Local Government Expenditures in the Covid-19 Era

May 26, 2020

By Jenny Wong, City Auditor, Berkeley, California

As I sit in my new workspace from my home (otherwise known as my living room couch), I join millions of Americans who work for states and localities. 

While I am working productively, as are most of my peers, I am deeply distraught by the state of our economy. Unemployment has surpassed the levels of the great recession and resembles the numbers of the great depression. Some states are better prepared than others, and many will need to spend through their reserves. California where I live was in good fiscal shape before the pandemic and now projects a record $54 billion in budget deficit. Most local governments, like states, will need to balance their budgets by law and have less flexibility in raising new revenue than federal or state governments. With decreased revenues, this means local governments will need to find ways to reduce expenditures - perhaps dramatically - if they have not already.

How should they do this? What assumptions should they make? If we assume that shelter in place will be lifted somewhat, does this mean that commerce will return to normal? By when? 

One thing for sure is that we can throw the phrase “back to normal” out the window. Vaccines are under development but even under the most optimistic of scenarios, vaccines will not be widely available until 2021 at the earliest and since the pandemic is driving the economic situation, we need to look to public health evidence to determine economic projections. 

Even with reopening happening in some places, we will not have the restaurant capacity we had prior to sheltering in place. My city of Berkeley, CA, and other college towns will need to adjust even more for decreased taxes on businesses; other cities that bring in additional visitors for sporting events or conventions will need to adjust too. And without a vaccine, many people will not be comfortable going out to public places, even if restrictions are lifted. Finally, lifting restrictions without adequate public health measures could result in a massive spike in cases, renewed sheltering in place restrictions, and even more prolonged economic consequences.

Local governments are adopting a range of expenditure reduction measures to balance their budgets. Many are instituting a hiring freeze and deferring large capital projects. Los Angeles instituted a 10 percent pay cut through furlough days over its next fiscal year for many as well as using reserves and special funds. Portland also instituted furloughs for unrepresented staff. New York is currently considering layoffs and furloughs as well. And these examples are large cities that received some aid from the federal government. Smaller cities like mine are left to their own devices to pick up the gap in funding. The bottom line: unless the federal government, which has the authority to borrow money, provides more aid to all local governments, services at the local level will suffer (and since local governments are often at the front lines of COVID-19 response, this could have the perverse effect of worsening the health situation).

In addition, because of COVID-19, there will be increased demand for many services. Local governments may, while cutting budgets overall, increase expenditures in some critical health related areas from the pandemic. FEMA will reimburse for some of these services because of its emergency nature, and as GAO reported, local governments need to invest resources to ensure they can recover maximum costs. Governments need to account for increased health care costs, ensuring public safety, taking care of our most vulnerable to ensure proper shelter for the unhoused, and ensure proper social distancing in the delivery of city services. 

Some of this fiscal pressure may be relieved as other expenditures decrease. Some practices that could help decision makers in expenditure reduction include: 1) assessing essential services for the community rather than across the board cuts; 2) delaying non-essential projects; 3) looking at needs as a whole; 4) when enacting cuts, doing it swiftly to maximize the impacts; 5) when using reserves, ensure they last for the duration of the downturn; and 6) establish office of cost savings if no auditor exists.

Finally, we can use this pandemic as an opportunity to look at some long term practices with fresh eyes. While governments are doing the hard job of balancing budgets, we also have an opportunity for evaluating and reviewing how to better deliver services. How can we be more efficient? How can we deliver government services to better serve the public remotely? How can we best support small businesses as they prepare to open up? What public health measures should we put in place more permanently to help the most vulnerable? 

Ultimately while local governments have many tools at their disposal, the economic impacts are so devastating, that it will be impossible to provide quality services for our communities without federal support. Congress can provide significant emergency funding when it wants to – for example, it has opened up trillions of dollars to support large corporations. It is critical that Congress take state and local needs seriously and allocate significant funds for local governments on the front lines working to protect the public health and safety of our people.