By David Harrison / Photographs by Katie Currid for The Wall Street Journal
In March, as the coronavirus was beginning its march across the
country, Kansas City leaders approved a budget flush with new
Five months later they pared it back.
The pandemic-induced economic downturn hit the nation's state
and local governments harder and faster than any other in almost 70
years. In May, public-sector employment plummeted, with fewer
people working for state and local governments than at any point
since 2001, according to the Labor Department.
As hard as this year has been, next year could be worse.
Governments went into the downturn with fat reserve funds and have
benefited from federal aid. Barring a quick economic recovery or
another round of stimulus, state and local officials could have to
make more cuts.
Moody's Analytics estimates state and local governments faced a
$70 billion to $74 billion shortfall in the 2020 fiscal year. That
could balloon to $268 billion in 2021 and $312 billion in 2022
absent more federal help. Unlike the U.S. government, almost all
state and local governments are required to balance their budgets
In Kansas City, Mo., as in many communities across the country,
workers have lost jobs or taken pay cuts. Fewer buses ply their
routes. Social workers juggle more cases. And fewer police officers
are on the street, despite an alarming rise in crime.
Officials anticipate more difficult decisions next year.
"All those sorts of things that are important to how we function
in our daily lives are things that we may not be able to address,"
said Kansas City Mayor Quinton Lucas.
State and local government spending on public services fell at a
seasonally adjusted annual rate of 3.7% in the third quarter from
the second, according to the Commerce Department. That followed a
6% decline in the second quarter, the sharpest since 1952.
By October, the sector had roughly 1.2 million fewer jobs than a
It could take four to eight years for the national economy to
recover from the pandemic, estimates Dan White, director of
fiscal-policy research at Moody's Analytics. State and local
governments could take up to 10 or 15 years, he said.
Further budget cuts could weigh on the national economy for
years, analysts warn. Public-sector spending at the state and local
level accounted for 8.5% of the U.S. economy and 13.1% of all jobs
in 2019, making it a larger sector than retail on both counts.
"State and local governments provide essential services,"
Federal Reserve Chairman Jerome Powell told lawmakers in June. "It
will hold back the economic recovery if they continue to lay people
off and if they continue to cut essential services."
The pandemic's toll of job losses and closed businesses hit
governments' main revenue sources -- income, sales and corporate
taxes. Between March and September, state revenues in those three
categories were down 4.8% from the same period a year ago,
according to data compiled by Lucy Dadayan, a researcher at the
Several factors mitigated the damage. First, states and local
governments entered this downturn with ample reserves. Kansas City,
for instance, used $12 million from its rainy-day fund to help fill
a roughly $50 million budget gap.
Second, President Trump and Congress approved a coronavirus
relief package in March directing $150 billion to state and local
governments to cover pandemic-related expenses this year. Of that,
Kansas City received about $30 million.
Third, the recession mostly hit lower-paid service workers and
spared higher-earning white-collar workers able to work from home,
moderating the decline in income-tax revenues. And expanded
unemployment benefits through July propped up consumer spending and
limited the drop in sales-tax receipts.
But the slowing economic recovery, rising new infections,
dwindling rainy-day funds and the uncertain prospects of more
federal aid could spell trouble for governments in the future.
In August, Kansas City officials cut department budgets by 4.5%
except for police and fire, which faced a 2.25% reduction. The city
also laid off 13 employees, froze hiring and temporarily furloughed
"I doubt that you will ever see the same post-Covid number of
employees in Kansas City that you saw pre-Covid," Mr. Lucas
The grass on public property is mowed less frequently. The city
turned off some of its famous fountains. Fewer drivers will be
available to plow snow. It may take longer to receive building
"Our boulevards look terrible because they don't cut them," said
Pat Clarke, a community activist.
The police department canceled this year's roughly 30-person
class of new recruits, which will put fewer officers on the street.
As of Nov. 16, the city had recorded 161 murders, the highest on
The city's bus system pared back service by half but is now up
to about 80% of its pre-pandemic level. Sales-tax revenues that
account for most of its funding are down 15% from a year ago.
Sheila Styron, a Kansas City resident who is blind and relies on
public transit to commute to work, said her morning bus now comes
every half-hour, up from every 20 minutes before the pandemic.
"I really don't think things are going to get a lot better with
public transit in the near future," she said.
The state of Missouri has made its own spending cuts. In June,
Gov. Michael Parson cut nearly $440 million in general-fund
spending, roughly 4%. About $133 million has since been
The move eliminated about 300 filled positions. Of those, 200
came from a single agency, the Department of Social Services. And
about 80 of those were in the Children's Division, which handles
Stephanie Whitaker, a spokeswoman for Mr. Parson, said
reorganizing the Department of Social Services was under
consideration before the pandemic.
Katy Perry, one of the Children's Division employees whose
position was eliminated, worries the cuts will mean greater
workloads for social workers.
Ms. Perry, a former adoption specialist in Kansas City, said the
agency offered to keep her on at a lower salary and with added
responsibilities -- including handling 10 additional foster-care
cases. She refused and has since found a new job with a nonprofit
helping foster families.
She expects front-line workers in Kansas City will frequently
end up with 30 or more cases each. The ideal number is about 18,
"At that point you're putting out fires," she said. "You're not
doing good social work. You're not able to get in there and see
what the problems are and spend a couple of hours to build a
rapport with the kiddos."
Rebecca Woelfel, a spokeswoman for the agency, said the
positions eliminated "performed duties which could be eliminated or
distributed to other team members without negatively impacting
Officials are bracing for another difficult budget year.
According to the Urban Institute, Missouri's revenue from income,
sales, and corporate taxes between March and September was 4.4%
below the same period last year.
Kansas City Mayor Lucas said he expects to have to cut spending
by up to 11% next year. That could mean more staff reductions,
closing some city-owned properties, less frequent recycling pickup,
or longer wait times on 911 calls, he said. The police chief warned
the department would have to eliminate 400 positions.
"At a certain point we're not going to have the money to do all
these things," Mr. Lucas said.
Write to David Harrison at firstname.lastname@example.org
(END) Dow Jones Newswires
November 29, 2020 12:14 ET (17:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.