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Scenes From a Pandemic: Five Cities, One Story

Posted on Apr. 6, 2020
Billy Hamilton
Billy Hamilton

Billy Hamilton is the executive vice chancellor and CFO of the Texas A&M University System. In 2015 Hamilton led Texas Republican Gov. Greg Abbott’s Strike Force on the Health and Human Services Commission to complete a management analysis of the agency. Before that, Hamilton was the deputy comptroller for the Texas Office of the Comptroller of Public Accounts from 1990 until he retired in 2006. He is also a private consultant, advising on numerous state tax matters.

In this installment of State Tax Merry-Go-Round, Hamilton dives deeper into how the novel coronavirus is affecting states.

I wrote my first column about the coronavirus and state finances two weeks ago. It amounted to little more than a series of guesses about what pandemic and recession would mean for state government tax collections and overall finances for the remainder of this year and next.

I normally never repeat a topic from week to week, but I wrote a second column on the crisis last week because, as I titled the column, “What Else Is There to Talk About Other Than the Coronavirus?

The second column focused on the impact of the pandemic and the consequences of America “sheltering in place.” More information was also available on the states, and I used the example of Texas, because I’m here, sheltered in place, and the state faces some of the worst fiscal aspects of the pandemic — nosediving revenue estimates, angry taxpayers blaming tax payments for their businesses’ demise, and, to add to the headaches, falling oil and natural gas prices in a state where the oil and gas industry is a major employer and severance taxes account for 10 percent of state tax collections.

Another week has passed, and with no magical reprieve in sight, I decided to close out my accidental three-part series (I hope) with a third column picking up where the last one left off — with the impact on cities, where the problems caused by pandemic are more immediate.

Like the states, it’s too early for a comprehensive assessment of COVID-19’s impact on cities, but the anecdotal evidence is trickling in, mostly in the form of news articles about individual cities and their problems. Each city has its own issues, but in every case, there is a central theme — this is a big problem and it’s going to be a big problem for a while. The difference between cities and states financially, though, is that local fiscal options and resources are more limited. The coronavirus pandemic may be a global battle, and in the United States it is being dealt with by the federal government and the states, but the frontline is Main Street in cities, towns, and rural communities all over the country. Here are some scenes from the frontlines.

Seattle: ‘Who Has the Money?’

On January 19 a 35-year-old man turned up at an urgent care clinic in Snohomish County, Washington, part of the Seattle metro area, after a four-day bout of cough and fever. He said he had returned home January 15 after traveling to visit family in Wuhan, China. He had seen a health alert about China’s coronavirus outbreak and decided to see a doctor.1 Smart move. He had contracted COVID-19. It was the first case of the disease in the United States, and it came less than three weeks after the first mention of the new virus appeared in English-language news reports and a little more than a month after the first recorded case in Wuhan.

With that, the coronavirus outbreak came early to Washington and its largest city, Seattle, and what happened there provided a preview of things to come for other cities and other states. It’s been a bumpy ride. On March 28 the Washington State Department of Health reported 28 new coronavirus-related deaths — the biggest single-day increase in deaths the state had seen since numbers were first reported. The death total had reached 175 among 3,700 confirmed cases. In King County, where Seattle is located, there had been 125 deaths among 1,760 cases; in Snohomish County, the toll had reached 23 deaths among 913 cases.

The toll was also being felt economically. On March 26 the state reported an 843 percent week-over-week increase in claims for unemployment benefits as businesses started to temporarily close under state-mandated orders to slow the spread of coronavirus. “This is going to be a deep trench we’re going to have to get over,” Gov. Jay Inslee (D) said at a press conference.

