The Other Way the Coronavirus Will Ravage Our Cities

After the rush for ventilators and protective equipment, local governments need to worry about insolvency.

Getty Images / The Atlantic

New York City is sputtering. Bars, restaurants, hotels, and theaters have closed; tens of thousands of people have already lost their jobs; hundreds have died. The city has become the epicenter of the novel coronavirus. It needed an “economic nap” to fight it, Scott Stringer, the city’s comptroller, told me. But COVID-19 is bludgeoning the city’s coffers.

According to an analysis by Stringer, New York City stands to lose $4.8 billion to $6 billion in tax revenue. The money helps the city fund schools, repair roads, and pay off debts. Back in late February, Stringer told reporters at a press conference in Manhattan that the city had not “done enough to prepare to weather a storm we cannot imagine.”

Versions of this story are playing out across the country. Cities and counties are looking for ways to cut their budgets as tax revenue and economic activity decline and medical costs soar. The $3.8 trillion municipal-bond market—loans used for things like building schools, hospitals, and golf courses—has essentially frozen. Typically, municipal bonds are considered pretty safe, but as Daniel Bergstresser, an associate professor at Brandeis University who studies municipal bonds, told me, the situation had become such that “finding buyers for municipal bonds would require cutting prices in ways that appear unprecedented.”

On March 27, Congress delivered a first solution, passing its mammoth $2 trillion stimulus package. The bill includes $150 billion for state, county, and municipal governments with populations greater than 500,000 to help with expenses that spring from the crisis. It also earmarks $100 billion for local hospitals and allows the U.S. Treasury to authorize $500 billion in loans and municipal-bond purchases.

The stimulus is historic, but it may not be enough.

“What I would really want to be careful not to do is to paint a picture where there are undifferentiated problems across the market,” Bergstresser said on Friday, not long after the stimulus passed. The crisis could hit cities in the long term like it’s hitting people in the short term. An affluent community with enough cash on hand to withstand a short-term disruption may well be fine, but those that were already struggling may not.

Rural communities could particularly suffer, David Strungis, a senior analyst at Moody’s Investors Service, told me. Many cities and local governments run hospitals and nursing homes, which are being hit particularly hard by the virus—129 COVID-19 cases were linked to a single nursing home in Washington. And a mix of patient surges, revenue declines from canceled elective procedures, and unbudgeted staffing costs from doctors and nurses could further stress rural areas where many residents are more than 35 miles from the next nearest hospital.

In Pickens County, Alabama, for example, residents now have to travel 30 miles—about 45 minutes—for medical care. On March 6, the county closed Pickens County Medical Center, a 56-bed facility in Carrollton, because declining in-patient services made it financially unsustainable. Three weeks later, on March 25, the county reported its first confirmed case of COVID-19. Seventy-five percent of the state’s hospitals operate in the red, according to the Alabama Health Association.

There could be outliers, too, such as cities that thought they were in sound financial shape until they were stretched too thin. Harris County, Texas, expects to spend roughly $11 million more each month the crisis continues—and that’s not including additional overtime pay for police officers or lost tax revenue. “Even our jurisdictions with the most robust reserves were not planning for this,” Matt Chase, the executive director for the National Association of Counties, told me ahead of the stimulus passage. “They were planning for a slowdown in the economy and some dips, but I don’t think they were looking at a global economic shock.”

The stimulus was the best-case scenario, the “shot of adrenaline” that reinvigorated the bond market and provided aid to flailing cities and counties, Emily Brock of the Government Finance Officers Association told me. But for the cities that are struggling to contain the crisis, a shot might not be enough. I asked Brock whether the stabilization package was a Band-Aid or an inoculation.

“Hopefully not the former for the price tag,” she said.

Some areas are worried they won’t feel the relief enough. When the text of the stimulus dropped, Stringer told me in a statement that “New York is the epicenter of the COVID-19 pandemic, but you wouldn’t know it from reading the federal relief bill.” The city was scrambling for assistance. “Other states are getting many times the funding per caseload than New York. For example, South Dakota has 40 confirmed cases and will get $1.25 billion from the state relief fund, which is $30 million per case, but New York has 35,000 cases and the most we can get is $5.1 billion, which is $155,000 per case,” he said. “We deserve​ better.​"

Cities, counties, and states, unlike the federal government, have to run a balanced budget, and they could turn to budget austerity—spending cuts, tax increases—to ensure that they do. But it would be foolish for them to overcorrect for the crisis, Bergstresser told me. It’s one thing to default on a loan or experience financial stress; it’s quite another to abdicate the fundamental duties a jurisdiction has to its residents by slashing budgets. “Balancing state and local budgets in ways that would amount to a default to the vulnerable people who depend on city and state services would be like us, as a society, eating our seed corn,” he said.

For now, the package has slowed the rate at which cities, the markets, and budgets are spiraling. But Bergstresser’s optimism is lined with caution. “If I’m painting a sunny picture, I also want to be careful,” he said. “It is hard to restore aggregate confidence in a situation where the president of the United States is clearly depraved.”

The peak of the crisis is a moving target, and when I asked Stringer about how cities—New York City, in particular—could handle the economic strain, he called on history. “I lived through the city’s fiscal crisis in the ’70s, and I remember when the city was on the verge of bankruptcy,” he said. “I’ve seen how bad things could get.” The government has acted to help them, but they hope more backup is on the way.