A Big Picture Look at Local Governments Finances

One year into the pandemic and the local government financial picture is still fuzzy…with 300,000 fewer jobs but property tax revenues are up over 5%. What’s not unclear is the COVID-19 relief stimulus for local government will be welcomed.

U.S. $100 bills.
Photo by Mokra at FreeImages.

While much is still to be known about the fiscal impact of the Coronavirus pandemic, there are a few facts on the ground that can be established.  U.S. local governments consist of general-purpose governments like counties (parishes), cities, towns, villages, boroughs and townships.  Then, there are special purpose governments that only do one activity or provide one primary service such as school district governments or special district governments of which there are over 38,000 and range in the type of service provision from fire protection to water supply, and from sewerage to mosquito abatement. The focus here is on those general-purpose local governments of which there are approximately 35,000 in the United States.

These 35,000 local governments represent about $1.2 trillion in revenue and roughly the same on the spending side in the economy.  U.S. local governments represent about 5% of the U.S. economy.  This sector translates into approximately 6.6 million employees or about 5% of the U.S. workforce.  To date, we have data from the Bureau of Labor Statistics suggesting that there are 300,000 fewer jobs in the local government sector than there was a year ago.  These job losses are hard to pin down but likely come from the stoppage or social distancing measures put in place in areas such as mass transit, parks and recreation, parking and possibly some subject to layoffs or furloughs.

Of the $1.2 trillion in total local government revenues, about half of that money comes from taxes.  Property taxes remain the most important source of local revenue and represent about two-thirds of local tax revenue.  Early data from the U.S. Census Bureau (third quarter 2020) suggests that property tax revenues grew by 5.6% as compared to the third quarter of 2019.  We do not have strong national level data on other revenue sources at this time. 

Certainly, these aggregate figures hide a significant degree of challenges out in communities especially those in tourism areas or others hard hit by pandemic public health measures.  Also, we do not have real time data on spending pressures that have been incurred due to the pandemic.  Finally, local government revenue problems often lag the general economy. In 2008-2009, the real problems from the financial crisis and U.S. housing bubble collapse often did not appear in local government revenues until the 2010-2013 period.  It remains to be seen how the local government sector will fare over the next few years.

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