Lesson learned from brutal economic setback
There is a brutal economic lesson to be learned from the coronavirus: that a dollar unspent at local restaurants, retail shops and hotels isn’t just a dollar less for owners and workers. It’s also a few cents less – over and over and over again – for the local governments that hold the upper Midwest together.
Linda Bunde’s Grand Forks, N.D., clothing shop, Mainstream Boutique, is a good example. She’s stayed optimistic, offering by-appointment shopping for clothing as she can (and steaming items customers have tried on) but she points out that customer traffic is way, way down.
"I'm a new owner, so I'm going to do anything I can to keep it fun – it's fun in the spring and summer to have something new and fresh on,” she said. “But when this started happening, I was frightened. Like, I just might as well close shop."
The damage goes far beyond retail. Hotels, bars and restaurants are among the hardest hit businesses in the country – and though business is expected to come back as anti-viral travel restrictions loosen, it’s not clear when that will be, or even how fast consumers will get comfortable with the idea of shopping, traveling and dining out.
And that means less for the public groups, too.
“We are expecting dramatic, dramatic (tax revenue) decreases, particularly for those March-April-May collections,” said Julie Rygg, who heads Grand Forks’ tourism bureau. “We expect they'll go up in the summer and more in the fall, but we're expecting by the end of the year to not even be close to what we projected.”
Tax-funded budgets at state fish and game departments, local school districts, city road funds and more are up against precisely the same headwinds as those blowing against commercial enterprise. They will all have to grapple with the same problem: revenues are falling this year, and with the virus still raging – and public health experts still warning that Americans are safest at home – there’s not a clear, obvious path back to where they were in early March.
That means that, for millions of upper Midwest residents, the coronavirus will likely not only mean a change in how they shop, but a change in how their governments serve them, too.
The problem is particularly acute in North Dakota, because of the state’s reliance on the oil industry and the fall flooding that was such a shock to its farm sector. UND economist David Flynn predicted that the state could see a 5% to 6% decrease in state GDP for every 10% off the price of oil – which was in free-fall early this spring.
“It’s a perfect storm of negative news for two of the growth engines for North Dakota over the last however many years you want to pick,” Flynn said.
Republican Gov. Doug Burgum has responded by requesting deep cuts. In a May 1 announcement, the governor said he was calling for the smallest state agencies to slash 5% from their next biennial budgets, while the largest would have to find a way to cut 15% (Democratic gubernatorial candidate Shelley Lenz expressed strong concerns over potential cuts in education and health).
Joe Morissette, the state budget chief, said that some of those largest agencies are juggling salary increases that are still being held in place, making their budget constrictions as functionally high as 16% or 17%. He points out that the state’s oil production is sagging badly as demand cools – one of the principal drivers of the crisis.
“We were at 1.45 million barrels a day in February, and now we think our production is below a million barrels. So we’ve had a third of our production shut in, as producers are just not willing to produce in this price environment.” he said in early May. “We’ve never seen that before.”
In South Dakota, the budget outlook seems just as poor. A budget official directed Prairie Business magazine to the state’s set of online statistics, which showed April general fund revenues more than $18 million off the month’s estimate, with tourism tax receipts down 28.5% compared to 2019. The Associated Press reported on May 7 that Republican Gov. Kristi Noem has asked the White House for more flexibility in spending federal aid money to the state to help cover budget shortfalls. But as of this writing, boosted federal aid to states is one of the most watched-for moves in Washington.
“Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help?” President Donald Trump tweeted in late April. “I am open to discussing anything, but just asking?”
Daniel Lightfoot, a lobbyist with the League of Minnesota Cities, pointed out that cities aren’t just paying for things like extra public safety or more personal protective gear – or even just missing out on local taxes. They’re also missing plenty of fees on things like public pools or ice arenas, and with a shaky economy, local residents might be paying taxes late, too.
And in Minnesota, early May saw a tussle over how much cities would get in federal relief funding provided to the state – not to the local governments themselves. When Lightfoot spoke with Prairie Business, the state had been allocated federal aid money, but nearly none of the local governments had.
“We know that the reverberation that this crisis is going to cause on city budgets and thus city services is going to have a ripple effect, and potentially extend long after any peacetime emergency or stay-at-home order is lifted,” he said.
And those same needs affect cities everywhere. Keith Hunke is the city administrator for Bismarck, N.D. Like many cities in the upper Midwest, Bismarck is still looking for its way out of a COVID-driven mess. The worst projections, Hunke said, show general fund revenue losses as high as 20%.
"But there's so much uncertainty,” he said. Bismarck posted good 2019 revenue numbers, and those stayed solid through the first quarter of 2020. “It’s uncertain as to what the impact has been to local revenue. Whether that's sales tax, some of our other taxes on motor vehicle fees, fuel taxes. We just don't know…we're trying to benchmark for the worst-case scenario."