The virus is already wreaking havoc with Seattle’s finances. In mid-March the city budget staff estimated that the one-two punch of the pandemic and expected recession could put a $110 million hole in the city budget this year because, according to one report, the city’s economy is in disarray and the city is heavily reliant on taxes linked to business activity, which is now approaching zero. That would amount to a 7 percent reduction, and the staff admitted that the estimate already was “growing stale,” as the state ramped up containment measures by ordering all bars, restaurants, and places of entertainment and recreation to close.2

There’s an old saying in politics that you shouldn’t let a good crisis go to waste, and not surprisingly, if you’ve followed the story over the past couple of years, some city council members saw the coronavirus pandemic as an opportunity to retool their push to tax large corporations like Amazon, now arguing that the money could initially be used to help people affected by COVID-19. Council members Kshama Sawant and Tammy Morales repurposed a proposed head tax on the city’s largest business into a source for funding coronavirus relief. “The needs are so great . . . and who has the money? Big businesses, even during this pandemic,” said Sawant. She asked supporters to sign a petition calling for the tax to be imposed.

The head tax has been tried in Seattle before — an earlier version was adopted by the city council in 2018 and repealed less than a month later in the face of blistering business opposition. The original tax was set at $275 per employee for companies making at least $20 million in gross annual revenue, and it created such bitterness that many thought the city council would be voted out of office. That didn’t happen even with local goliath Amazon backing pro-business candidates. Sawant said at the time that her reelection proved that voters would welcome higher taxes on big business, and she hasn’t given up on the idea.

In February Sawant proposed a new payroll tax of 1.7 percent on the largest 3 percent of Seattle corporations, as measured by payroll in the city. The tax would apply to about 825 companies with at least $7 million in annual payroll and would raise $300 million a year, according to city estimates. The plan would have directed 75 percent of the money raised by the tax to build affordable housing and 25 percent to convert Seattle homes from gas and oil to electric systems. In the new version, the tax would raise about $500 million to be used for coronavirus relief — initially. Once the crisis is passed, the tax would continue as an ongoing source of funding for housing and environmental programs and wouldn’t have a sunset date as the original 2018 proposal did.

Amazon has a tax haven in Seattle,” Sawant said on Twitter. The business community, meanwhile, still hates the idea. “Our region is just starting to see the full picture of what the coronavirus means for jobs and the economy, and the reality is that the recovery is going to take months,” Alicia Teel, spokeswoman for the Seattle Metropolitan Chamber of Commerce, said when asked about the plan. “We need our leaders at every level of government to work together and stay focused on getting our community and our economy through this crisis.”

Las Vegas: ‘Everything Was Just Dark’

All cities eventually will be affected by the coronavirus outbreak and its accompanying economic woes, but the cities that may be hit hardest are those that rely on tourism for a major part of their budget. And no city is as reliant on tourism as Las Vegas, where as much as 70 percent of the economy is linked to the tourism and hospitality industry either directly or indirectly.

Going into this year, the city’s outlook was generally optimistic. The national economic slowdown was having some impact — there were fewer visitors from California, but McCarran Airport was busier than ever. Gambling revenue was expected to grow modestly, and employment was expected to increase, though more slowly than in Reno, which has done a better job of diversifying its economy. “I think they should feel comfortable about the future of the Southern Nevada economy over the next two years,” Stephen Miller, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said at an annual forecast breakfast in December 2019. “But as is always the case, you should keep some of your powder dry because you never know when the next recession will come.”3 He was wrong about the short-term outlook, but right about the recession — you never know when it will come.

As of March 27 there had been 443 COVID-19 cases in Clark County, where Las Vegas is located, and 10 deaths. City finances, meanwhile, were reeling. On March 26 the Las Vegas Review-Journal reported that city officials had said they don’t yet know how badly the outbreak will hurt the city’s budget, but “business closures may trigger financial turmoil that rivals the Great Recession.”4 Unlike the recession, this crisis was sudden, “with an assortment of sales tax-paying establishments shuttering practically overnight.”

The city gets just under 40 percent of its revenue from the Nevada consolidated tax, also called the C-tax. The C-tax consolidates several taxes into one pile, and a portion of the total is allocated to local governments. The tax has six components distributed monthly, including the basic city-county relief tax (a part of the sales tax), the supplemental city-county relief tax (another sales tax), real property transfer taxes, tobacco taxes, liquor excise taxes, and the government services tax (a motor vehicle property tax).5 Las Vegas also relies on the property tax, a room tax, and various fees. Sales taxes account for about half of the total C-tax, and that’s where the pain is.

