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Inadequate COVID Stimulus Is Pushing Cities and States to Make Draconian Cuts

As cities and states stare down a growing financial apocalypse, they have begun to slash vital public services.

Protesters hold signs reading "MBTA riders deserve safe public transit" and cheer during a rally calling for more investments in the MBTA "T" system in Boston, Massachusetts, on November 19, 2020.

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For the last nine months, as the COVID crisis has deepened, cities and states have stared down a growing financial apocalypse. In the first bloom of the crisis, those cities and states that had managed to put aside extra dollars during nearly a decade of economic growth used up their hard-won rainy-day funds; then they began juggling numbers, using accounting tricks to lower current spending obligations without actually reducing jobs and services; and then, when they ran through their grab bag of tricks, they had to begin cutting services.

For cities that hadn’t experienced the sorts of booms that had generated such wealth in New York or in San Francisco in recent years, already hard times became suddenly even harder. Just before the pandemic shut U.S. cities down in March, researchers with the Brookings Institute reported that many mid-sized metro areas were performing far worse economically than were mega-cities, with their local economies and labor markets growing at a lower rate than their larger neighbors, and with poverty declining at a slower rate. In the latter part of the decade 2010-2020, population growth, and with it economic muscle, in many of the U.S.’s largest metropolises also slowed significantly.

When the COVID crisis hit, all of the vulnerabilities that had been growing, largely unnoticed, beneath much of the U.S.’s urban surface for several years burst forth into the open. The math is pretty straightforward. As tourism, hotels, restaurants, entertainment venues, ticket sales to sports events, conventions and so forth have dried up in the face of the pandemic, government revenues have imploded: less jobs and less consumption means less income tax and less sales tax revenues. And that, in turn, means cuts to jobs and services at the city and state level. All of this feeds into a downward cycle by further reducing tax revenues and consumption, and further reducing the amount of money that cash-strapped states can send to their cities, most of which are barred by state laws from running deficits from one year to the next.

In April and May, 1.5 million workers were either laid off or furloughed by state and local governments around the country. Back then, the National League of Cities found that 2,100 cities were facing budget shortfalls and strategizing ways to impose cuts to make up for these lost dollars. Since then, that number has almost certainly increased.

It was at least in part in response to this cascading fiscal crisis that the House of Representatives passed the HEROES Act, which would have freed up trillions of dollars in federal spending to counter the economic impact of the pandemic. Several hundred billion dollars of that would have been used to backstop city, county and state governments, so as to minimize the scale of the cuts. It would have protected education and transport infrastructure — and the jobs that go with that — cultural institutions, libraries, as well as more prosaic but vital functions, such as fire-fighting, park maintenance, garbage collection, and so on.

But with GOP lawmakers increasingly reluctant to sign off on another big-spending package — especially one that was seen, rightly or wrongly, by their base to disproportionately benefit Democratic-leaning big cities that had shut down large swathes of their economy as a public health response — the HEROES Act wasn’t taken up by the GOP-controlled Senate. Predictably, the result has been catastrophic for cities and states — and the scale of the cuts envisioned at year’s end surpasses anything proposed back in the spring.

A report, released in early December by Boston University’s Initiative on Cities found that only 13 percent of mayors in the country believed small businesses in their jurisdictions had received enough federal relief. Large numbers believed that their rental markets would leave residents particularly vulnerable for the next couple of years, and that public transport and cultural institutions would remain deeply vulnerable through 2021. Fully 45 percent believed they would be forced into “dramatic” cuts to schools over the coming year. And 6 out of 10 believed that, even after vaccines were distributed, downtown office space in their cities would remain less desirable — and, since those economic cores provide a large part of their tax base, that would mean continued, long-term economic pain for cities.

Los Angeles, which has lived under varying degrees of lockdown and has seen vast parts of its economy shuttered for the entire duration of the pandemic, is facing a $650 million budget deficit for the coming fiscal year — and city analysts predict that number will increase before the health crisis ends. As a result, LA’s city government is proposing the elimination of more than 800 jobs, most of them in the police department. That’s less than the nearly 2,000 jobs initially proposed for the axe, but still a crushing blow to the country’s second-largest city.

What Los Angeles is proposing isn’t a carefully thought through “defund the police” strategy, with investments in social services, mental health services, and other public expenditures replacing the dollars cut from the police force; instead, it’s simply reactive, a desperate cost-saving measure. And even with these cuts, the city is still going to have to impose furloughs, equal to about 10 percent of workers’ wages, on thousands of additional employees. There’s no way to interpret this other than that LA is facing a huge reduction in public services.

In Jacksonville, Florida, both the public defender’s office and the state attorney’s office are facing cuts of millions of dollars, impacting the ability of the city over the coming years to hold trials in a timely manner.

In Chicago, Mayor Lori Lightfoot is proposing the elimination of up to 500 city jobs, and the furloughing of thousands of additional workers. At the same time, the Windy City is trying to plug a burgeoning hole in the city’s budget with emergency increases to property taxes and gas sales taxes.

The crisis runs the gamut from the biggest public institutions in the country to some of the smallest. In New York, the Metropolitan Transportation Authority, which runs public transit in New York City, is facing an astonishing $12 billion shortfall in coming years, and is estimating that it will have to cut services by 40 percent if it doesn’t receive a huge cash injection from the federal government in the coming weeks. Meanwhile, Pew Charitable Trusts has reported on small water utility districts heading into insolvency due to the large number of customers who can no longer afford to pay their water bills. In some rural areas of North Carolina, the researchers found, up to half of water customers were behind on their bills as a result of the pandemic and the economic dislocation that has accompanied it.

Pick pretty much any local jurisdiction, anywhere in the country, and draconian cuts to services are on the table as we head into 2021.

Belatedly, Congress seems to be acknowledging the scale of the crisis. Seven months after the House passed the HEROES Act and the Senate promptly tabled the bill, legislators are finally scrambling to craft a drastically watered-down relief package — worth $908 billion, or about one-third of the HEROES Act — so as to avoid an economic cliff over which tens of millions of impoverished Americans could topple during Christmas week when existing benefits, passed in earlier pandemic-relief packages, run out; and to partially shore up collapsing city and state services.

The proposals being pushed by a handful of moderate-middle senators, are, of course, better than nothing. But they leave huge shortfalls. Analysts at the Brookings Institute and elsewhere have calculated that states and cities are facing a financial gap of roughly half a trillion dollars over the coming years, but the package proposed by the moderate-middle in these last days of 2020 includes only about $160 billion in assistance to these entities. And even that is $160 billion more than Mitch McConnell and most of the Republican leadership want. McConnell has, after all, spent much of the past year opportunistically railing against “bailouts” of Democratic states’ pension systems, of big city social programs, of union-protected jobs and wages, and so on. At one point, earlier this year, McConnell, playing to his conservative base, even stated that he would be quite content to see states go bankrupt.

With or without congressional intervention, at this point much of the damage has already been done. Cities and states have already begun slashing vital public services. And local leaders have already started implementing huge budget cuts on the assumption that Congress won’t step up to the plate with the financial assistance that they need. It’s all a fittingly dysfunctional, cruel, coda to a particularly brutal year.

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