Abstract
The COVID pandemic has forced governments to reimagine their revenue sources and spending priorities as well as how they balance meeting increasing public health demands with other pressing challenges. As the challenges to local economies have grown, policymakers at all levels of government have debated how best to restore confidence in the economy while mitigating the pandemic’s economic fallout. One such example is the Federal Government’s CARES legislation, which covers expenses related to COVID mitigation and response for state and local governments. This short commentary examines the experiences of Anchorage, Alaska and Reno, Nevada and offers a ‘lessons learned’ on how best to stimulate growth while protecting citizens’ health.
Even before the global pandemic slashed tax revenues, governments at all levels were confronting serious gaps between the amount allocated for infrastructure and what experts argue is needed. As the American economy has slowed, policymakers are now deciding whether to stimulate the economy via increased spending or whether to save resources by cutting committed spending. Complicating these decisions is a larger “tension” between the relationship between infrastructure and government spending/stimulus programs. In short, infrastructure projects often take years to plan before they are “shovel-ready” and must still follow other applicable rules. However, stimulus programs often want to spread money around quickly so that it can enter supply chains and enjoy a substantial multiplier effect across state and local economies. Cities are confronting this tension and addressing its related issues in a myriad of ways. In some instances, there is direct guidance from Washington, DC. Yet, in others, local officials are carving their own path so that service levels face minimal disruption and are relying on prior experiences and SOPs. To examine this tension in the “field,” we focus on the experiences of two communities: Anchorage, Alaska and Reno, Nevada. 1
CARES Dollars/Stimulus and Cities
In response to the COVID-19 pandemic and economic tumult, Congress established the $150 billion Coronavirus Relief Fund (CARES Act). The Act authorizes payments to State, Local, and Tribal governments to cover expenses, including infrastructure related costs incurred in response to the outbreak (Treasury, 2020). Under the Act, cities may be reimbursed for expenses determined to meet the criteria identified in Table 1.
CARES Spending Constraints.
CARES Funding and Local Efforts
At the municipal level, where much of the “concrete” is poured, the global pandemic is reshaping and recalibrating municipal bottom lines, and forcing officials to confront questions such as how can or should we pay for this, is this equipment or FTE necessary, is this reimbursable under CARES, and can this maintenance be deferred for a year or more. How these questions are answered has dramatic implications for citizens’ well-being, public safety, and the ability of communities to bounce back from the pandemic. They also shed light on the tension between fiscal stimulus and physical infrastructure as well as the importance of up-front guidance from federal policymakers.
Anchorage, AK
Anchorage is the largest city in Alaska, with an estimated population in 2019 of 291,845 (Alaska Department of Labor and Workforce Development) or about 40% of the state’s population. The Municipality of Anchorage is a consolidated city and borough (the equivalent of a county) with an operating budget of $540 million in 2020. The $156 million in CARES funds the Municipality expects to receive is thus equal to a quarter of the budget.
As the commercial center of Alaska, most of the state’s major industries have a substantial footprint in the city, including oil and gas, tourism, defense, transportation and logistics, and mining. Although oil and gas production has been in decline for three decades, the industry continues to exert outsize influence on the economy and accounts for as much as one-fourth to one-third of all employment in the state through multiplier effects (McDowell Group, 2020).
Due to a prolonged period of low crude oil prices, Alaska (along with its major city) experienced a recession from 2015 to 2018 even as the US economy overall was expanding briskly. The onset of the COVID-19 pandemic has therefore overwhelmed a tepid employment recovery seen in 2019 and early 2020. Anchorage has seen net out-migration of 1% to 2% for the last several years, largely as a result of the weak economy and restricted housing supply.
Despite the lackluster economy, the Municipality has enjoyed relative stability in terms of revenues. Property taxes make up roughly 60% of revenues, as real estate values held steady during the downturn. The Municipality does not levy a general sales tax, but does collect marijuana, fuel, tobacco, bed, vehicle rental, and other taxes. Although some of these sources will suffer from a diminished visitor season, reliance on property taxes should limit volatility. Bed taxes for example, likely the hardest hit, amounted to less than 6% of 2019 revenues. The inability to use CARES funds for revenue replacement is less problematic to the Municipality than to cities like Reno facing sharp declines in sales tax revenue.
