Cities Are Running Out of Money

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S1: Min wins restaurant Cafe T.H. is a cozy little place near Houston’s downtown. The kind of place that has regulars, I mean, real regulars. Names, things on the menu for them. There’s J.D. Paleoclimate.

S2: Shelley, the map, avocado bond me just to pay homage for certain individuals that have helped me tangibly and tangibly, you know, and I have continuous friendships with a lot of them, and that’s why they’re on the menu.

S1: Houston Press calls him the warmest, most affable fronted house guy in town. But of course, once you start naming things after your customers, there’s a bit of pressure to keep it up.

S2: I mean, it’s been a while since I’ve updated the menu. But even now he really. Why?

S3: No, I come in. Why haven’t you put me on the map?

S1: Still, it’s good to have that kind of devotion. When the pandemic comes to town, which in Houston happened in late March, all restaurants closed for in service and men got through it. You got BPP and he did takeout. He didn’t open his shop for diners again until June.

S3: Well, after he was allowed to because he wanted to be cautious one week of diners and then you shut it down again and then set it down one week.

S1: That was means reopening between the national shut down and Houston’s emergence as one of the new epicenters of Koven 19. Now he’s trying to adjust his model, starting with food for delivery, which he’s dropping off himself. And he’s having a little bit of deja vu right now.

S2: So I got in 2007 at the end of 2007. So I had to endure the turmoil of 2008, nine and 10. It just way my finances out. So, you know, cleared out my for one, took out my savings, opened up credit cards, you know, just to survive. Right. You decide and you say, OK, well, do you put all your eggs in one basket or do you need to just get out of it? And I made one last person said, OK, I’m going to try it. Let’s see what happens then. If I you know, if I fail, then at least I’ve tried.

S3: But. But you didn’t fail. Well, it might be a long, painful failure if this continues.

S4: He’s kind of kidding. Ten years in the restaurant business is nothing to sneeze at. And he knows it, but he’s not kidding about tough times. Kathy T.H. Cock one week of pre covered revenue, the one week they were open. Means predicament illustrates the plight of Houston and the swerve that has occurred in the country at large shut down reopening. And now a deeper sense of crisis.

S1: I’ve spoken to a few restaurant owners in Houston and each has some version of main story. It’s sad. Houston is by some measures, America’s most diverse city and its food is like that, too. Local specialty, for example, is VRT, Cajun food. Each restaurant is fighting its own battle together. They don’t just add up to a disaster in the city’s dining scene.

S5: They also contribute to a bigger problem, a city budget crisis in Houston, sales taxes, almost one third of the city’s revenue. And when people stop going out and buying things, including men’s noodles and bond me, the city budget takes a hit.

S6: I’m Henry Grobart. This is the third episode in our six part series on the future of the city during and after Koven 19.

S7: Today on the show, what happens when local governments start to run out of money? Stick with us. It’s been a disastrous week for oil and gas companies. The price of West Texas crude fell below zero dollars for the first time ever. In the early days of the pandemic, oil prices took a nosedive, which is very bad news. In Houston, where almost half of all payroll jobs are related to oil day, the fallout for thousands of oil and gas workers may be unavoidable.

S1: Jason, it looks like an oil crash covered double whammy in the spring. Houston’s mayor, Sylvester Turner, said the city might have to furlough three thousand workers. He said, quote, This will be the worst budget that the city will deal with in its history. But then things turned around. Oil prices crawled back up. Cauvin didn’t ravage Houston. Bars and restaurants, which have been closed since March 19th, opened back up on May 1st day. And many didn’t wait. We were there. Some got the party started at midnight. And the city’s budget crafted in that brief moment of optimism, makes some very rosy predictions for the fiscal year that started three weeks ago. Chris Brown, the Houston comptroller, did not share that optimism. He thinks the city was wrong to protect normal revenues for the fiscal year that started on July 1st. He and Mayor Turner met for lunch at Urma Southwest, a Mexican restaurant and a Houston classic.

S8: I, quite frankly, had had lunch with the mayor and I said, you’re not going to have enough people to fire to be able to bridge a two hundred and fifty million dollar budget gap. Even if you eliminate two thousand vacant positions, you’re still probably going to need to lay off a lot more and it’s going to have a dire effect on city services.

S1: As if to prove his point, he said they were the only people in the restaurant. Chris is the money guy. He’s also the city’s Cassandra, elected to warn shortsighted politicians about what they don’t see coming. In early June, when Houston still had the virus under control, he sounded the alarm in the Houston Chronicle. He wrote, The impact will be severe.

