“We usually see the private sector get laid off first,” says Dalia Thornton, director of research and collective bargaining for the American Federation of State, County and Municipal Employees (AFSCME). “We were shocked to see that huge number [1 million]. I would have expected that maybe in the third quarter of this year.”
Even so, Thornton expects things to get worse. A recent analysis by the Upjohn Institute for Employment Research suggests that state and local governments could face budget shortfalls of nearly $1 trillion by the fourth quarter of 2021. Jurisdictions throughout the country are looking for the combination of austerity, ingenuity and federal aid that can get them through an unprecedented crisis in which public health and the economy are intertwined.
A survey by the National League of Cities documented the dramatic impact that two months of shutdowns have already had on public services and employment. Courtesy NLC
Falling, Not Walking into the Recession
The speed at which the shortfalls have developed is as jarring as their scale. “We walked into the last recession. It was a bad recession, but we walked into it,” says Wendy Patton, senior project director for Policy Matters Ohio. “This time we fell into it.” Ohio saw as many people apply for unemployment in two weeks of March as in the first two years of the Great Recession, Patton points out.“States saw a 10 percent decline in revenue over a two-year period during the Great Recession,” says Shelby Kerns, executive director of the National Association of State Budget Officers (NASBO). “Right now, they’re predicting that in a two-month period, they will lose as much revenue as over that two-year period.”
These setbacks occurred when a healthy economy was shut down, and some hope it will roar back to life when restrictions are lifted. However, a “V-shaped” recession with a recovery as vigorous and immediate as the crash is no longer a certainty.
“There are municipalities across the country that are struggling to maintain critical services,” says Irma Esparza Diggs, director of federal advocacy for NLC. “In Boulder, [Colo.], 737 workers were furloughed – that’s huge for a community like that.”
“We’ve seen police officers being cut, we’ve seen huge layoffs in healthcare,” says Thornton. “This pain is going to continue and increase if there’s not a way to offset revenue declines.”
The National Association of Counties (NACo) has been tracking layoffs among its members, who employ 3.6 million people. “We’ve seen everything from counties laying off one percent of their workforce to over 25 percent,” says Teryn Zmuda, chief economist for NACo. “Of the counties that have furloughed workers, the average percentage of the workforce furloughed is 14 percent.”
As local governments confront the gaps between their revenue projections and the troubling prospects for the “new normal,” payroll is one part of the budget where across-the-board cuts can be made quickly.
“It's a crude instrument, but in a way it's an easier decision to make because on paper it looks simpler,” says Tracy Gordon, senior fellow with the Urban-Brookings Tax Policy Center. “State non-education jobs are still below where they were in 2008. Local jobs are just about there they were, but it took several years,” says Gordon.
It took years for the public sector to begin to make up for job losses from the Great Recession, and just months for these gains to be wiped out. Courtesy Tax Policy Center
That’s the case with county government, where prior to COVID-19, a quarter of all counties still had not recovered from the previous recession. “Now we’re facing the repercussions with a reduced number of public health workers at the local level,” says Zmuda.
Cuts that were possible in 2008 could be difficult to justify this time around. “One of the hard things that isn’t well understood is that you have to cut where the money is,” says Kerns. “That’s education, that’s Medicaid, public safety. That’s where you can find dollars, but that might not be wise given current circumstances.”
A 2009 analysis found that more than a third of public employees who lost jobs as a consequence of the 2008 recession were teachers. Class sizes will be smaller when schools reopen, and it’s likely that online education services will still be necessary. That means it’s going to take more teachers, not fewer, to keep classrooms safe and to catch up students who have been opting out of online learning during school closures — as many as 50 percent, according to some estimates.
“How you cut teachers while implementing any of these extra measures is unclear to me,” says Jennifer Laird, a sociologist at Lehman College. Teachers are anywhere from a quarter to a third of the public sector workforce, and she’s concerned that cuts on the scale she saw in 2008 will have an outsized impact on women.
Patton points to research showing that women of color hold a large share of public-sector jobs, so layoffs further harm communities most at risk for both unemployment and COVID-19. “The African-American community in Ohio is dying at a greater rate than other groups because members are disproportionately essential workers,” she says.
More Stamina Needed
Hattiesburg was the first city in Mississippi to have a confirmed COVID-19 case. “We were locked in pretty early,” says Mayor Toby Barker.Hattiesburg is no stranger to disaster, having been through Hurricane Katrina, tornadoes, floods and more. Even so, Barker says, “We've never had to have this kind of stamina collectively, whether it's economically or mentally, to soldier through this thing.”
Expecting sales tax revenues to drop by more than a quarter in the short term and about 10 percent for the year, Barker made the difficult decision to make personnel cuts. Public safety and other essential services personnel were exempt.