With such a substantial infusion of funds, the Municipal Assembly is thinking beyond simply filling budget “holes” caused by COVID-19—the $156 million allotment is much larger than any likely combination of revenue shortfalls and unexpected pandemic-related spending. Instead, the initial allocations of CARES funds focus on economic relief for employers and households rather than shoring up departmental budgets.
In June 2020, the Assembly approved a $21.5 million package utilizing part of the first tranche of CARES funds. The largest portion of this is dedicated to aid for childcare programs ($10 million) followed by small business and nonprofit grants ($5 million), a Public Lands Jobs Program to employ displaced workers ($3 million), and rental and mortgage relief ($2 million). The remaining $1.5 million went to an emergency fund to be used at the Mayor Ethan Berkowitz’s discretion for pandemic expenses (Anchorage operates under a strong mayor form of government).
Given the long lead times for planning and development, new construction of physical infrastructure with municipal CARES funds is not feasible before December 30, 2020. However, physical infrastructure is still an important consideration for the use of the funds, through the acquisition of existing properties. The Berkowitz administration, with apparent backing from several Assembly members, unveiled a plan in June to purchase four properties to serve as shelters for individuals experiencing homelessness or in need of transitional housing, as well as provide other services to these populations. Homelessness has been a major Municipal concern for years, and a frequent complaint from the public. The pandemic has required the Municipality to use a sports arena as an overflow shelter to allow for six feet of social distancing, and these acquisitions, at a cost of about $22.5 million, would provide permanent space. Operating funds will most likely come from a recently-passed alcohol sales tax, as well as support from federal formula programs and private philanthropy.
In many respects, these actual and proposed allocations reflect the pre-COVID priorities of the Mayor and Assembly. Although Alaska is a conservative state politically, Anchorage has become increasingly favorable territory for Democrats in recent years. Municipal offices are formally non-partisan, but Mayor Berkowitz and a majority of the Assembly identify themselves as strong progressives. Enhancing the social safety net for families by funding childcare, housing assistance programs, and behavioral health are longstanding priorities. A tax cap in the Municipal Charter approved through a ballot referendum by a more conservative electorate in 1983 has restrained the Assembly from enacting more of this agenda until now. CARES funds supply a means of supporting such programs outside this revenue constraint, which limits annual growth of property taxes in particular to a formula that includes CPI and construction values. Municipal decisionmakers argue, with justification, that the COVID-19 downturn has exacerbated the economic woes of vulnerable populations.
Municipal leaders therefore see the CARES funds as a way to make enduring investments in the city, by using the one-time surge of money to address problems that predate the COVID pandemic, but have come into sharper focus because of it. The enduring effect of CARES funds on the Municipality, and broader pandemic itself, will remain an open question for years.
Reno, NV
The city of Reno, Nevada, is a community of over 245,000 situated in the Sierra Nevada mountains that was hard hit by the Great Recession in 2008. The City had just begun to achieve budgetary gains and making investments into addressing long-term infrastructure needs when the pandemic struck. Reno has seen double-digit population growth since the last census due in part to the major expansion of back-of-the-house operations from major tech companies such as Switch and Apple as well as landing the Tesla Gigafactory. This growth has necessitated an expansion of Reno’s physical infrastructure—streets, sewers, recreation facilities, public safety facilities, as well as our human infrastructure—maintenance workers, police officers, firefighters, general public sector staffing.
The difference between the Great Recession and the downturn from the pandemic, as of this writing, is the economic sectors that are being impacted. In 2008, the downturn centered on the housing sector and radiated out from there, while this current economic downturn is centered on consumer spending. In theory, this would mean that a recovery would be sharp upwards V rather than the gradual recovery over a decade that we saw from the housing recession. This is because while the City is taking steps on cutting expenditures, which is discussed shortly, the source of the downturn informs what types of cuts the City will make. A long-term recovery would require cuts focused on long-term costs—mainly delayed/deferred maintenance, capital projects and a reduction in human capital (employees). A short-term recovery would signal that the cuts need to focus on short-term solutions which may still include delayed or deferring maintenance and capital projects, but would focus more on temporary cuts such as eliminating training and travel budgets, decreasing funding of long-term post-employment benefit funds, and furloughs/pay cuts rather than layoffs.
