EDITOR NOTES: Local governments are facing huge budget gaps as local tax revenue dries up due to COVID-19. This is already causing a ripple effect of government employee layoffs and furloughs in jails, government services, county road services, building maintenance, and more. This is going to lead to shutdowns of various local government services unless local govenments are bailed out too. There just isn't enough tax revenue being brought in. But in order to bail out the local government agencies, it likely means the Fed will have not choice to print more money, or let the local governments fall into bankruptcy...which means taxes will have to be raised at some point to help them crawl out of the hole they are in. The economic avalanche caused by cornonavirus just keeps on piling up.
Small to medium size cities and counties across the United States are facing huge budget gaps amid the coronavirus shutdown induced record unemployment, drying up crucial tax revenue for local governments.
Bloomberg profiles a domino effect that Jefferson County, Alabama famously went through in 2011 leading to the biggest municipal bankruptcy in US history, saying it's experience portends a tsunami of what will be similar local government collapses.
"A massive share of the local government’s tax revenue disappears. Elected officials lay off employees and shutter a health-care facility used by the poorest residents. Road work grinds to a halt. Residents wait in hours-long lines to renew their licenses," Bloomberg introduces of the scene that Alabama's largest county witnessed years ago.
The report notes the picture is apt for today's prolonged coronavirus recession:
Surging unemployment and business closures are causing government revenue to plunge nationwide in a matter of weeks, mirroring the swift hit to Jefferson County when a court struck down a wage tax that covered about 25% of its budget. The 660,000-resident county, which is home to Birmingham, fired 1,300 employees over three years, sold a nursing home and shuttered inpatient services at its hospital that cared for the poor. After closing satellite courthouses, the lines at the main one downtown grew so long that a portable toilet was installed in the park next door. Eventually, the county filed for bankruptcy.
At the tipping point wherein the county was locked into a vicious downward cycle, the crisis led to mass furloughs and layoffs of public employees at even essential places like hospitals, jails, police units, and long-term care facilities.
It also left decaying infrastructure in its wake as county crews simply stopped work on roads, fixing potholes, restoring an incredibly costly botched sewage system project, and public building maintenance.
This scenario which played out in Jefferson County has very likely started in many other places, born out by numbers showing nearly 1 million employees already cut from state and local payrolls last month.
"Local governments are preparing to cut services, idle employees, raise taxes and sell assets," the report continues. "As a last resort, those burdened by excessive long-term debt and pension obligations could file for bankruptcy, although so far investors and analysts haven’t predicted a wave of insolvencies and not every state even allows it."