“We’re the most undiversified city probably in America, and tied almost exclusively to tourism and entertainment, and there’s a consequence for that,” City Manager Scott Adams said. The city also is working in the dark for the time being. It receives tax information from the state with a lag, so it won’t fully understand the effects of the March 18 order from Gov. Steve Sisolak (D) that shut down all nonessential businesses, including casinos, until May, but the story is as brightly lit as nighttime in Las Vegas normally is: This is the first time the city’s casinos have been dark since they closed for President Kennedy’s funeral in 1963.

This shutdown will last longer and hurt more. Adams said the city could be facing a deficit as high as $100 million in its $600 million general fund budget, although he told reporters that his “very wild” preliminary guess could change when actual data are available. The city adopted a budget with a $5 million surplus in 2019.

One Las Vegas restaurant worker ventured to the Strip after Sisolak’s announcement and found the sight unnerving. “Everything was just dark,” she said. “Everything that should have been lit was dark.”6

Kansas City, Missouri: ‘Cross Your Fingers’

The nation’s heartland — the central states that don’t touch an ocean — came late to the pandemic, but they haven’t avoided it. Kansas City, Missouri, one of the most heartland cities in the heartland, had 77 reported cases as of March 27, but ominously, that total was up 33 percent from the day before. The same day, the city council adopted a $1.7 billion budget for fiscal 2020-2021 ahead of the city’s new fiscal year, which begins May 1.

The decision to go ahead with the budget drew criticism. The Kansas City Star editorialized that the council was voting “without knowing how disruptive the COVID-19 epidemic will be,” and called the decision a gamble: “The coronavirus crisis has slashed jobs and economic activity. If earnings and tax revenue contract by just 10%, the city will lose almost $27 million in anticipated cash. A 20% reduction in sales taxes — a real possibility if the city’s shutdown continues for months — could cost $50 million or more.” It noted that other taxes on restaurants and hotels would “almost certainly plummet in the weeks ahead.” Other taxes and fees also may produce less revenue. “Imagine a $565 million general fund budget falling short by $50 million or $60 million in revenue in one year,” the Star said.7

Uncertainty about the city’s financial future has led some city council members to suggest a budget freeze until the revenue picture clears. Mayor Quinton Lucas rejected the idea. “The budget reflects our priorities,” he said. The council, he promised, would pass a budget “in a very responsible way.”

More will be known once the facts pour in. Here’s one: On March 28 the open-air City Market near the Missouri River was nearly empty. “Usually, on a Saturday morning, this early, you’re bumping elbows with people. I think I am the only one shopping,” a guy shopping for his restaurant told a reporter.8 Not that Saturday, on the first weekend since city officials issued a stay-at-home order and closed all but essential businesses. Businesses that provide groceries were deemed essential. An Italian deli was open; so were two produce stands. A coffee shop offered walk-up service “through a half-shut door.”

The only reason the guy who was shopping came to the market was that he was trying to keep his restaurant open. It’s going “horribly,” he said. Going to curbside takeout, which is still allowed, has caused him to lose 90 percent of his business. “We’re trying to last through this so we’re open when we’re over this,” he said. “Cross your fingers.”

New Orleans: ‘A Perfect Incubator at a Perfect Time’

New Orleans, a city known for its large, raucous public gatherings and plagued with higher-than-average rates of obesity and chronic disease, is quickly becoming a hotspot in the coronavirus epidemic nationally. As The New York Times reported: “According to one study, Louisiana, with more than 2,300 cases as of [March 26], is experiencing the fastest growth in new cases in the world; Gov. John Bel Edwards [D] said on Tuesday that the current trajectory of case growth in Louisiana was similar to those in Spain and Italy.”9 The experts believe they know the source of the problem: “I think it all boils down to Mardi Gras,” F. Brobson Lutz Jr., a former health director of New Orleans and a specialist in infectious disease, told the Times. “The greatest free party in the world was a perfect incubator at the perfect time.”

