Nationwide Lockdown Sparks Plunge In Local Govt Tax Revenues; Cuts In Services Strike As Demand Soars

Small to medium size cities and counties across the United States are facing huge budget gaps amid the coronavirus shutdown induced record unemployment, drying up crucial tax revenue for local governments

Bloomberg profiles a domino effect that Jefferson County, Alabama famously went through in 2011 leading to the biggest municipal bankruptcy in US history, saying it's experience portends a tsunami of what will be similar local government collapses.

"A massive share of the local government’s tax revenue disappears. Elected officials lay off employees and shutter a health-care facility used by the poorest residents. Road work grinds to a halt. Residents wait in hours-long lines to renew their licenses," Bloomberg introduces of the scene that Alabama's largest county witnessed years ago.

Birmingham restaurant shuttered amid coronavirus lockdowns orders, via MSN

The report notes the picture is apt for today's prolonged coronavirus recession

Surging unemployment and business closures are causing government revenue to plunge nationwide in a matter of weeks, mirroring the swift hit to Jefferson County when a court struck down a wage tax that covered about 25% of its budget. The 660,000-resident county, which is home to Birmingham, fired 1,300 employees over three years, sold a nursing home and shuttered inpatient services at its hospital that cared for the poor. After closing satellite courthouses, the lines at the main one downtown grew so long that a portable toilet was installed in the park next door. Eventually, the county filed for bankruptcy.

At the tipping point wherein the county was locked into a vicious downward cycle, the crisis led to mass furloughs and layoffs of public employees at even essential places like hospitals, jails, police units, and long-term care facilities.

It also left decaying infrastructure in its wake as county crews simply stopped work on roads, fixing potholes, restoring an incredibly costly botched sewage system project, and public building maintenance. 

This scenario which played out in Jefferson County has very likely started in many other places, born out by numbers showing nearly 1 million employees already cut from state and local payrolls last month.

"Local governments are preparing to cut services, idle employees, raise taxes and sell assets," the report continues. "As a last resort, those burdened by excessive long-term debt and pension obligations could file for bankruptcy, although so far investors and analysts haven’t predicted a wave of insolvencies and not every state even allows it."

Demonstrators outside the Jefferson County courthouse in Birmingham in 2012, via AP.

In the prior case of Jefferson County, it made drastic and painful austerity-type measures which eventually prepared it to better weather the current economic "pause" brought on by the pandemic:

To generate cash, the county sold its nursing home for $11.3 million. In one of its most politically difficult decisions, it closed inpatient and emergency care at Cooper Green Mercy Hospital, which served the county’s lowest-income residents. The money-losing hospital was underutilized, with typically fewer than 40 patients a day, and received more than $10 million a year in county subsidies, Carrington said.

Although an urgent care facility remained open, the closing of the downtown hospital was hard for some residents because suburban hospitals weren’t on bus lines, said Scott Douglas, executive director of Greater Birmingham Ministries, a community organization.

It ranked as the biggest municipal bankruptcy in US history after a series of local scandals involving corrupt and incompetent officials, a bungled sewage system project that left an enduring billion dollar debt, and toxic bonds, among other things. It was only in 2013 that Jefferson Country finally emerged from bankruptcy. 

Bloomberg forecasts ominously that all signs point toward a similar crisis now ready to roll downhill for other local governments across the nation.