The US has a wide range of local governments that include cities, counties, townships, towns, villages, boroughs, school districts, public libraries. These entities need financial help, just like all businesses do, to prevent worker furloughs or layoffs.
Local government employees, like many in the country, are concerned about keeping their job. Local governments employ 14.5 million people, including the overwhelming majority of first responders and teachers who are the most needed now to respond to the public health crisis and bring the country out of the economic crisis it now faces.
The jobs and pay of nearly half a million firefighters, 900,000 police officers, 1 million hospital and health care workers, and more than 5 million teachers who work in local governments are on the line if there is no federal fiscal intervention.
The need for federal aid to local governments will also help keep local businesses in business and the public informed. Without federal assistance, local governments will have to reduce the assistance they are providing to constituents to cope with the effects of the pandemic.
Normal government services provided to their citizens, including police and fire protection, health care services, and the educational work of teachers and librarians, will have to be reduced or cut altogether. In terms of a recession that the country is facing, furloughs, layoffs, and spending cuts will reduce consumer spending and exacerbate the recession.
Local governments are providing massive resources and support for coping with the coronavirus crisis, like testing for the virus. Hospitals, health departments, other health providers, first responders, and emergency medical technicians cannot continue without financial support from the federal government.
Because of closures to businesses, parks, and other services, local governments are suffering huge revenue losses. For example, sales tax revenues are dropping as businesses close and consumers stay at home. In a typical year, local governments receive roughly 35% to 40% of revenue through intergovernmental transfers, the vast majority of it coming from state governments that now face budget crises of their own. This will lead to further budgetary shortfalls for localities.
How much will your city be impacted?
Counties with populations between 50,000 and 500,000 will lose more than $30 billion in revenue. Counties with populations under 50,000 could lose about $10 billion in revenue and face another $10 billion of increased expenditures due to the pandemic, requiring a 24% reduction in their budgets.
In a typical year, local governments receive roughly 35% to 40% of revenue through intergovernmental transfers, the vast majority of it coming from state governments that now face budget crises of their own. This will lead to further budgetary shortfalls for localities.
In addition to heightened expenditure needs and falling revenues, local jurisdictions must balance their budgets and are heavily penalized for borrowing for operating expenses. As of now, these governments are faced with only two choices—cut spending or raise taxes. Both of these actions will deepen and lengthen the economic recession, as they did during the last recession.
Based on prior economic downturns, most local jurisdictions are likely to use spending cuts rather than tax increases to balance their budgets—indeed, many local governments already face relatively strict limits on their taxing authority.
Without federal aid now, local governments will be forced to furlough and lay off workers, deepening the recession and cutting back on critical services to constituents, such as police protection. In addition, local governments would be forced to reduce the assistance they provide to constituents and entities within their borders for coping with the effects of the pandemic. These highly undesirable outcomes can be prevented if sufficient federal fiscal relief is provided to local jurisdictions, but the clock is ticking.
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