The coming budget reckoning for big cities

A new analysis suggests particular big cities will suffer losses in tax revenues due to COVID-19:

Describing the study results more:

What matters more in this pandemic moment is how a city generates money: Those highly dependent on tourism, on direct state aid or on volatile sales taxes will hurt the most. Cities like Boston, which rely heavily on the most stable revenue, property taxes, are in the strongest position — for now.

The estimates, to be published in the National Tax Journal by Mr. Chernick, David Copeland at Georgia State University and Andrew Reschovsky at the University of Wisconsin, are based on the mix of local revenue sources, the importance of state aid and the composition of jobs and wages in each city. The researchers predict average revenue shortfalls in the 2021 fiscal year of about 5.5 percent in a less severe scenario, or 9 percent in a more severe one.

Tax revenues can come from a variety of sources. Like recommendations for individual investors to diversify their portfolio, municipalities can benefit from a broad tax base that is not too reliant on any one sector. As the analysis suggests, relying on one single source can cause problems when that area experiences a downturn. (At the same time, creating such a robust and resilient local economy might be very difficult to do given historical patterns, current conditions, and competition in the future.)

The color coding of the graph above is interesting in that it implies that there are a number of cities that Republicans should care about helping. I wonder how this will play out: even as Republican senators would want more municipal tax revenues, it does not necessarily mean that they are pro-city or would want to go out of their way to provide funding. Are Republicans more in favor of seeing the fate of cities and suburbs as tied together when their cities are at risk?

One thought on “The coming budget reckoning for big cities

  1. Pingback: The start of municipal budget issues due to COVID-19? The case of Chicago | Legally Sociable

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