Fiscal Effects of the Pandemic Depend on Tax Structures

The consequences of the coronavirus pandemic for local government finances depends on whether cities rely on tax sources that respond quickly to economic swings, like sales taxes and income taxes.

The degree to which the fiscal capacity of local governments relies on a healthy economy for revenue depends on the balance of revenue sources, so Michael A. Pagano and Christiana K. McFarland did some analysis to start to anticipate where the economic shock of the pandemic will be felt immediately in the bank accounts of local governments.

“As the crisis unfolds, the impact on cities’ bottom line will be driven not only by overall economic conditions but specifically the parts of the economy where revenue is generated: retail sales, income and wages, and real estate,” according to Pagano and McFarland.

Because the tax structures of cities vary across the country, the consequences of the economic disruption will differ. Cities that rely on property taxes are insulated from the worst effects, for now, according to the article.

The article includes specific information for cities, predicting that Heartland cities like Columbus, Cincinnati, Colorado Springs, and Tulsa can expect the most immediate effects. A map also shows where cities should expect effects in the mid- and longer-term.