What the federal stimulus package means for Pa.’s local governments

By: - March 10, 2021 7:26 am

When COVID-19 shutdowns led Pennsylvania businesses to shed more than a million jobs last spring, elected officials braced for the worst.

Local leaders feared that the job losses would make it impossible to balance budgets that rely largely on income taxes. Municipalities that levy hefty sales taxes or parking fees doubly winced, fearing that slow foot traffic in business districts would tamp down those revenue sources, too.

One year after the pandemic began, municipal finance experts in Pennsylvania say the blow COVID-19 dealt to local governments hasn’t been as severe as they feared.

But the federal stimulus that the U.S. House is expected to send to President Joe Biden this week still could offer local governments a lifeline, those experts say, especially as they brace for ripple effects and pay for deferred expenditures in 2021.

Pennsylvania’s Independent Fiscal Office expects the $1.9 trillion stimulus package will bring $7.3 billion to state coffers and $5.7 billion to its local governments, which they can use to backfill COVID-19-related revenue losses or cover new expenses.

In the state Capitol, Republicans who control the General Assembly say the aid should let them avert the tax increase Gov. Tom Wolf proposed on high earners earlier this year. Lawmakers are in the early stages of an annual, months-long budget process that’s supposed to end with Wolf, a Democrat, signing new spending and revenue plans by June 30.

Local and county governments, on the other hand, largely finished their budgets at the end of 2020.

Many municipalities got through the year by deferring major projects or trimming expenses, allowing them to avert the widespread cuts or tax hikes they may have feared last spring, said LeeAnne Clayberger, chief executive officer of the Pennsylvania Economy League, an independent research agency that studies local government.

Those maneuvers may have been manageable for one year, Clayberger said. But they aren’t sustainable in the long run – especially for municipalities that indefinitely paused building projects or capital expenditures.

“A lot of municipalities were very close to the bone in terms of budgets and services even before COVID-19 hit,” Clayberger told the Capital-Star on Tuesday. “So even a [small] loss in revenue is big, because it does require finding a way to balance their budget.”

The money for local governments is expected to include $2.8 billion for the state’s 67 counties, which will receive population-adjusted allocations directly from the U.S. Treasury once the stimulus is signed into law, Lisa Schaefer, executive director of the County Commissioners Association of Pennsylvania, told the Capital-Star on Tuesday.

Schaefer said the funds will help counties bring back workers that may had been furloughed, and keep providing essential services that saw increased demand during the pandemic.

“A lot of the things [counties] provide are people-driven,” Schaefer said. “Mental health services, child abuse investigations – we can’t just not do these things, so we have to keep people on [payroll] to do them.”

Pennsylvania’s counties also sustain emergency management agencies, which may be called on to help with vaccine distribution this spring, Schaefer said.

The remaining $3 billion in aid should flow to Pennsylvania’s municipalities, which have seen uneven impacts from the last year of economic description.

When the Pennsylvania Economy League surveyed 430 municipalities in October 2020, they found a “mixed bag” in terms of how COVID-19 affected spending habits statewide, Clayberger said.

Some local governments spent more last year than they budgeted for, as they invested in new software to facilitate remote work and public meetings or stockpiled personal protective equipment for staff.

But 40 percent said they didn’t see a change in their expenditures. And nearly 20 percent said they actually cut costs from the previous year.

Local leaders may have managed to save money by putting off big projects or cancelling public events, Clayburger said. But they saw more severe impacts on the revenue side of their budget sheets.

Nearly half of the municipalities that responded to PEL’s survey saw their revenue collections decrease in 2020 compared to the year prior.

Most of those losses came from dips in income tax collections, survey data shows. But local fees and permitting revenues also took a hit, as governments issued fewer parking tickets, construction permits and rental permits for community parks and public spaces.

“When you have to shut down an entire society, you realize just how much a government relies on those little transactions,” Harrisburg City Councilor Dave Madsen told the Capital-Star. “When there’s not development or activity in the city, it puts a significant gap in your revenue.”

Madsen pointed out that each municipality ended last year with a different financial outlook based on its unique mix of revenue sources and local industry.

Derry Township in Dauphin County, for instance, was in the midst of building a new community center when COVID-19 struck. The pandemic paralyzed the local tourism industry, which relies on visitors coming to Hershey’s Chocolate World, leading to a $1 million budget shortfall last year as officials saw amusement taxes and parking revenues plummet.

Harrisburg already was running a lean operation last year as it tried to shed its designation as a financially distressed municipality, Madsen said. But it did feel a shock to its parking revenues, since commuters were no longer filling up spots in downtown garages and city streets.

Madsen said new cash from the federal stimulus might allow the state to backfill any holes in its parking budget. But he hopes the city can use the federal aid as it did last year: by doling it out as direct aid to residents.

Harrisburg used some of the federal relief funds it received last year to create a local rental assistance program for tenants and landlords.

Local leaders also tried to stimulate the city’s small business sector, which may have otherwise gone moribund during an unusually slow year.

Just like its parking operators, Harrisburg’s shops and restaurants rely on commuters who come into the city during the week. Many struggled to stay afloat as state employees worked from home for most of last year.

City leaders funneled some federal dollars into small business grants, allowing some new firms to open their doors even as competitors shuttered. By the end of the year, Madsen said, the city had seen a net increase in its ranks of licensed businesses.

Local governments also may feel the effects of the pandemic well into 2021. More than a third of surveys told the Economy League last fall that it was too early to tell how the pandemic would affect their revenue.

Those effects may soon become clear, Clayberger said, especially since local governments are currently collecting property taxes. Those bills were mostly due before the pandemic hit last year, but may falter this spring if people who were unemployed have trouble making payments.

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Elizabeth Hardison
Elizabeth Hardison

Elizabeth Hardison covered education policy, election administration, criminal justice and legislative news for the Capital-Star from Jan. 2019-April 2021. You can find her on Twitter @ElizHardison.

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