No one knows for certain how long the Coronavirus pandemic will last, but cities will be feeling the fiscal effects of this scourge years after the crisis has finally run its course. The reason is simple: Costs will increase as localities respond to the health crisis. Revenues from sales taxes, hotel taxes, building permits and other sources will plunge as economic activity is curtailed by social distancing practices.
In March, the U.S. Congress passed a massive stimulus package that included assistance to state and local governments, but it may not be enough to address the magnitude of the coming fiscal crisis.
The City of Sonoma, California’s financial staff recently predicted that it would suffer a fifty percent loss of revenue in the final quarter of the current fiscal year thanks to losses in tourism and other business receipts. To further complicate matters, past experience suggests that municipalities won’t feel the full impact on their budgets until 18 to 24 months after the worst of the economic downturn ends.
In the aftermath of the Great Recession of 2008, cities facing dramatic financial pressures were forced to lay off staff, renegotiate benefits packages for employees, make deep cuts in libraries and parks, put off much needed maintenance and capital improvements and rethink the way they conducted operations and managed budgets. Some cities transferred police and fire services to outside agencies. A few cities ended up declaring bankruptcy.
In 2011, the National Civic League joined a three-year partnership with a group of professors from the Sol Price School of Public Policy at the University of Southern California and the University of San Francisco to conduct a fiscal sustainability research project on local governments in Southern California. The research partnership developed 12 “case investigations” of individual cities, counties and school districts and published a final article in the National Civic Review listing the key findings.
The research focused on the ways government leaders developed strategies to adapt to the changing fiscal, social and economic and cultural environments. The partnership engaged a panel of practitioners and academics each year of the project to review and discuss the draft case investigations to sharpen our findings.
Among other questions, we wanted to find out why some localities seem to do so much better than others in addressing the ups and downs of California’s boom and bust economy. Why for example, did the County of San Bernardino do a good job of getting through the 2008-2010 crisis while the City of San Bernardino was forced to declare bankruptcy? What themes and “micro-variables” would explain these discrepancies?
In his novel, Anna Karenina, Leo Tolstoy wrote that “All happy families are alike; each unhappy family is unhappy in its own way.” With some caveats, the same might be said about fiscal sustainability. Of course, cities don’t operate in a vacuum. Local governments are often confined by external circumstances that that can reduce their freedom to innovate. For example, state laws and federal mandates can have a dramatic impact on a city’s ability to raise revenues or control expenses.
Still, the most effective cities seemed to have certain similarities—long range financial planning horizons, strong bonds of community and mutual trust, effective communication between senior appointed staff and elected officials and the ability to be adaptive and innovative.
Poorly performing cities shared certain challenges with other municipalities—such as the growing burden of public safety employee benefits—but they also had micro-variables that set them apart from one another. One city had embedded provisions for public safety salaries and benefits in its charter instead of relying on collective bargaining. Another city had fallen into the hands of corrupt local officials who awarded large salaries to cronies and created an entire new department with 100 employees and no funds allocated in the budget to support it.
On a note of optimism—eventually most of these cities were able to recover with new leaders who embraced more sustainable fiscal practices and made a clean break from past mistakes. Sadly, many cities around the country will now have to face new challenges as we all adapt to the post-coronavirus realities. Hopefully, they will emerge from this crisis with new strategies and innovations to address future fiscal challenges.