The disease and efforts to contain it will heavily affect tourism. In 2016 events and festivals yielded a $904 million economic impact and attracted 3 million people, according to the city. According to the Daily Advertiser, the months likely lost to sheltering in place will be devastating to the city: “We have numerous festivals throughout the year and the level of seasonality we saw several years ago is gone. However, the loss of the festivals currently and into the near future has the potential for an extremely large decrease of economic activity to the economy,” said John Williams, dean of the University of New Orleans College of Business.10 The impact also will ripple through the state’s economy, which is already being battered by falling oil prices. The New Orleans-Metairie metropolitan area accounts for more than 31 percent the state’s total GDP.

At the street level, the effects could be severe for a large segment of the city’s labor force. According to one study, the hospitality and tourism industry employs directly or indirectly 72,000 people, or 12 percent of New Orleans’ workers, although some (probably inflated) estimates put the total as high as 100,000.11 The jobs, though plentiful, are fragile — they come with low wages that don’t pay enough for workers to get through weeks of staying at home. “Our food banks say they’ll be out of food by next week,” said Mayor LaToya Cantrell (D), adding that the city was estimating a budget deficit of at least $100 million next year, given the vanishing sales tax revenues. “And we have hurricane season coming in June,” the mayor added.

Greenville, Pennsylvania: ‘It’s Going to Hurt’

The crisis hasn’t just affected the coasts, large cities, and tourist hotspots. It’s also creeping into rural America — places like Greenville, a town of 6,000 in northwestern Pennsylvania. The town already wasn’t doing so well. It’s one of more than a dozen municipalities struggling so badly economically that it was getting extra help from the state before the pandemic arrived. The city is part of a larger problem of declining communities in Pennsylvania, which is dotted with small towns with shrinking populations, lost industries, and rising poverty. This won’t help.

On March 19 Gov. Tom Wolf (D) ordered a closure of all “non-life-sustaining” businesses. He expanded the order. As of March 27, the state had 2,218 cases in 50 counties. Mercer County, where Greenville is located, has had six cases and no deaths, but the town is feeling the effects anyway.

Town Manager Jasson Urey told reporters he’s bracing for a drop in tax revenues, considering cutting back some services, and dreading the possibility of more empty storefronts in a community that the state has deemed “financially distressed” for almost two decades. “It’s going to hurt no matter what we do,” he said.12

Most municipalities in Pennsylvania rely on an earned income tax as their second-largest source of revenue after the property tax. Those identified as financially distressed by the state have special authority to levy higher rates — not that that will do much good as workers are laid off and businesses cut back or simply close. Greenville’s revenues will soon fall — more economic fallout from the pandemic and response.

“If we’re looking at mass layoffs, then it would be extremely bad by the third quarter,” George Dougherty, a professor of public administration at the University of Pittsburgh who works with several distressed municipalities, told PennLive. He also said local water, sewer, and waste collection departments could run up deficits as people struggle to pay their bills. Unless the economy rebounds toward the end of the year, he said, next year’s property taxes — the main source of revenue for almost all municipalities, distressed or not — could take a “substantial hit.”13

‘Be Safe’

The list of cities worrying about their financial future is long at the moment — Chicago, Dallas, Detroit, Los Angeles, New York, and even little Hutto, a town northeast of Austin that’s already begun layoffs in anticipation of dismal sales tax results in April and May.

The point is that the coronavirus epidemic will be a challenge for almost all U.S. cities in the coming months, regardless of how hard they’re hit by COVID-19, because the recession is looming. For some, already battered by the disease, the effects will be worse. The potential is high that the disease will begin outstripping local healthcare capacities soon in some cities. Fortunately, smart people are working to find answers. Unfortunately, they don’t have those answers yet.

So the situation is bad but not without hope. The disease eventually will pass, and as in the case of a natural disaster like a hurricane, people will begin picking up the pieces and restarting the economy. So will cities, but there will be more to do than just pick up where things left off in February. Michael Kimmelman wrote in The New York Times about how pandemics devalue the things most valued in cities, like density and connection.14 Pandemics, he said, are anti-urban: “They exploit our impulse to congregate. And our response so far — social distancing — not only runs up against our fundamental desires to interact, but also against the way we have built our cities and plazas, subways and skyscrapers.” That’s during an epidemic, not after it. The question of what this means for cities and suburbs and how we work and interact is going to be debated long after the last shelter-in-place order is lifted.

