Cities turn to Washington to close pandemic budget gaps

By Vindu Goel

After months of begging and cajoling, California’s cities are poised to get billions of dollars from Washington to help them cope with falling tax revenues and the ongoing costs of the coronavirus pandemic.

The Senate is expected to begin debate Thursday on the $1.9 trillion pandemic relief bill, which has already passed the House. State and local governments are slated to get about $350 billion of those funds, with about $42 billion headed to California.

California cities would get around $8 billion, and counties would get about the same, according to a spreadsheet released with the House version of the bill.

“It will go a long way toward positioning our cities for being a strong partner in recovery,” said Carolyn Coleman, executive director of the League of California Cities.

Republicans have objected to the money directed at state and local governments, arguing that it amounts to an unnecessary bailout. And researchers say that many states have brought in surprisingly high tax revenue despite the pandemic.

That’s true in California, where the state projects a budget surplus of $15 billion, in large part because of income taxes on the wages and capital gains of top earners, who have been able to keep working from home and have cashed in on the booming stock market.

For cities, it has been a gloomier story.

Sales tax revenue plunged as virus restrictions shut down restaurants and retailers. In tourist spots like Anaheim, home to Disneyland, and Napa Valley, the heart of wine country, hotel taxes evaporated along with the visitors. At the same time, cities have had to spend more on housing and feeding people left homeless and hungry by the virus and its economic ripples.

“They are needing to spend more and not less,” said Mark Baldassare, chief executive of the Public Policy Institute of California, a nonpartisan research organization.

And unlike the federal government, which can spend more than it takes in, cities must balance their budgets. When revenue falls, government services and employment must drop, too. Coleman said that about 35,000 public-sector employees in California had lost their jobs since the pandemic started.

Congress sent billions to California cities last spring as part of the first round of coronavirus relief, but the money was restricted to pandemic-related expenses. The proposed new funding would be much larger and would come with fewer strings attached.

California mayors view the money as a lifeline that would erase budget deficits and provide seed capital for rebuilding a battered economy.

For example, the city of Los Angeles would get $1.35 billion, wiping out the current $750 million budget deficit and then some. In San Francisco, the city would get $465 million, and the county would get an additional $171 million.

Sam Liccardo, the mayor of San Jose, said the money would come at an opportune time. The city, which anchors one end of Silicon Valley, is projecting a budget deficit of about $48 million in the current fiscal year, assuming widespread vaccination and a steady reopening of the economy.

Liccardo said San Jose has built new housing for the homeless, provided rent assistance and millions of free meals, and extended free broadband internet access to more than 100,000 low-income residents so far during the pandemic.

The federal funds would help expand those efforts — and give the city a cushion against what might be another phase of the downturn. So far, property tax revenue has held up, but a glut of empty office space is likely to shrink the tax base over the next couple of years.

“The sky is not falling, but the clouds are darkening,” Liccardo said.