Municipalities are becoming convinced that recovery to pre-pandemic levels may not be possible without robust direct federal support.
In a webinar put on by the Milken Institute as part of its Program for Excellence and Equity in Public Finance, launched this week, Chicago Mayor Lori Lightfoot said her city has had to raise taxes and borrow more due to COVID-19. While vaccinations will help bring back economic health, it could take months, Lightfoot said.
“I know I may be painting a downward picture, but everyone here already knows what I’m talking about,” Lightfoot said. “Our task before us is not just how we get back into the black, but how we do it in a way that’s equitable, inclusive and that leaves us financially better and healthier than when the crisis began.”
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Lightfoot called for more support from Washington. If that does happen, it would help Chicago rethink cuts, borrowing and others tools the city has had to use in the past, Lightfoot said.
“This isn’t about what may or may not have happened in fiscal management from years ago,’ Lightfoot said. “This is about a direct impact on our local economies solely attributable to COVID-19.”
Lightfoot commended President Joe Biden’s proposed American Rescue Plan — which would give $350 billion to state and local governments.
Some cities never quite recovered from the 2009 recession, making the need for federal money important, said Elizabeth Reich, chief financial officer for Dallas, Texas.
“We never fully recovered from the last recession,” Reich said in a panel, adding that many smaller localities that haven’t experienced the robust population growth Dallas has are surely even worse off.
The population of the Dallas-Forth Worth region grew by one million people over the past eight years according to census data.
Oregon State Treasurer Tobias Read said the state is faring better than initially feared due to built up reserves. However, expenses have “exploded,” he said.
“This is right on the heels of when we finally got to the point that we felt like we had recovered from the last recession and finally begun to be in a place to make serious reinvestments in education and make headway on our unfunded pension liabilities.”
As many as half of last year’s municipal bond issuances involved some form of deficit financing — paying for government expenses through borrowing, Lisa Washburn and Matt Fabian of Municipal Market Analytics told Pew Charitable Trusts in a Q&A released Thursday.
Fabian and Washburn analyzed 442 municipal bond issuances over $100 million between August and mid-December of 2020.
“These are not typical uses of the municipal bond market, where an overwhelming majority of financing is for long-term infrastructure projects,” Washburn and Fabian said. “But last year, with state and local governments seeking as much as possible to avoid cutting spending, raising taxes, or postponing pension payments, they shifted their emphasis to short-term and temporary solutions.”
As federal stimulus money dried up, municipalities increasingly took on debt, they added.
The borrowed money was used for direct deficit financing — money that would have been collected from taxes — and indirect deficit financing such as using money from bonds to pay for projects that had previously been paid for with cash, Washburn and Fabian said.