S9: My position is the CFO and watchdog for the fourth largest city in the United States, and that’s Houston, Texas. My position is unique in the fact that I am elected. And so that gives me a unique ability to be independent, to be more vocal.

S1: Brown is constantly thinking through the worst case budget scenario. That’s why he started warning about the virus all the way back in February.

S9: We started modeling and we said based on the information we had at the time, that we thought that the downturn as a result of Corona virus was going to be greater than the 08 09 recession. That is proving true today. We saw over a 10 percent reduction in sales tax in March, 17 percent down in April. And just this week, we got May’s numbers and we were down over 13 percent.

S1: So how dependent is Houston on the sales tax? What does it mean for the city budget? When sales tax revenue falls by 13 percent?

S9: First and foremost, the sales tax is about twenty nine percent of our general fund operating budget, which is currently two point six billion dollars. So we’re estimating for the end of this fiscal year, we will get six hundred and seventy seven million dollars in sales tax. So if you do just a back of the napkin calculation and you say 13 percent of that amount per month each month, we’re probably taking an eight million dollar roughly hit on sales tax as we see this downturn in corona virus activity.

S10: But sales tax from restaurants like men wins bars and shops is just the appetizer to the main course of the coated city budget crisis. Property tax property tax contributes about twice as much money to Houston’s budget as sales tax. Chris has been talking to his friends in real estate.

S8: What they’re seeing is that people are no longer renewing their office space leases. They’re saying we are laying people off or reducing our need for space. Restaurants obviously are are shut down there. A lot of them are just walking their leases. They’re not able to pay retail. You know, if you see what’s going on with Amazon is kind of taking over all of the retail. So brick and mortar retail also shut down. So there, you know, a lot of them can’t pay their leases.

S1: The rest reopen. The city has, as we all know, created a huge public health setback. But it has also jeopardized the very thing it was supposed to do, bring back business and tax revenue.

S8: So if, for example, you lose 30 percent of your tenants that aren’t paying or they’ve just reduced the amount of space in an office building. Well, then the building owner is going to go to the appraisal district and say, well, I don’t make 100 hundred million dollars in revenue off this giant office complex anymore. It’s down to 50. So the value of that property is going to go down. And it’s not just commercial. It’s not just office buildings. It’s a multifamily. You know, a lot of people are no longer wanting to live in a small apartment complex with four or five hundred other people where they’re sharing air. So, you know, we’re seeing, especially in the higher end apartments, people are vacating. So there’s going to be losses there. It’s going to have an impact. And we just have to prepare for how deep that that could possibly go.

S1: This plunge in property tax rolls is a ticking time bomb. Chris says every city is hearing warnings like this from the people who decide what property is worth. In the Great Recession, the property tax rolls in Houston fell by four percent, mostly when housing values crashed. This time, he thinks the property tax rolls could drop by 10 percent. Which brings us back to the budget, the one that Chris was so vocally opposed to in his lunch with the mayor.

S8: I was a little surprised in this current budget. There were no furloughs. There were no not that anyone wants to see layoffs, but there were no layoffs. There were no departmental budget cuts. There were no hiring freezes. And I say that because I know what’s coming next fiscal year F y 22, between 250 to 300 million dollar plan deficit in my estimates. And to be able to get that much in savings. I mean, you would have to lay off an enormous amount of people if the worst case scenario does come to pass.

S1: Chris in the city has to downsize its budget by something like 10 percent. What does that look like to live in that Houston where city government is 10 percent smaller than it is today?

S8: First and foremost, it’s, you know, a cut to city services. You know, you might see trash collection. You know, not every two weeks. It might be every month. You’re gonna probably see a lot more potholes on the streets. The one area that has a lot of concern for me is that the largest portion of our budget is personnel.

S11: The reality is that I think that this is where we’re headed and it’s my job to inform people. If people don’t listen to me, that’s fine. But the grand reconciliation is coming.

S6: We asked the mayor’s office about Chris’s outlook.

S12: A spokesperson says, quote, The comptroller said and wrote much about the budget that has turned out not to be true at this point. End quote.

S13: When the mass is a big help, and I think that will over time work slow down. But but not in the time period that we need.

S1: A few days after Chris and I talked, Mayor Turner called for a two week shutdown in Houston to control the spread of covered 19.

S13: I do think we are going to didn’t need a shutdown for a period of time.

S1: In some ways, Houston is unusually exposed because of the aforementioned oil corona double whammy. But other jurisdictions have their own problems. New York City collects income tax, which has vanished along with the incomes. Charleston in New Orleans depend on tourists. And as we heard last week, if people stop moving to cities, the problem only gets worse. In short, Houston is facing the same fiscal challenges as other cities around the country, which are the same challenges that all those cities faced 12 years ago.