There has been an effort from the federal government to offset some of the economic damage from the pandemic—namely the Paycheck Protection Act and the CARES Act. While the PPA does not impact local government directly, the CARES Act will provide the City of Reno approximately $46 million to help offset expenses related to the pandemic. While the City would have preferred a lost revenue offset, the CARES Act specifically bars local governments from using these funds for this purpose. The other major impediment to fully realizing the economic benefit of these funds is the fact that they must be completely spent by December 30, 2020. Just as “shovel ready” became a major issue with federal funding during the 2008 recession, this deadline creates an issue in which jurisdictions may not be able to have programs stood up and functional by the time the money must be spent.
For physical infrastructure, most major projects would require at least 6–12 months for planning and design, let alone construction contracting and project completion. Given the deadlines and the fact that the funding needs to have a connection, even tenuous to the pandemic and its fallout, Reno and many of the jurisdictions are in a similar situation in which these funds will probably be focused to human capital rather than physical capital. As of this writing, Reno is considering how to use our existing homelessness and housing support programs as a framework for providing funding directly for housing assistance to residents who are unemployed or underemployed due to the pandemic as well as utilizing the existing business license methodology to provide direct support to businesses affected by the shutdown. Unfortunately, another downside of this program is the changing nature of how municipalities can utilize these funds. Infrastructure projects—either physical or human capital, require that the funds dedicated to these projects or people are known and available. It would have a severe negative impact if, upon audit, the way Reno utilized these funds was considered ineligible due to changing guidance from federal policy makers. This could put Reno on the hook for the costs of the project plus returning spent funds. This uncertainty forces Reno to hesitate on utilizing these funds for infrastructure projects and instead look for short-term non-permanent uses.
While these programs may not provide direct support to the City for infrastructure needs, it may provide some indirect mitigation of damage to the City’s property tax base through foreclosure and default mitigation. The longest lasting impact of the last recession was the impact to the property tax as a revenue source, Reno’s largest and slowest to recover, and that will allow us to continue with the infrastructure plans that were in place pre-COVID.
Conclusion
While, it is difficult to generalize from the experiences of two communities, the cases here do offer a handful of significant takeaways. The first centers on the idea that infrastructure projects do not inherently offer much relief for relatively short-term, high impact events such as the COVID-19 pandemic. A second, but related takeaway, is the importance of understanding the source(s) or cause(s) of the economic disruption. Are such sources long-term structural weaknesses in the macro-economy or are they short-term shocks? Are they more likely to impact property values/taxes or sales tax collections? Does the state function as a pass-through or do funds bypass the states altogether? In Nevada, the City of Las Vegas, due to its population allowed it to receive a direct payment of federal CARES funding rather than through the state pass through. The answers to such questions should guide policy design and spending decisions, especially if infrastructure is construed as broader than traditional physical assets. Third, definitions, interpretations, and intergovernmental coordination matter. The 2009 recession, for example, demonstrated that “shovel ready” was more a euphemism than a metric for project status. Varying interpretations of what constitutes a “CARES” eligible purchase has also impeded local responses. In Anchorage, for example, city plans to purchase several buildings to address homelessness were changed after the U.S. Department of the Treasury’s noted that this would be considered an ineligible use of relief funds (Wieber, 2020). In short, the lack of a robust, coordinated rollout of the program has reduced the potential positive impacts that the program may have for localities and has left many unanswered questions.
As the COVID pandemic continues to rage throughout the United States, lawmakers must still confront how best to mitigate the myriad of resulting harms. Should lawmakers inject great sums into economies including supporting long needed physical infrastructure projects? Or should they rein in spending and cut expenses? The CARES act further demonstrates the fundamental tension between infrastructure and stimulus spending, it also revealed many of the challenges facing municipalities as they balance multiple needs and in decentralized system. The two examples here suggest that local officials are utilizing CARES dollars to meet shorter-term needs and are relying no existing frameworks but also innovating along the way.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.