Dive Brief:

• City financial leaders are enormously pessimistic about delivering on budgetary commitments in fiscal year 2021 as local governments nationwide face a projected $90 billion shortfall due to the coronavirus pandemic, according to data shared in a National League of Cities (NLC) webinar on Wednesday.
• A recent NLC survey found 87% of these financial leaders believe they will struggle to meet their monetary obligations without further federal help in FY21. That number is up from 78% in FY20, and could mean job and budget cuts in areas like education, emergency response and transportation.
• Christiana McFarland, NLC's research director, said this level of pessimism from city financial leaders is the highest it's been since the Great Recession over a decade ago. "The bottom line is, the worst is yet to come for many cities," she said.

Dive Insight:

COVID-19 has wreaked havoc on municipal budgets, prompting unsuccessful calls from NLC and the U.S. Conference of Mayors (USCM) for Congress to provide local governments with direct, flexible aid as they plug their shortfalls.

But there is hope under President Biden, whose American Rescue Plan includes $350 billion in direct aid for state and local governments. This plan could have less constraints than the CARES Act, which only allowed localities with populations of 500,000 or more to receive a direct payment.

In the meantime, things look dire for municipal budgets. McFarland cited Santa Fe, NM, which faces a $100 million budget shortfall in FY21, as just one city that will be forced to take drastic action to balance its books unless Congress comes through — especially as tax revenues will continue to be down. "From Portland, ME to Yuma, AZ, many cities are feeling the hit more significantly in 2021 than in 2020," McFarland said.

During the NLC webinar, mayors warned of impending layoffs in light of what Union City, GA Mayor Vince Williams described as "lackluster support from the federal level to be able to take care of our communities." Others also said that Biden's initial pledge falls short, given the fiscal realities, and must be a jumping-off point for further aid. 

"It is a great start, it’s necessary, but this can’t be all," said Waterloo, IA Mayor Quentin Hart.

Infrastructure investment remains one way local leaders believe they can approach economic recovery — Biden and his just-confirmed Secretary of Transportation Pete Buttigieg have expressed a willingness to make such investments — but local leaders warned of investing in "business as usual." This time of recovery must used to push a brighter future for local transportation, internet access and other services, and help in the fight against climate change, said Hart.

More progress in economic recovery could be seen if Congress reintroduces earmarks, attendees said, which represent discretionary federal spending that could be directed to specific recipients while circumventing the traditional review process. The practice was banned in 2011, but a reversal has been floated by various congressional members, including the Select Committee on the Modernization of Congress.

During the webinar, Rep. Marilyn Strickland, D-WA, said while earmarks had a reputation for corruption, there is a renewed commitment among congressional appropriators to ensure they are transparent and fair, and they could be an effective way to bring needed investments.

"If we have earmarks come back, it means that members of Congress have another tool to deliver funds and resources back to our local communities," Strickland said.