Recent federal budget battles in Washington have been about partisan priorities that almost never align. Republicans and Democrats, simply put, agree on very little these days.
But a different kind of budget fight is brewing in 2020 because governments at every level from the feds on down, Republican and Democrat, are getting hit with a significant drop in expected revenues thanks to COVID-19 and the economic shutdown that came with it.
What mayors and governors, especially in blue states and cities, are discovering is that with no economy, you have no funding for government and the many services it provides — some necessary, some not so much. Democrats in charge of most of the country’s biggest cities for decades as well as blue-state governors notorious for their high-tax, big-spending budgets have finally run out of road to kick the can.
State and local Republican leaders will have to make difficult choices too if the economy fails to recover. But generally GOP-controlled states are in better financial condition to weather this economic storm.
The size of the projected revenue losses also put Democrats in a more precarious position politically because they will be forced to make huge cuts that will inevitably create conflict between the very groups that make up their base.
The National League of Cities estimates that cities alone are facing a $360 billion revenue loss over the next three years. In a recent survey of 1,100 cities, the NLC found 20 percent cuts “across the board” in the budgets of municipalities across the country. They’re hoping for financial help from counties, states and the feds.
Counties are also expected to see losses to the tune of $144 billion through fiscal 2021, according to the National Association of Counties, which includes $114 billion in lost revenues and $30 billion in increased expenditures from the impact of the coronavirus. They too want help.
States aren’t in any better shape. The Federation of Tax Administrators has estimated state tax revenue shortfalls reaching $152 billion in fiscal 2020.
But Washington has its own budgetary mountains to climb. The CARES Act has already allocated $150 billion to the states to help offset the impact of increased public health spending to fight the pandemic. Democrats want more funding for states and especially large cities to protect the employee unions from even bigger cuts in public sector employment. And then, of course, there is the blue-state pension fund problem. Congressional Democrats have sought a bailout for the overpromises made by blue states long before anyone heard of COVID-19.
For Republicans, bailing out profligate states is a nonstarter. The Congressional Budget Office projects the COVID-19 recession will cost the U.S. almost $16 trillion in GDP over the next 10 years, a staggering number. Senate Majority Leader Mitch McConnell said Tuesday that the GOP will likely put together another COVID-19 aid package focused on liability issues, more help for small businesses and economic help for the unemployed.
But at the local and state level, officials can’t print money or call on the Federal Reserve to ride to the rescue. Many are governed by balanced budget laws. For them, cuts of this severity have turned the usual push and pull of the normal budget process into an existential struggle, pitting local actors against one another for what has become a much smaller and shrinking pie.
It is in this hothouse of local political interests that we are going to see city, county and state officials face a firestorm from special interests as the debate comes down to how and what is defined as “essential services” in this new COVID-19 reality.
Budget shortfalls are a fact of life for politicians at every level. There is never enough money to go around. Making funding choices goes with the territory.
But this year is a little different, and here’s where usually boring budgeting gets more interesting.
Unlike in Washington and most state capitols, the fight at the local level for limited government funds is always political, but not necessarily partisan. This is particularly true in blue states and cities like New York, Los Angeles, Chicago and Seattle, to name a few, where Republicans are so outnumbered they have little or no say in setting priorities.
But folks leading these blue cities, much more so than Republicans, are about to find themselves trying to referee what amounts to a budgetary food fight, not with the GOP, but among the special interest groups that form the base of the Democratic Party and exist only because of government largesse.
It’s a battle likely to pit the teachers’ unions against the police unions and the SEIU against them both. Social services advocates will find themselves fighting against each other for a much smaller pool of grants, and Democratic state leaders will be under huge pressure from Democratic local officials looking for dollars to quell a restless base.
COVID-19 is going to force Democrats to finally decide which of their political “friends” are essential and which aren’t, and it’s not going to be pretty.
There will be blue blood
We’ve already seen major brawls between New York Gov. Andrew Cuomo and New York City Mayor Bill de Blasio. But the disaffection that has marked their relationship may well spread to other Democratic strongholds as their leaders try to deal with cuts in services on a scale they can’t handle, hoping the feds will somehow bail them out.
So, what’s a big spender to do?
This week, we’ve seen the mayors of New York and Los Angeles both throw their police departments under the bus by slashing their budgets, ostensibly responding to demands from protestors to “defund the police.” In LA, that means $150 million in cuts and in New York, $1 billion.
Of course, how mayors in big blue cities deal with their huge budget deficits remains to be seen. New York City alone has to find another $6 billion in cuts next year, guaranteeing that Democratic special interests will scramble for scraps. Meanwhile, Joe Biden’s solution to bring the economy back and refill state and local government coffers is to propose the biggest federal tax hikes in history — $4 trillion over 10 years. What could possibly go wrong with this idea?
This isn’t to say that Republican governors and local officials won’t face some tough budget choices in the months ahead, but they are used to butting heads with unions and Democratic special interest groups. The difference this year and perhaps next is all about scale, and clearly, the economic shock to government at every level is severe.
Meanwhile, in the coming months, ordinary people will be closely watching how the two parties deal with this unprecedented economic and health catastrophe. What they wonder is whether their children’s schools will reopen this fall, whether it’s safe to walk to the corner park and whether they’re going to have a job or business to go back to. They wonder whether their taxes are going through the roof and how they are going to survive the pandemic. The budget they’re really worried about is their own.
David Winston is the president of The Winston Group and a longtime adviser to congressional Republicans. He previously served as the director of planning for Speaker Newt Gingrich. He advises Fortune 100 companies, foundations, and nonprofit organizations on strategic planning and public policy issues, and is an election analyst for CBS News.