Invest in Metro Recovery and Resilience
A resilient city is defined by “the policy-induced ability of an (urban) economy to withstand or recover from the effects of shocks.” It took many U.S. cities years to recover from the 2008 Great Recession and Wall Street meltdown. Today, the coronavirus pandemic and recession pose an even more severe test of the resilience of America’s great metropolitan hubs.
“The scale and speed of this economic collapse is without precedent in modern American history,” according to a new Brookings Institute study. “In just two months, measures to safeguard public health wiped out a decade’s worth of job gains since the Great Recession.”
The speed and strength of America’s recovery from this calamity is inextricably linked to what happens in urban centers. According to 2019 report by The United States Conference of Mayors and IHS Markit, the nation’s 10 highest-producing metro economies generated $7.2 trillion in economic value in 2018, surpassing the output of the sum of 38 US states. Their output exceeds all the nations of the world save China, and is 45% greater than that of Japan, the 3rd largest economy of the world. Twelve of the world’s 50 highest-producing economies are U.S. metropolitan areas. In 2018, the U.S. metro share of total employment increased to 88.1% as metros added 2.1 million jobs, accounting for 94% of all US job gains. Metro areas are also where our most dynamic innovation clusters are centered, particularly for digital technology, pharmaceuticals, biotech and robotics. Boston, Seattle, San Diego, San Francisco and Silicon Valley captured nine out of 10 jobs created in such industries from 2005 to 2017, according to a report by the Brookings Institution’s Metropolitan Policy Program.
Compounding today’s urban economic distress is racial unrest. Coming on top of a disease that has exacted an especially heavy toll on low-income and minority communities, the police killings of George Floyd and other African Americans have triggered protests that continue to roil U.S. cities. Metro leaders are focused not only on the new challenge of recovering from the pandemic, but many recognize they must also tackle the old problems of racial disparity and injustice.
Meanwhile, cities face an intensifying fiscal squeeze. In March 2020, local governments employed nearly 14.7 million people. Two months later that number dropped to 13.4 million with more layoffs and furloughs expected in the coming months as the virus ravages the South and West. Those job losses rippled through various crucial public services, including fire, police, teachers, and frontline healthcare workers.
As millions continue to file for unemployment benefits each week, a recent survey finds that 96 percent of U.S. cities are facing budget shortfalls due in large part to COVID-19. Nearly half report “unanticipated spending increases on top of declining revenue.” City leaders also say they face catastrophic shortfalls in all major revenue categories – 69% loss in permitting fees; 68% in other fees; 63% loss in utility fees; 61% loss in sales taxes; 38% loss in state intergovernmental aid and 35% loss of property tax revenue.
Because of balanced budget requirements, local government officials are facing brutal choices – whether to raise taxes in a recession, lay off more municipal workers, slash public services or all of the above. Without an immediate and direct infusion of fiscal relief for all municipal governments, they are certain to act as a major drag on the nation’s economic recovery.
Only Washington has the fiscal resources to step into the breach and keep both state and local governments from cratering. Without fiscal support, U.S. cities will not have the capacity to tackle high rates of joblessness, rising hunger and homelessness, and entrenched racial and social inequities.
The CARES Act Congress passed in March provided $150 billion in direct aid to state and local governments. That sounds like a big number, but it broke down into $111 billion in direct aid to states; $22.5 billion for major counties and just $5 billion for large cities with populations over 500,000. The local aid was distributed only to about 38 cities.
At this writing, Congress is debating the scope of a new stimulus bill, but Senate Republicans are balking at Democratic calls for an additional infusion of $1 trillion for state and local governments. Yet doing nothing to help state and local governments weather the pandemic, warns Moody’s Analytics, “could shave as much as 3 full percentage points from real GDP and erase about 4 million jobs.”
If we fail to throw metro regions a fiscal lifeline, local governments may be forced to explore additional revenue-generating sources such as raising taxes, fines and fees to support the essential services such as water and sewer. Without direct fiscal assistance from the federal governments, local government will be forced to initiate more layoffs or furlough more workers, and cut critical services such as fire, public safety, education, child services, aging services, meal programs and more.
America’s cities and metro regions are perched on the edge of an unprecedented economic and social calamity. All of us, whether we live in urban, suburban, exurban or small town and rural American, have a shared interest in preventing these engines of national prosperity from falling into a COVID-19 sinkhole. And we need to look beyond the present crisis, tackling structural weaknesses and inequities that put our most disadvantaged and vulnerable citizens at risk.
METRO ACTION PLAN
PPI proposes three ways for the federal government to help cities provide basic services now while also making them more resilient against future crises.
• First, PPI believes state and local aid should be based on empirical evidence of need. To that end we have developed an interactive calculator that tracks state and local revenue losses due to the pandemic recession. By our calculations based on current economic projections, state and local governments need roughly $500 billion before the end of 2021 to replace lost revenues.
• Second, we recommend that Congress take two steps to ensure that aid reaches local governments as quickly as possible. One is to require states to meet “maintenance of effort” standards to ensure a significant part of the aid is passed on expeditiously to cities. We also propose that the federal government deliver a large percentage of its aid directly to local governments in the form of “revenue replacement” grants, to enable them to suspend layoffs and avoid cuts in essential services.
• Third, we call for creation of a “Metro Recovery and Resilience Board” to take a longer-range view of urban finances and identify key investments that metro regions should make, in direct partnership with Washington, to sustain the nation’s post-Covid recovery and make local governments more resilient against future national emergencies. The Metro Board would consist of leading Mayors, major county administrators, Members of Congress,
and top officials from the Housing and Urban Development Department as well
as the White House. Its mission would be twofold: 1) To open a direct channel of communication between local and national policymakers about fiscal needs and priorities; and 2) To take a deeper dive into the long-term investment needs of America’s metro regions, with an eye toward reducing geographical inequality.
Investment in city and metro economies is integral to U.S. recovery and growth. Immediate federal aid is essential to replacing lost metro revenues, which will help local governments combat rising Covid-19 infection rates, avoid mass layoffs and maintain vital public services. But Washington and metro leaders also should forge a new partnership aimed at strengthening metro resilience over the long-term, and to enable more of the public innovations that have made local government the most effective, responsive and popular component of American federalism.