As coronavirus evaporates tax revenue, states, cities could see tidal wave of layoffs

Local governments are turning to laying off and furloughing employees

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State and city governments could see a tidal wave of layoffs in the coming weeks as the coronavirus pandemic dries up the tax revenue that typically pays their workers’ salaries.

Sales and income taxes are expected to plunge in states throughout the nation as residents are directed to stay at home and restaurants, bars, hotels, gyms, beauty salons, entertainment venues and other businesses deemed nonessential have been ordered to close to mitigate the spread of COVID-19, the respiratory illness caused by the novel coronavirus.

States are also hemorrhaging cash trying to respond to the virus outbreak as a deluge of laid-off Americans seeks unemployment benefits. In the five weeks since the shutdowns started, a staggering 26 million Americans have filed for jobless benefits, likely bringing the unemployment rate to 16 percent — significantly higher than the 10 percent peak seen during the 2008 financial crisis.


And in March, retail sales suffered the biggest drop in history, plummeting by 8.7 percent. It was the steepest decline since the government began tracking retail sales in 1992.

According to a 2019 analysis by the Pew Charitable Trusts, states lost out on close to $283 billion in the decade following the Great Recession. But this time, budget shortfalls could total more than $500 billion in just one year, the Center on Policy and Budget Priorities reported.

“States’ costs are rapidly rising as they seek to contain the virus; a growing number have already allocated reserve funds to address the added costs that have emerged,” the report said. “Those costs will spike as businesses continue to lay off workers and incomes fall — forcing many more people to turn to Medicaid, unemployment benefits, and other forms of public assistance.”

As a result, local governments are increasingly turning to one option to cut costs: laying off and furloughing employees.

The city of Dayton, Ohio, has already furloughed about 25 percent of its municipal workforce, though a spokesperson told FOX Business the city hopes to bring the employees back once the stay-at-home mandate lifts.


Los Angeles Mayor Eric Garcetti told USA Today the city plans to furlough its civilian employees for 26 days in the next fiscal year.

The city of Cincinnati, Ohio, has also furloughed about 1,700 individuals, a mix of full-time and part-time workers.

According to data from Moody’s Analytics, some states were unprepared to weather even a mild economic downturn, including Illinois, New Jersey, Florida, Louisiana and Mississippi.

“Every city in America is under enormous strain, and every city in America should be eligible for federal resources to help weather this crisis,” said Bryan Barnett, the mayor of Rochester Hills, Michigan, and president of the U.S. Conference of Mayors. “We cannot allow another week to go by without critical support. We have urgent needs. This is not a tomorrow problem; this is a right-now problem.”

At least 88 percent of cities in the country expect to face a revenue shortfall this year as a result of the dual health and economic crises, according to the U.S. Conference of Mayors -- and at least 38 percent said they’re prepared to lay off workers.

“Cities will have to make painful decisions that will affect real people’s lives and the safety and well-being of their communities if Congress does not help,” Barnett said.

To blunt the economic pain for states, Sens. Bob Menendez, D-N.J., and Bill Cassidy, R-La., have proposed legislation that would include $500 billion in funding for state and local governments as part of the next coronavirus relief package. Money would be distributed based on population, infection rates and revenue loss, though each state would receive at least $1.6 billion.

“We recognize that this pandemic is unprecedented,” Menendez said. “It’s like a hurricane sitting on land indefinitely.”