Coronavirus response suffers when local government is starved

Coronavirus response suffers when local government is starved
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From county hospitals and health departments providing emergency medical care; to school districts delivering food to vulnerable students while school is cancelled; to police officers enforcing restrictions on public gatherings, local governments are on the front lines of the coronavirus crisis. Their actions will ultimately shape how well we can survive COVID-19 and its economic aftermath.

The stimulus bills being discussed in Washington are looking at payments to individuals and relief for key industries. Boosting the resources and capabilities of local governments should also be at the top of the list. To that end, the U.S. Conference of Mayors has requested $250 billion in assistance.  

A recent New York Times article sounded the alarm that the nation’s local and state health departments are struggling to respond to the coronavirus crisis because they have been underfunded since the Great Recession, despite the last 10 years producing the longest period of economic expansion in U.S. history.

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The state of Michigan presents a particularly stark example of the problem. At the Center for Local, State, and Urban Policy at the University of Michigan, we track a wide variety of Michigan local government activities and perspectives using an annual survey called the Michigan Public Policy Survey. Our data suggest that many of our state’s communities are entering this crisis painfully underfunded and underprepared.

Michigan may well be the “canary in the coal mine.” Many other states have held back funding to local government, including Arizona, where the reduction was over 20 percent from 2008 to 2016, according to the Pew Charitable Trust; and an Urban Institute study shows that tax and expenditure limits exist in 28 states. Michigan has a unique combination of policies that can serve as a warning to other states.    

Just like households and businesses, local governments try to keep a certain amount of funds available – their “unrestricted general fund balance” – in case of emergency. In our 2019 survey, one in five communities reported that their general fund balance is “too low.”

This problem is particularly pronounced for Michigan’s county governments, which are responsible for a majority of local public health services. Thirty-two percent reported that their general fund balances were “too low,” and in rural counties, that number increases to 45 percent. Nearly half of all counties planned to draw more from their fund balances just to keep up with ordinary spending needs in 2020, before realizing the COVID-19 crisis would strike.    

The challenges are even more fundamental than just preparedness for emergencies. Less than half of Michigan’s local governments say their fiscal health is better today than before the Great Recession began over a decade ago. Today, about 30 percent of Michigan’s local governments report that they are suffering from medium to high levels of fiscal stress. And fewer than half say they'll be able to maintain their current levels of public services based on the state's current funding system.

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Looking ahead to the expected “coronavirus recession,” just 13 percent of jurisdictions said on the most recent survey in the spring of 2019 that they are very prepared for a downturn, while 20 percent (including 32 percent of counties) said they are somewhat or very unprepared. And just 26 percent reported that they had taken specific actions to prepare themselves for the financial hardships that will accompany our next recession.

What’s behind all these concerning statistics? The challenges for local governments are due to a range of factors, including uneven economic growth across communities. But among the most important factors exacerbating local fiscal stress are state-imposed property tax caps. Michigan has among the most restrictive caps in the nation. Furthermore, state aid to local governments has not been enough to make up for lost revenues, either remaining flat or declining in most states. Michigan’s local governments have suffered $8.6 billion in cuts since 2001.

In our upcoming survey, we will ask local leaders what kinds of resources and new emergency authorities they need from the state in order to respond to future crises with more flexibility. But one thing is already clear: When we get through this public health crisis, if we do nothing to fix our broken system of funding local government, we will likely face multiple local fiscal health crises, and all the problems that will follow.

Tom Ivacko is the interim director of the Center for Local, State, and Urban Policy at the Gerald R. Ford School of Public Policy at the University of Michigan. Stephanie Leiser is a lecturer at the Gerald R. Ford School of Public Policy, University of Michigan.