Now it would take about 2 second on the Google to figure out who is creating the violence. Something call The Proud Boys. Again – Sammy’s kind of people.

  5. pgl

    Sammy is trying to tell us his right wing thugs are not causing violence in Portland. It seems they are:

    https://www.opb.org/article/2020/08/22/conservative-protesters-plan-rallies-in-downtown-portland/

    Dueling demonstrations gather in downtown Portland on Saturday, Aug. 22, 2020. Groups like Proud Boys and Patriot Prayer showed up to oppose months long demonstrations against systemic racism and police brutality. Protesters at Portland rallies to show support for police and President Donald Trump’s reelection campaign engaged in physical combat repeatedly with counter protesters Saturday without police intervention. Members of the chaotic crowd used an array of weapons, including baseball bats and firearms to beat and threaten those they opposed. Portland has once again become a focal point for activists of opposing ideologies, following Trump’s repeated characterizations of the city as dangerous because of nightly Black Lives Matter protests. After Friday night protests that saw some people damaging police vehicles and police responding with arrests, Trump tweeted it was “another bad night of Rioting in Portland, Oregon.”

    Look – Trump wants the Proud Boys and Patriot Players to cause this violence so he can blame it on the “radical left”. Now something tells me Sammy is smart enough to know this. But then Sammy is as much of a liar as Trump is.

  6. Bruce Hall

    pgl’s weekly update of CDC COVID-19 deaths shows the second wave peaking for the expendables 65 and over at roughly half the level of the NY/NYC epidemic. https://www.dropbox.com/s/dr1sjlenkm7yg87/Covid-19%20Deaths%2C%20Cases%2C%20and%20Hospitalizations%20-%208-25-20.pdf?dl=0. Hospitalizations and cases (new version) have been declining for a month.

    Nursing homes continue to be a source of death for the geriatric demographic.
    https://newyork.cbslocal.com/2020/08/25/long-island-victims-families-calling-investigation-nursing-home-covid-19/
    https://www.washingtonpost.com/health/covid-19-surges-back-into-nursing-homes-in-coronavirus-hot-spots/2020/08/13/edbff5fe-dd75-11ea-b205-ff838e15a9a6_story.html

    New York City business and retail property market are collapsing so Mayor de Blasio has focused with laser precision on the solution: https://abc7ny.com/defund-police-protesters-black-lives-matter-mayor-bill-de-blasio/6284680/. This was helped by the bail reform laws which resulted in vastly reduced jail populations: https://www.foxnews.com/us/new-york-city-shootings-rose-177-percent-in-july-data-shows

    So, as the economy begins to shrug off the shackles of state governors’ executive orders, we can be assured that the peaceful protests will bring new energy to the businesses that contribute so much to those states’ economies and employment to the lower income demographic… especially in Wisconsin.

    1. pgl

      “Hospitalizations and cases (new version) have been declining for a month.”

      There is this fellow posing as Bruce Hall who said only deaths mattered. This lying fraud has been predicting since early July that the death count would be falling. Why does THIS version of Bruce Hall not mention the death count reported by his own dropbox source? Oh wait – daily deaths ROSE during July and have stayed high throughout August.

      Come on Bruce – take your daily dose of bleach before posting your usual intellectual garbage.

  7. sammy

    I think I’ve figured out pgl (hat tip Cleveland Clinic).

    Delusional Disorder
    Delusional disorder is a type of serious mental illness in which a person cannot tell what is real from what is imagined. . The main feature of this disorder is the presence of delusions, which are unshakable beliefs in something untrue…… In reality, however, the situations are either not true at all or highly exaggerated.

    https://my.clevelandclinic.org/health/diseases/9599-delusional-disorder

    1. pgl

      Cannot address the facts so you go off on some stupid childish rant? OK! I would say you follow in the lead of Donald J. Trump. Incompetent at everything save hurling pointless insults!

    2. pgl

      I bet Sammy wants to be Jared Kushner when he “grows up”

      https://talkingpointsmemo.com/news/kushner-get-dunked-on-for-swipes-at-nba-players-luxury-of-taking-a-night-off

      “Senior White House adviser Jared Kushner, President Donald Trump’s millionaire-son-in-law, wagged his finger at the Milwaukee Bucks and other NBA players during a CNBC interview on Thursday for having the “luxury” of boycotting their game the night before in solidarity with the protests in Kenosha, Wisconsin over the police shooting of Jacob Blake.”

      Then again Jared never grew up either. Check out how little Richie Rich got hammered on the Twitter.

  8. sammy

    pgl hasn’t got the memo (he is probably pretty far down the distribution list):

    “CNN Changing Tune On Violent Riots Because Of Polls…CNN anchors Don Lemon and Chris Cuomo spoke out about the violence in Kenosha, Wisconsin Tuesday, providing a stark contrast in CNN’s previous coverage and analysis of the sustained riots in cities around the nation. Lemon and Cuomo cited polling as the main reason why rioting should now be acknowledged as something more than “peaceful protests.”

    “It’s showing up in the polling. It’s showing up in focus groups. It is the only thing right now that is sticking,” Lemon explained.

    https://thefederalist.com/2020/08/26/cnn-changing-tune-on-violent-riots-because-of-polls/

    1. Barkley Rosser

      You probably have not paid any attention, but Biden and Harris have both denounced rioting and violence. Oh, I know: you were watching the RNC where people, including both Pence and Ttump lied and said that they did not and also that Biden supports definding police, another lie. But, hey, we understand. You are in a bubble.

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