Radical shifts in the economy cannot be easily managed
A man offers prepared food to a homeless resident in downtown Los Angeles. (Damian Dovarganes/AP Photo)
First Response
Yesterday was the deadliest
reporting day since the pandemic began in the United States, with over 2,700 people dead. An incredible 1 out of every 800 North Dakota residents have passed away from the virus. The real death count, based on excess deaths rather than those attributed to COVID-19, has now hit 345,000, and there’s no signs of slowing down.
Yet this dark winter doesn’t exactly feel like March and April. It doesn’t quite match the sobriety of the moment. I think there are a couple reasons for that. First, the initial shutdown was so novel, a radical change to the American lifestyle, that nothing will replicate
that. Second, over the ensuing months the politics of shutdowns became divided, and those divisions have taken precedence once again. The solidarity we once had collectively over keeping safe has frayed.
But ask any mayor in the country whether things are different now and they’ll emphatically say yes. We’ve now incorporated so many facets of the shutdown mindset that there doesn’t have to be an actual order anymore. Those with the ability to work from home do so. Less driving means less parking, so fewer meter fees and fewer parking tickets. Transit systems carry on without as many riders. Businesses lack customers. And cities lack revenues.
I’ve written about this before, how the pandemic has accelerated a transitioning economy, away from
physical space and commutes and the associated economies that build up around that. The transition was too abrupt for anyone to adjust. If people live in downtown business districts, they can still use the retail establishments that cater to daytime workers. But many of those businesses will no longer be needed, at least not at those locations. In fact a lot of retail, which has been overbuilt over the years in the U.S., may not be needed in the future.
That’s what comes through in this survey of big-city mayors run out of Boston University. Nearly half of them predict “dramatic” cuts to public schools, along with 38 percent to parks and recreation and 35 percent to mass transit. More than half—around 60 percent—see a “permanent reduction” for in-person retail shopping and downtown office building capacity. A whopping 80 percent believe racial health disparities will grow.
Much of this
is an artifact of the transition away from an office-focused economy. Downtown business districts generate enormous property and sales taxes. It’s a very good thing that the Supreme Court ruled that online businesses must pay sales tax, or else much of that revenue would be completely lost. But the transition to eating at home over eating out
is a net loss for cities (groceries are typically not taxed). The transition from meatspace businesses to online ones is a net loss of property tax (Two-thirds of respondents to the mayoral survey said that shuttered small businesses would not be replaced by new ones).
There are certainly positive side effects to the changing economy, most notably for the climate, from fewer greenhouse gas emissions from
transportation. But the shift caught lots of stranded assets short. Some cities are trying to compensate for that. My city of Los Angeles took a lot of heat last night merely for aligning with the countywide stay at home order, which was mangled in some bad press releases and news reports. Less remarked upon was that the city is giving $800 to out-of-work restaurant employees, an unprecedented one-time stimulus at the city level.
Unfortunately, it’s only available for 4,000 people, because cities are also one of those stranded assets, and they can only do so much. The takeaway from this survey is the expectation of enduring, long-term misery. “The CARES Act was not enough for cities,” said the director of the survey. Indeed, it only gave funding to cities and states to handle elevated costs from COVID programs, not money to cover revenue shortfalls.
Even if by some miracle the
renewed talk of stimulus bears fruit, the bipartisan Senate bill that President-elect Biden and Democratic leaders got behind yesterday includes just $160 billion for state and local governments. I’ve seen estimates of the shortfall as high as $1 trillion; the Center on Budget and Policy Priorities has it around $555
billion. Either way the proposed relief is insufficient, and remember that Mitch McConnell’s bill includes nothing, so if there’s ever a final number, it’s likely to be under $160 billion.
Any amount of fiscal aid, while desperately needed, won’t fully account for the likely permanent change in habits that’s going to hit city and state budgets for some time. There’s an optimistic path, where the shifts in work patterns leads to more leisure time and discretionary income, and business location patterns adjust, and we actually live happier lives in
more localized, interconnected cities. But that will take time, which these mayors don’t have.
