The Fiscal Effects of the COVID-19 Pandemic on Cities: An Initial Assessment

This paper evaluates the potential fiscal effects on cities of the coronavirus-induced recession. We provide estimates of revenue shortfalls in fiscal year 2021, as compared to the trajectory prior to the recession. Our analysis is based on data for 150 fiscally standardized cities, fiscal units designed to take account of variations across central cities in governmental structure. We forecast revenues from all of the major revenue sources of cities, including property, sales and income taxes, fees and charges, and intergovernmental aid. We investigate two scenarios, “less severe” and “more severe,” depending on assumptions about fiscal pressures at the state level and the elasticities of the various revenue sources. Our average predictions are for a shortfall in revenues of 5.5 percent under the less severe scenario and 9 percent under the more severe scenario. We predict wide variation across cities, depending on differences in revenue structures and the fiscal condition of states going into the recession. The hardest hit cities face revenue losses of 15 percent or more. We also compare revenue pressure to cost pressures from the coronavirus and find that a number of cities will experience large revenue shortfalls and high additional costs.