S14: So basically, think of local governments as your teenager.

S1: This is Mildred Worner, a professor of city planning at Cornell. You give them a budget.

S14: You don’t let them go out and get a credit card on their own. Right. 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 as Rich has been, you know, has a lifetime of experience and has much more flexibility.

S1: Mildred studied the way cities responded to the Great Recession. Spoiler it did not go great. She says cities like Houston should be spending more when unemployment rises and the residents struggle, not less. But they can’t do it alone.

S15: Government’s job is to be countercyclical to the economy. And so at a time when you have a recession, that’s when you need to have government spending in the Great Recession, we spend our money on Wall Street instead of Main Street.

S14: And had the federal government chosen to do something more than they did with the American Reinvestment and Recovery Act, done a lot more of that. It would have been the opportunity to have reinvested in, let’s say, water infrastructure, employ people to stimulate industry. Because you’re ordering pipes, rebuild the water infrastructure. And so you could have spent money to stimulate the economy and rebuild the infrastructure at the same time.

S16: Instead, we gave it to Wall Street.

S10: 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, Obama’s chief economist, knew as much in the spring of 2010. She said, quote, 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. Her words 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.

S14: 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. So everybody was complaining about potholes back in 2012. Right. Because our roads and roads are a big piece of any city’s budget. And you can defer maintenance, but potholes don’t lie. They just get bigger. So people see that there’s a lot of things people don’t see infrastructure.

S1: 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.

S10: This is what happened in Flint, Michigan.

S6: You probably remember that 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.

S7: But why was Flint getting its water from the river?

S6: Because the recession had destroyed Flint’s balance sheet. Revenue from property tax fell by 33 percent. Revenue from income tax fell by thirty nine percent. And state aid dropped by 61 percent in 2011. A Michigan review board declared the city in a state of financial emergency. State appointed an emergency manager with the power to override the mayor and city council.

S1: It was this unelected manager who switched Flint from Lake Huron water to river water to save money.

S14: This is why we have been talking for ten years about the need for a major infrastructure bill and Congress has failed to step up. So 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.

S1: Twelve years ago and now the new and 19 recession and those kinds of cuts, saving money by using old infrastructure for going maintenance. That’s what happens first. Then come the layoffs. Did you see a lot of layoffs after the Great Recession?

S15: Yes, we saw about a half million in government.

S14: You’re saying in local and local government, about a half million. And we’re we’re over that already now.

S15: The National Association of Counties says that local government has lost one point two million jobs since March after the Great Recession.

S1: Can you think of a specific example of a place where were these short term cuts cost in the long term that decisions were made that wound up wound up hampering the recovery in a very specific way in the Great Recession?

S15: Hundreds and hundreds of community development planners were laid off. And those are the people that imagine the future of your community. They decide where new things are going to be built, where you’re gonna 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. And so laying off the very people that helped to design and figure out where that is going to go.

S1: Doesn’t help you grow in the long term. For Mildred, it’s painful to watch the cycle play out again.

S15: We know what generated this recession, a global pandemic which will not last forever. We know it’s gonna 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.

S7: This gets us back to Houston. You could argue that Mayor Turner is right to maintain the budget and hope for a Hail Mary like another stimulus bill from Washington. Or you could argue that Comptroller Chris Brown is right. Nat Turner is acting risky, a planet for a rosy year. But at the end of the day, the dispute in Houston is fighting over the scraps. Houston is a teenager. Turner and Brown are trying to use their allowance to pay the mortgage while dad.

S4: Washington, in this metaphor, looks for his wallet under the couch cushions. What cities like Houston really need is help from the federal government and not just Keres Act money which was earmarked for fighting covered.

S1: Our imaginations have been so constrained by decades of municipal austerity that it takes a second to remember what might be possible. We could replace lead paint in old homes in Cleveland, get the mold out of public housing in New York City, dig better drainage canals in Houston so the city doesn’t flood every time it rains, repair public schools everywhere. Infrastructure Week has become a punch line for reporters during the Trump administration because the president has promised it so many times, including this week in Atlanta.

S17: But this this is the time. 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.

S6: And that’s the show. Thanks to Mildred Warner at Cornell Houston, Comptroller Chris Brown and Midwin of Cafe T.H. TBD is produced by Ethan Brooks. Derek, John and Alison Benedicte helped with editorial direction for this series. Thank you, Alison and Derek. TBD as part of the larger What Next family TBD is also part of Future Tense, a partnership of Slate, Arizona State University and New America. I’m Henry Gabbar. Thanks for listening. Mary will be back in your feed on Monday.