Governmental Fiscal Emergency and the Coronavirus: A Conversation with Mike Belsky, AM'83

State and local governments learned important lessons after the Great Recession, leaving many in better position to weather future financial duress. The magnitude and suddenness of today’s unprecedented crisis, however, has left policymakers and government financial managers alike scrambling to find effective responses.

Michael D. Belsky, AM'83, Executive Director of the University of Chicago Center for Municipal Finance, recently sat down with the Harris School of Public Policy to help put the impact of the COVID-19 health and economic crises for state and local governments in context.  Belsky is a former mayor of Highland Park, Illinois and senior executive with Fitch Ratings.

What will the CARES Act do to help local economies?

The CARES Act will provide $150 billion to states, cities, and other local government entities from the recent federal stimulus bill, and will reimburse governments for unexpected public health expenditures. The hope is that additional rounds of funding, as Illinois Governor Pritzker and other leaders have called for, will replace lost revenues and enable investments in protecting or restarting local economies.

The CARES Act represents a significant step, but the real question is how state and local government will respond after intergovernmental resources are applied – and after the money dries up.  It will be crucial that the federal government provide more help.  The next iteration of the CARES Act should enable cities greater flexibility in refinancing debt for savings and continue to provide liquidity for short-term borrowing.

How are past fiscal crises informing actions being taken today?

Starting with the fiscal crisis in New York City in the 1970s, and continuing through the elimination of revenue-sharing in the Reagan era, and more recently the great recession, state and local governments have become much more sophisticated managerially. Rainy day funds, local fund balance policies, revenue and expenditure forecasting, stress tests, budgetary contingency planning, contracting out of seasonal services, and regular reviews of fees have become standard operating procedure.

While the coronavirus pandemic puts us in uncharted territory, these best practices should not be abandoned – they should be adapted to meet this new fiscal crisis.

With so much uncertainty, it must be difficult for governments to forecast and plan effectively?

It absolutely is. Governments will need to base their revenue estimates on changing economic data – and they’ll need to update them regularly.  They’ll need to take a close look at major revenue sources, after accounting for federal support and fund balance draws, and project out based on different potential magnitudes of impact and duration.  Governments should consider three-, six- and nine-month scenarios, because no one really knows when the end is in sight.  These revenue forecasts may be scary, but they should provide an understanding of potential budget gaps.

Considering what we know from past crises, what are some immediate actions governments must take in handling the situation?

For starters, governments should evaluate all discretionary expenditures, and defer those not related to immediate needs until better days.  Additionally, any budgeted funds should be redeployed to the government’s primary mission, areas like public safety and education.

Unfortunately, this may require hiring freezes and layoffs.  However, if at all possible, these employees should be redeployed to essential services such as auxiliary policing.   

What other immediate steps should governments consider?

They should look at capital projects. Those funded by cash should be deferred and transferred to operating funds. Statutes and ordinances that restrict transfers of excess fund balances in enterprise funds such as water and sewer should be relaxed during the crisis to provide flexibility during the emergency. The same should hold for other non-operating funds.  Creating flexibility is key with so many future unknowns.  

What are the government’s responsibilities to the public right now?

Governments must never lose sight of the people they serve. All of the above needs to be done with complete transparency through regular communication with the public. The public needs to understand that extreme measures are being taken in their best interest and that we are all in this together. If the public loses faith, the situation will become dire.  I’m encouraged by what I see Governor Pritzker and Mayor Lightfoot, just to give a local example, doing in this regard.  

What other organizations besides government have a role to play?  

Unions, foundations, and non-profits all have a critical role to play. It’s not just government. Unions should consider wage and benefit concessions rather than lay-offs. Charitable foundations must chip in too, as the Ford and Kresge Foundations did to shore up Detroit’s pension fund during its 2013 bankruptcy. In this case, one thing foundations could do is help defray non-reimbursed social service expenditures being incurred by their respective governments.

Is there an end in sight? What does it look like?

While governments work in fiscal emergency mode, governors and mayors should have some members of management tasked with planning for an eventual recovery, particularly restoring those services that were deferred and funds that had to be redeployed. It’s hard to project when, but there are better days ahead.