States, Cities Face Tough Times Ahead
By: Sascha Haselmayer
Tags: Public Service, Budget Cuts, Austerity, Covid 19, Government Innovation

States, Cities Face Tough Times Ahead

With COVID-19 stripping millions from tax revenue and constituent and healthcare spending soaring, it’s no surprise: Austerity is here. Municipalities in the United States face an immediate need for critical cuts to public services, staff and budgets. In this first of three posts, I will discuss the fact that — while cuts may be painful — austerity isn’t always about loss. By embracing austerity quickly and making it a community project, there will be successes, too.

‘We are not doing this because we want to, driven by theory or ideology. We are doing this because we have to, driven by the urgent truth, that unless we do people will suffer and our national interest will suffer. But this government will not cut this deficit in a way that hurts those we most need to help’ – David Cameron, Former Prime Minister of the United Kingdom (2010)

Let me start by saying very clearly: I think austerity is a terrible idea. Cutting spending when public services are needed and the economy needs to be brought back to life doesn’t work. It’s been proven that it doesn’t stimulate economic growth. And, worst of all, it disproportionately makes the most vulnerable of our population suffer.

Yet, despite my strong feelings and hopes for the contrary, austerity is very likely on the table in most American communities. ‘Austerity’ may sound like a foreign concept, something we associate with the financial crisis in Europe. But according to Mark Davidson, a geographer and author of Cities under Austerity — Restructuring the US Metropolis, austerity became a distinct urban condition in the U.S. I don’t refer to austerity in the ideological sense of smaller government, but to the practical implication of cuts to public spending and services.

There are many ways we can enter austerity in the coming months. We may see cuts at all levels of government — severe cuts in local and state governments even as the Federal Government doles out stimulus. Indeed, those in local governments should not pin their hopes on Federal bail-outs. A recent survey by the National League of Cities and U.S. Conference of Mayors already found that 50–76% of mayors anticipate having to cut public services. Local and state governments have no actual control over federal bail-outs. It would be irresponsible for local and city leadership not to prepare for the worst.

The Face of What’s to Come

So what might austerity look like in the real world? We’ve already seen its beginnings. The first half of the year has delivered a terrible blow to local and state governments (like everywhere else in the world), as their revenue from taxes and permits evaporates and COVID-19 expenses exploded. A staggering 16.4% decline in retail in April glosses over how unevenly COVID-19 is hitting our economy. Online retailers like Amazon experienced rapid growth and won dominance while across the country small businesses like restaurants, shops, bars, gyms and after school programs are literally disappearing from our communities as their sources of revenue (and customers) are stuck at home.

According to experts, going forward a prolonged 40 to 60% drop in government revenues is a likely scenario, exceeding the capacity of the rainy day funds many municipalities so diligently built up. Fiscally speaking, municipal governments will first try to cover shortfalls by drawing on those rainy day funds, as well as tapping buffers built into budgets. Then come the cuts to the public services, which are typically funded by discretionary budgets comprising between 5 to 30% of their overall budgets. If all that isn’t enough, things will get even worse, especially if budget cuts begin to eat into the 70–80% of municipal budget that funds the heavily unionized police and fire departments or leads to defaults on bond payments. If solutions cannot be found, bankruptcy looms under Chapter 9 with a lot of legally uncharted territory. Next to cuts, cities may also look to generate revenue through increased rates or taxes.

But cuts aren’t the only challenge under an austerity budget because demand for services is likely to grow steeply. Just look at unemployment as a predictor for demand. Austerity typically comes into play when work prospects evaporate across the work landscape and anxiety is at its highest. In addition, unlike other financial crises, these problems will be especially pronounced as social distancing will keep local service industries like tourism and hospitality (which alone employ one billion low income workers globally) locked down, destroying the livelihoods of our most vulnerable people.

In 2012 British singer Plan B echoed youth sentiment when he penned his austerity anthem Ill Manors with the lines “Who closed down the community centre, I kill time there, used to be a member, what am I going to do now ’til September”. Government was unable to respond to the sharp rise in demand for social and community care services, retraining, or recreation just when people needed it most. It led to spikes in depression, youth riots, xenophobia and Brexit. And a deep desire to return to the quaint, good old days.

An eerie silence on austerity

Austerity seems imminent, yet no one is putting ideas on the table. I find this striking and deeply troubling. Other than calls for Federal Government bail-outs, or rushed emergency budgets, there is an eerie silence on how we might implement austerity. A lot of the discussion appears focused on enlightened new ways of living even as we read The Atlantic’s dire predictions of high street retail. By not debating austerity, we are giving up our agency in deciding how it should be implemented.

So the questions we should ask are these: How can we best live with austerity? How might we reframe austerity not as a “less of” debate but as an opportunity to reimagine what could be? Innovations are frequently borne not out of abundance but constraints. But despite the growing urgency, not everyone may be ready to ask them. Rick Cole, the city manager of Santa Monica resigned after pushback against his calls to prepare for the city for daunting cuts in the face of a $300 million budget shortfall. Santa Monica is set to implement a 24% budget cut for its next fiscal year that commences in July.

Maybe the American people have been in denial because we didn’t experience the kind of local government austerity others went through during the financial crisis. On average, municipal budgets were cut by 2% in the U.S., compared to 24% in the U,K. Posturing may also be at play, as states and local governments everywhere call for Federal Government bailouts. But a look at what happened over the past decade in countries like Greece, Spain and in particular the U.K. should serve as a reminder of both the prolonged suffering austerity can inflict on people as well as how certain communities succeeded in softening the blow by approaching austerity with care.

My next post shares a few lessons we can build on.