Another unknown is the economic toll. The expected recession, if it comes, also will pass, but when? In an interview with Marketplace, former Federal Reserve Chair Ben Bernanke said he believes the economic crisis is not as apocalyptic as some have suggested. “The current situation has a few superficial similarities to the Depression: A very sharp decline in output, more unemployment, stock market coming down. But, basically, it’s a very, very different kind of animal,” he said, noting that he didn’t expect it to last as long as the Great Depression. “And the causes of the Great Depression were very different, basically monetary and financial causes and the current situation is due to a pandemic, to a force of nature. So, it’s a different problem with different solutions.”15

Bernanke said it also isn’t like the recession of 2008. “Now this situation is quite different in two ways. First of all, the problem is starting outside the financial system — it’s starting, of course, with the pandemic. . . . The second thing, though, which is the good news, is that after the 2008 crisis, we did a lot of work to try to strengthen the financial system. And our banks have a lot more capital, they have a lot more liquidity, they’ve been stress tested.”

There are other reasons to be hopeful while being bored — or frightened — at home. Danny Westneat, the Seattle Times columnist, recently wrote that the crisis has forced Seattle and Washington state to address an issue that’s been left unresolved for years: homelessness. It has also forced cities and states to confront the digital divide among school children as classes move online.16 Contemplating the conditions in Seattle’s previously crowded, dangerous homeless shelters, Westneat was left to wonder, “Why, before coronavirus, were we tolerating it like that in the first place?” The answer is because solving it is hard, expensive, and politically controversial, and, he said, subject to policy inertia. But the political saying is true: A crisis is a terrible thing to waste — not just for political reasons but because it sometimes makes it possible to do the right thing.

In the end, I think we’ll find that Americans are resilient, much as they may complain. In late March a Providence Journal reporter toured Main Streets throughout Rhode Island to see how people were holding up.17 He found fewer people out and about, but the ones he talked with were getting by, trying to cooperate, but grousing, mostly good naturedly. In Wakefield, the reporter came across Jason Bishop, who works for a local food supply company, making a delivery to a restaurant now limited to takeout orders only.

“It’s a lot slower now,” Bishop said.
“Fewer runs are going out.”
Asked how he was doing, Bishop said,
“I’m doing fine.”
“Be safe,” the reporter told him as they parted.
“Be safe”: this year’s version of
“Have a good day.”

FOOTNOTES

1 U.S. Centers for Disease Control and Prevention, “First Travel-Related Case of 2019 Novel Coronavirus Detected in United States” (Jan. 21, 2020).

3 Buck Wargo, “Las Vegas Economy Remains Strong,” Las Vegas Business Press, Dec. 3, 2019.

4 Shea Johnson, “Las Vegas Official Says City Facing Financial Crisis,” Las Vegas Review-Journal, Mar. 26, 2020.

7 Editorial Board, “Coronavirus Could Decimate KC’s Budget. Why Isn’t the City Council Playing It Safe?The Kansas City Star, Mar. 24, 2020.

8 Eric Adler, “KC City Market a Lonely Landscape on First Saturday Since COVID-19 Stay at Home Edict,” The Kansas City Star, Mar. 28, 2020.

9 Katy Reckdahl, Campbell Robertson, and Richard Fausset, “New Orleans Faces a Virus Nightmare, and Mardi Gras May Be Why,” The New York Times, Mar. 26, 2020.

10 Andrew J. Yawn, Maria Clark, and Todd A. Price, “How the Coronavirus Could Impact the New Orleans Tourism, Business Economy,” Daily Advertiser, Mar. 13, 2020.

11 Tiffany Smith, “Hospitality and Tourism in the New Orleans Region: A Labor Market Snapshot,” JFF for the Hilton Foundation, Nov. 2018.

13 Id.

14 Michael Kimmelman, “Can City Life Survive Coronavirus?The New York Times, Mar. 17, 2020.

17 G. Wayne Miller, “On Main Streets From Westerly to Woonsocket, Coronavirus Leaves R.I. a State Deserted,” Providence Journal, Mar. 25, 2020.

END FOOTNOTES

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