Cities across the country are running out of money. Coronavirus shutdowns have wiped out business and property tax revenues, and attempted reopenings, rather than reviving the economy, have sparked new outbreaks. Many local governments are now facing their biggest budget shortfalls since the Great Recession.
Mildred Warner, professor of city and regional planning at Cornell University, has studied the way cities responded to the fiscal challenges of 2008–09. Spoiler: It did not go great. She says cities should be spending more, not less, when unemployment rises and the residents struggle—but they can’t do it alone. On Friday’s episode of What Next: TBD, I spoke to Warner about what the federal government should do to help cities get through the coronavirus crisis. This transcript has been condensed and edited for clarity.
Mildred Warner: So, basically, think of local governments as your teenager. You give them a budget. You don’t let them go out and get a credit card on their own. You monitor their savings account and their spending. You don’t give them as much flexibility to make choices as a young adult would have who’s out on their own. And then think of the federal government as someone who’s been working and saving and is rich and has a lifetime of experience and has much more flexibility.
Government’s job is to be countercyclical to the economy, so at a time when you have a recession, that’s when you need to have government spending. In the Great Recession, we spent our money on Wall Street instead of Main Street. Had the federal government chosen to do something more than they did with the American Recovery and Reinvestment Act, done a lot more of that, it would have been the opportunity to have reinvested in, let’s say, water infrastructure—employ people, stimulate industry because you’re ordering pipes, rebuild the water infrastructure. You could have spent money to stimulate the economy and rebuild the infrastructure at the same time. Instead, we gave it to Wall Street.
Henry Grabar: Mildred says we got it wrong last time. The federal government let cities and states flail for years. It was a huge drag on the recovery. Christina Romer, President Barack Obama’s chief economist, knew as much in the spring of 2010. She said, “The dire condition of state and local budgets is one of the most difficult headwinds the U.S. economy faces on the road to recovery.” And later she concluded that just giving states money was one of the most “straightforward and effective” kinds of anti-recession policy. Of course, that’s not what happened. The Tea Party swept the GOP into control that fall. Cities, counties, school districts, transit agencies, every form of government had to make huge cuts, and we’re on the verge of making the same mistake again.
Everything you do, basically, when you step out your door in the morning, the services that you’re looking at on your street, those are all provided by your local government, whether it’s water, sewer, transit, roads, you name it. The thing that you’ll see cities do first is defer maintenance. Everybody was complaining about potholes back in 2012 because roads are a big piece of any city’s budget. You can defer maintenance, but potholes don’t wait—they just get bigger. So people see that. There’s a lot of things people don’t see.
Infrastructure—what could be a less sexy issue than that? And this might be why it’s one of the first things to go, because politicians think no one will notice. But it can have huge consequences down the road. This is what happened in Flint, Michigan. Five years ago, the Flint River water coming out of people’s taps there was so dirty that General Motors wouldn’t use it in their engine plant for fear of corroding the metal.
But why was Flint getting its water from the river? Because the recession had destroyed Flint’s balance sheet. Revenue from property tax fell by 33 percent, revenue from income tax fell by 39 percent, and state aid dropped by 61 percent. In 2011, a Michigan review board declared the city in a state of financial emergency. The state appointed an emergency manager with the power to override the mayor and City Council. It was this unelected manager who switched Flint from Lake Huron water to river water to save money.
This is why we have been talking for 10 years about the need for a major infrastructure bill, and Congress has failed to step up. It used to be the case that the federal government paid for most of this infrastructure, and states also helped, but basically both states and the federal government have walked away and said, “Cities, deal with it on your own.” And there’s just not enough money to make those kinds of capital investments in the short term, especially not when you’re being hit with the Great Recession, 12 years ago, and now the new COVID-19 recession.
And those kinds of cuts—saving money by using old infrastructure, forgoing maintenance—that’s what happens first. Then come the layoffs. Did you see a lot of layoffs after the Great Recession?
Yes, we saw about a half-million in local government, and we’re over that already now. The National Association of Counties says that local government has lost 1.2 million jobs since March.
After the Great Recession, can you think of a specific example of a place where these short-term cuts cost in the long term, that decisions were made that wound up hampering the recovery in a very specific way?
In the Great Recession, hundreds and hundreds of community development planners were laid off. Those are the people that imagine the future of your community. They decide where new things are going to be built, where you’re going to extend your transit systems, where you’re going to build affordable housing. We still haven’t dug ourselves out of the housing crisis. We have a tremendous shortage of affordable and workforce housing. California has one of the biggest affordable housing challenges of any state, in part because its economy is booming and lots of people are going there. Laying off the very people that help to design and figure out where that is going to go doesn’t help you grow in the long term.
We know what generated this recession: a pandemic, which will not last forever. We know it’s going to be short-term. And so we can reasonably make investments to get us through, knowing that it is going to be better on the other side. This is not a permanent change in the economy. It doesn’t have to be. You don’t put a padlock on your public restrooms because you can’t afford to have someone clean them, because you actually want people to be able to wash their hands.
This is hard times. This is when you dip into your rainy day fund. This is when you take out savings. This is the time.