10 Common Outcomes of COVID-19 on Local Government Budgets

Local jurisdictions must adapt their operations to new COVID-19-related fiscal and service constraints. There’s no single impact or response, but there are a few commonalities.

By Gerald Young, senior research associate, Center for State and Local Government Excellence | Nov 4, 2020 | BLOG POST
Outcomes of COVID-19 on Local Government Budgets

While debate continues in Washington about potential further assistance to individuals, businesses, or state and local governments, the response to the coronavirus pandemic is not something on which local governments can simply wait and see.

Since the earliest steps were taken to address the public health aspects of the crisis, cities, towns, counties, and other local jurisdictions have also been working to adapt their operations to new fiscal and service constraints.  There’s no single impact or response, but there are a few commonalities:

  1. Revenue declines - Some jurisdictions are heavily reliant on sales tax, hotel taxes, gas taxes, local licensing and inspection fees, state pass-throughs or other funding sources that have declined significantly.  Hillsborough County, Florida, projects sales tax losses of 20-25%, while Oklahoma City and Douglas County, Nebraska, project hotel tax revenue to decline by more than 40%.  In Virginia, towns are more vulnerable to sales and hotel tax declines than cities or counties, as these sources make up a larger share of their total revenues. Property tax, on the other hand, may still be hit longer-term by reassessments, particularly on downtown commercial properties, but revenues in some cases have risen as new development has been completed this fiscal year. Among those jurisdictions responding to shortfalls with an increase in property tax rates are Amarillo and Austin, Texas; Bismarck, North Dakota; Brattleboro, Vermont; and Scottsdale, Arizona. Still, many have limited capacity to increase those tax rates, subject either to state caps or to requirements for voter approval.

    CARES Act and other funding provided this spring helped mitigate some of the immediate impacts of the recession, but as those funds run out, there will be spillover effects of further reductions in revenues from sales and income taxes. Overall, according to ICMA’s recent survey on the topic, 45% expect at least a 10% drop in revenue.
     
  2. Vacant positions – The most common response in ICMA’s survey was to freeze or eliminate vacant positions.  This is the case in Charlotte, for example, which is maintaining current services, but has cut 26 vacant positions as part of a 1.2% cut in the overall budget.  Salt Lake City froze police hiring, and Oklahoma City froze the vacant positions of 34 police officers and 21 firefighters (in addition to 112 positions citywide that were cut).  In San Jose, California, the city suspended its hire-ahead program for sworn police officers, which in more stable times is intended to mitigate time-to-hire for anticipated vacancies.
     
  3. Staffing reductions – In jurisdictions that have instituted furloughs, the scale has varied – affecting from six employees in Alma, Arkansas, to 4,000 in New Orleans and 25% of the workforce in Dayton, Ohio.  The duration has varied as well – from two weeks in Roswell, New Mexico, and Mankato, Minnesota, to full or partial cuts to parks and recreation staff for extended periods, such as furloughs in Macon-Bibb County, Georgia, and layoffs in Mercer Island, Washington.
     
  4. Service cuts – Among the more common cuts have been postponement of capital improvement projects (by more than 30% of ICMA survey respondents), closure of facilities or programs that most directly involve large gatherings (i.e., park programs in Boise, Idaho, summer camps and aquatic facilities in San Jose), amended the financing or scheduling of vehicle replacement (San Diego, Scottsdale), and restructuring or reducing library services (San Jose, Seattle, and Scottsdale).

    Even where service cuts were avoided this time around, jurisdiction budgets may reflect a desire to reduce the need to cut services later. In Horry County, South Carolina, for example, the general fund budget is 3.3% lower than in FY2020, while the all-funds budget is 13.8% lower.
     
  5. Compensation – Long-term collective bargaining agreements are in effect for many local government employees, but a number of jurisdictions have included compensation changes as part of their response to this recession.  Fort Lauderdale, Florida, eliminated cost of living adjustments for FY2021.  Birmingham, Alabama, instituted 3-10% pay cuts and suspended 9 paid holidays.  Clayton, Missouri, granted a 1% pay increase, but this was offset by increased employee shares of benefit costs. 
     
  6. Investments – Cutbacks have not been the sole focus of budgetary action, with multiple jurisdictions prioritizing expenditures on affordable housing, food, mental health, and assistance to small businesses as their overall communities have been hit hard.  There has also been a focus on racial equity and criminal justice reform.
     
  7. Leadership – Rather than letting the sole impact of cuts fall on frontline employees, in the city/county of Denver, employees making less than $52,000 a year will take six furlough days while mayoral appointees will take nine.  Seattle instituted a wage freeze for managers, New Orleans exempt staff are working on their unpaid furlough days, and the city manager of Santa Monica, California, took a 20% pay cut before eventually resigning as the city went through other deep program and staffing cuts.  On the electoral side, the mayor of the Birmingham took a 10% pay cut, and San Jose cut $1 million from the mayor/council’s operations budget.
     
  8. Reserves – Reserve policies vary, but many jurisdictions chose to draw down on their fund balance as part of their overall response.  Decatur, Georgia’s reserve will go from 39% in FY2019 to 22% in FY2021.  Eugene, Oregon’s reserve is expected to be drawn down from 9% in FY2020 to 2.6% by FY2024.  And San Diego is postponing a planned $13.6 million allocation to its reserves as it focuses on the present challenges.
     
  9. Creativity – In making the painful decisions this crisis has necessitated, many governments have strived to minimize their impact on the public and employees.  Birmingham furloughed 7% of its workforce for an indefinite period of time, but continued to provide benefits for at least three months.   In Auburn, Washington, the city is allowing employees to schedule their 46 hours of FY2021 furlough as they choose, so that the timing of the impact on their pay and out-of-office is up to them.  Aurora, Colorado, has granted raises coupled with a required furlough for FY2021 that matches that raise (per a discussion with ICMA staff).  This is intended to keep everyone on a salary progression track, but to account for the short-term budget challenges.  

    El Paso County, Texas, is supporting employees via time off, an employee recognition week, mid-day breaks with therapy dogs. Orange County, Virginia, is using CARES Act funds to cover the incremental cost increase post-COVID-19 that some employees and residents face for childcare. Orange County also is allowing employees to dip into a pool of leave for childcare or COVID-19 issues. Saline County, Kansas, is empowering work groups to propose their own plans to cover service gaps due to childcare issues. (Note: These last three examples come from the NACA Ideas Exchange at the ICMA UNITE event.)
     
  10. Contingencies – Regardless of what these and other jurisdictions have adopted so far, they have also recognized that the situation is still very uncertain.  As such, they have either drafted plans for a next phase of potential cuts and restructurings or have set a schedule for semi-annual or quarterly review of fiscal, public health, and service considerations.


Challenge and Opportunity

Coronavirus will continue to have a significant negative impact on local government revenue and budget. Fiscal and service constraints will be painful but will likewise be an opportunity for extensive public engagement and transparency around relevant data.

View summary data from ICMA on COVID-19 Impacts on Local Governments, or for the Center for State and Local Government Excellence’s report on Public Sector Employee Views on Finances and Employment Due to COVID-19 or related documents relating to K-12 employees or African American public sector workers.


ICMA Unite

ICMA UNITE on-demand: Modeling Your Covid-19 Revenue Losses, presented by Bob Leland, special advisor for the consulting firm of Management Partners. If you are not registered for UNITE, register today and you will get access to the 200+ on-demand sessions showcased during September 23-26 PLUS continue the conversation with your local government peers on Friday, November 13 where new sessions will be provided.


ICMA Blog


Get more content like this in your mailbox!

Subscribe via email

Advertisement

You may also be interested in