Twenty-two full-time and six part-time employees were laid off, and ten persons were transferred to jobs covered outside the general fund. “That was one of the toughest days in my years as mayor,” he says.
The impact of the cuts has been softened by efficiency improvements, including more online services. “This has given us incentive to double down on things like virtual meetings or filing paperwork online,” says Barker. “These are processes that governments have been pushed into and this is helping us evaluate and plan for the future.”
Budgeting Strategies Can Help
David Hough, the county administrator for Hennepin County, Minn., led the way through the Great Recession with a combination of strategies that he hopes will work again. “We managed through austerity, attrition, tools like special leave without pay,” he recalls. “We weathered it without layoffs or property tax increases through compromise and collaboration around merit and general salary adjustments.”Hough expects 2021 to be particularly challenging. Hennepin is the property tax collector for 45 cities and 20 school districts, and some of these taxpayers will be allowed to delay their half-yearly May payment until July. What worries Hough is what will happen in October, when the second-half payments are due. In the meantime, about 6,000 county employees are working virtually. “We spent a lot of money on technology, and it was well-spent in light of what’s happened here in the last two months,” says Hough.
More than 300 workers who could not do their normal jobs from home were reassigned to help with COVID-19-specific tasks. Those who did not want to be reassigned were asked to use their paid time-off balances, and were also given a “negative comp time” account of up to 240 hours against which they could borrow.
Telemedicine and online human services such as food stamps and housing assistance have been crucial, Hough says, and the crisis has been a catalyst for improving this delivery model. “It’s amazing to see the transformative change this has made,” he says. “We’ve protected people as well as being able to deliver service through this crisis.”
Even after the county reopens, jobs will be different. “Many of our business areas will continue to work virtually indefinitely,” says Hough, noting that service delivery has been enhanced in many areas.
“Many of the buildings that we have occupied will remain closed,” he says. Reduced operating costs or even letting go of buildings will save money, but not the $34 million increase in personnel costs that Hough expects in 2021.
Additional efficiencies can be achieved through IT. Projects also can be delayed, purchases reduced. “I can’t say if we’ll be furloughing or laying off, but that is part of the scenario planning we have to do,” he says.
Libraries help members of at-risk communities stay connected, through Internet services as well as books and periodicals. Municipalities are working to find ways to keep these vital resources open and safe despite cuts. Photo: Minneapolis Central Library, courtesy of Hennepin County.
Public-Sector Jobs and Economic Recovery
So far, federal stimulus money for state and local government has been directed at relieving the costs of pandemic response. It cannot be used to address budget deficits, and even this support is not available to most cities. Funds from the CARES Act go to those above 500,000 residents, less than 1 percent of municipalities and representing only 14 percent of the country’s total population.“We’re asking for direct relief to maintain critical services,” says NLC’s Diggs. “People are not being laid off because cities are poor fiscal stewards — every year they have to balance their budgets and maintain the credit worthiness needed to access funds for infrastructure and capital projects.”
Jobs in critical areas such as public health have never been refilled due to insufficient aid following the 2008 recession. Cuts in human services left unemployment insurance agencies without programmers who understand the code used to create their systems. Deficits were also addressed by tax increases, reducing assistance for jobless workers, postponing infrastructure improvements and raising tuition for public universities.
“States and local government were forced into austerity,” says Thornton. “Now the pull on their services is greater than we’ve ever seen.”
In the absence of federal aid to make up for sudden and deep revenue losses, personnel cuts will be severe, says NASBO’s Kerns. However, pressure will remain to rehire police, firefighters, sanitation workers, hospital staff, bus drivers, teachers and other essential workers as soon as possible to keep plans for economic recovery on track.
Aid now could help keep workers where they are needed and also avoid the costs of rehiring them. Beyond this, the Center on Budget and Policy Priorities warns that public-sector layoffs can “worsen the economy’s fall” in a variety of ways, with long-term consequences for families and communities.
Congress Considers Relief
The State and Municipal Assistance for Recovery and Transition (SMART) Act, currently before the Senate, would provide $500 billion to state, local and tribal governments to backfill lost revenue. Funds would go to states, which would then distribute one-third to counties and municipalities, half to each sector. An analysis by the Tax Foundation highlights ways in which the bill may unintentionally favor some jurisdictions, but acknowledges that it could help states maintain current spending levels.The $3 trillion Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, passed by the House on May 15, would provide $500 billion to states and $375 million to municipalities. The bill has the support of AFSCME, and gained momentum from Federal Reserve Chair Jerome Powell’s public comment that “fiscal support could be costly but worth it if helps avoid long-term damage.”
Despite reservations among some Republicans, it seems likely that direct federal aid is forthcoming. For now, the public sector has no option but resilience.
“We've been around 168 years,” says Hennepin County’s Hough. “We made it through the Great Depression, the Great Recession and a couple of world wars, and we still continue.”
