It will take years for municipal budgets in the United States to recover from the economic impacts of the coronavirus, a report from the National League of Cities finds. 

Now in its thirty-fifth year and based on a survey of four hundred and eighty-five municipal finance officers, the report, City Fiscal Conditions 2020 (28 pages, PDF) found that large majorities of respondents said their cities were less able to meet their fiscal obligations in FY20 (78 percent) and anticipate that things will be even worse in FY21 (87 percent) — the highest percentage registered by the annual survey since the Great Recession. By comparison, only 24 percent of municipal finance officers surveyed in 2019 reported that their city would be less able to meet its fiscal obligations. 

While cities that rely on sales tax revenues were more likely to experience fiscal challenges in both FY20 (85 percent) and to anticipate difficulties in FY21 (92 percent), those that rely on property tax revenues also expected to face challenges as the economic impacts of the virus filter down (67 percent in FY20 and 89 percent in FY21). According to the report, major local tax revenue streams slowed in FY20, with an 11 percent year-over-year drop in sales tax receipts and a 3.4 percent decline in income tax receipts. Current estimates for FY20 put year-over-year general fund revenue growth at near zero, while cities anticipate FY21 general fund revenues to decline 13 percent, on average, from FY20 levels.

"[W]ith significant restrictions on raising new revenues, cities are turning to their options of last resort, which are to spend down reserves, severely cut services at a time when communities need them most, layoff and furlough employees, who comprise a large share of America's middle class, and pull back on capital projects, further impacting local employment, business contracts, and overall investment in the economy," the report's authors write. "These cuts will also exacerbate infrastructure challenges, which will place a future fiscal burden on local, state, and federal governments." 

"Bottom line, the top of the list of things lawmakers need to do today to get us on the other side of the pandemic is providing support to state and local government," said Mark Zandi, chief economist for Moody's Analytics. "The dollar that goes to the state or local municipality goes straight to the local economy. The support from the federal government is an immediate injection into the economy. The money going to local government goes to essential services — we need protection, firemen, we need trash cleanup, basic water, and sewage services, these are necessary things, not luxury."