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Cities Have Never Seen A Downturn Like This, And Things Will Only Get Worse

Detroit faces a $350 million deficit and is cutting city workers' pay.
Detroit faces a $350 million deficit and is cutting city workers' pay.

The coronavirus has taken a hatchet to municipal budgets everywhere, forcing cities and towns to lay off librarians, parks workers and even first responders like police and firefighters.

From big cities like Detroit to small towns like Ogdensburg, N.Y., workers are being furloughed, programs are being cut and major capital projects are being shelved.

Houston, which has been hard hit by the drop in oil prices, is grappling with a sharp drop-off in sales tax and fee revenue that has left the city with a deficit of almost $170 million.

"This virus has had a much deeper adverse impact on the city of Houston than Harvey did, when more rain fell on this city than any other city in the history of the country," says Mayor Sylvester Turner.

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Turner recently proposed a budget that would temporarily furlough all city employees except for police, firefighters and solid waste department employees and delay incoming police cadet classes.

Nationwide, almost a million government workers were laid off in April alone, according to the Labor Department, and the numbers are almost certain to climb, as sales and income tax revenue dwindles.

"We will see an intense drop-off in sales tax and especially in your income tax collection between now and November, December and certainly we're looking two years out," says Emily Swenson Brock, director of the Federal Liaison Center at the Government Finance Officers Association.

While many cities have tried to spare first responders from job cuts, the International Association of Fire Chiefs says nearly 1,000 firefighters have been laid off and projects that 30,000 positions could eventually be affected.

The downturn for cities has been as sudden as it is severe:

  • In Detroit, casinos have been forced to close, depriving the city of a major source of revenue and leaving it with a $350 million deficit. Most city workers are having to take pay cuts and the city has had to tap into a $100 million program to tear down abandoned buildings.
  • Las Vegas has asked city workers to accept pay cuts and has told its unions it may lay off as many as 200 employees. "We are in the midst of the most serious fiscal crisis I think the city of Las Vegas has ever faced," City Manager Scott Adam said recently.
  • Los Angeles faces a deficit of nearly $600 million next year. Mayor Eric Garcetti has moved to cut many employee salaries by 10% and says many departments "will have to operate at sharply reduced strength."
  • Big cities like these have been able to tap into an unprecedented amount of federal aid, including a $500 billion short-term lending facility created by the Federal Reserve, and $150 billion in money from Congress, under the CARES Act.

    Smaller cities aren't eligible for the programs, unless their states choose to pass on some of the money to them, Brock says.

    With restaurants and stores closed, Newport News, Va., has seen a sharp drop-off in sales tax revenue and has had to cancel big capital projects like the construction of a downtown parking garage.

    "You know we can't jeopardize our safety services like a fire and police, so we have to make sure those things are in the forefront before we look at projects on the wish list," says Mayor McKinley Price.

    Projects like these are meant to help lure businesses into the city, and canceling them could hurt the city's economy long-term, he says.

    "So it's kind of a domino effect when you start seeing things like that decrease," Price says.

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