Is Your City Playing by the (New) Rules to Support a Pandemic Economy?

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We’re approximately one month in to taking Coronavirus seriously as a society. As more and more states and localities issue stay-at-home orders to keep us safe and healthy, businesses are shuttering, and unemployment is skyrocketing. Although protecting the U.S. from even graver and more rampant cases is priority number one, cities are also trying to protect their local economies knowing full well that opening the economy too soon will spell disaster.

So, what are the new rules for supporting the economy during this pandemic?

Derek Thompson, staff writer at The Atlantic, recently published an article The Four Rules of Pandemic Economics: A playbook that should govern America’s short-term reaction to the health crisis. This playbook, based on interviews with dozens of economists, reorients our traditional notions of what it means for short-term policy and programs to be impactful in getting the economy back on track. Most of these are counter-intuitive, like paying people a living wage to stop working, but that’s the point. The pandemic is changing how all levels of government, cities included, should think about their role in supporting the economy.

A key component of these new rules is that immediate responses matter. To assess how well cities played by the rules in their immediate responses to COVID-19, I compare the types of programs and policies cities implemented early into the crisis with three of Thompson’s rules. Local implementation of policies and programs are based on 334 responses of city leaders to a National League of Cities survey conducted March 16-22.

Rule 1: “Save the economy or save lives” is a false choice.

Some have proposed that protecting people and protecting the economy are two objectives that are mutually exclusive. You can’t have one when you have the other. However, evidence from the 1918 Spanish flu proves otherwise. Cities that took early actions to save lives then, like restricting large gatherings, also saw their economies bounce back faster than those that didn’t. The reason, Thompson, explains, “without a healthy population, there can be no healthy economy.”

Chart 1

Ten of the 18 strategies we surveyed cities about related specifically to help control the spread of the pandemic. As of March 22, cities of all sizes banned large gatherings and closed public facilities, while fewer cities across the board implemented strategies to minimize spread amongst vulnerable populations. Despite lower shares of cities enacting policies targeted to the specific needs of homeless, incarcerated and elderly populations, larger cities were more likely than smaller and mid-sized communities to enact nearly all strategies to stop the spread.

By and large, cities are playing by Thompson’s rule #1 and understand that a healthy population and workforce is foundational for long term recovery. However, they could certainly do more and receive more support from other levels of government to protect vulnerable populations. As the crisis evolves, it is likely that cities will move from general population protections to more targeted solutions to stop the spread. Miami, Philadelphia and Newport Beach are just some of the communities taking action to support the populations most vulnerable to COVID-19 complications that others can learn from.

Rule 2: Pay people a living wage to stop working.

Given unprecedented unemployment, it’s hard to believe that strategies to control spread alone will bolster longer-term economic recovery. Indeed, these need to be married with income supports for those who are no longer able to work or are financially threatened as a result of closures or significant industry decline. As noted in the New York Times, “If laid-off workers can’t pay their bills, there could be a cascade of further layoffs and business failures.”

With the spread of COVID-19 occurring most quickly in highly financially distressed areas in the weeks and months ahead, targeted strategies to stabilize financially at-risk residents will be a critical component to supporting the economy writ large.

Chart 2

Six of the 18 strategies we surveyed cities about related to providing income supports, supplements or reductions in expenditures of some type, or more generally stabilizing resident fiscal decline. Cities of all sizes reported temporarily stopping utility shut-offs, as well as funding or coordinating food and medicine services. Many large cities were also early adopters of enacting temporary eviction bans, mortgage payment suspensions and other financial supports.

Less than 20 percent of cities of any size reported providing emergency leave or income assistance funds to low-wage or gig workers, providing internet or Wi-Fi access to households and neighborhoods with poor access, or incentivizing or mandating employers to provide emergency paid sick leave.

For many cities, playing by rule #2 to help ensure the financial stability of residents is a more restricted option. Some of the recommended strategies, like paid leave and eviction bans, are preempted by state governments. Interestingly, there is a movement underfoot in places like Illinois and Tennessee to return power to cities so that they can consider rent freezes, eviction moratoria and minimum wage.

Rule 3: Build companies a time machine.

The effect of the pandemic on small businesses has been well documented. A recent Brookings Institution study put the number of small businesses in immediate to near-term risk of job losses and closures at 54 percent of businesses (4.2 million total) and 47.8 million jobs. Small businesses include not only restaurants, bars and shops that contribute to the vibrancy of our communities, but also small manufacturers critical to supply chains throughout the country.

“While their income has evaporated, they still owe wages to workers and rent to landlords. This is a recipe for cascading bankruptcies,” notes Thompson. If small businesses can’t pay their rent or mortgage, financial markets are threatened. Small businesses need policies and programs to stabilize and help them maintain payment expenses until the economy opens again.

Chart 3

Two of the 18 strategies we asked cities about were related to stabilizing businesses. Overall, fewer cities offered business supports in the immediate onset of COVID-19, but mid-sized communities were more likely than others to provide access to credit or other financial supports to landlords and property managers.

Beyond these strategies, however, cities are stepping up for small businesses in big ways. For example, the city of Lakewood, OH launched a rent payment reimbursement program, which provides up to a $3,000 grant for rent payment reimbursements to small businesses adversely affected by the pandemic. The city of Cambridge is paying restaurants to provide meals to the homeless while helping them stay afloat.  

Assistance to small businesses has been a rallying cry of city leaders. In the same NLC survey, local officials were asked about the most important types of community support they would like to see from the Federal government. Specifically, they advocated for targeted funding for Economic Development Administration and Small Business Administration assistance to local employers (60%) as one of the most critical components of the recent CARES ACT.

Conclusion

Cities of all sizes across the country have aggressively instituted measures to stop the spread. More can be done at all levels of government to support vulnerable populations and small businesses. Indeed, the pandemic has laid bare gaping holes in our social safety net. Supporting those who need it now is not only the right thing to do, it is what will be needed to get our economy back on track.

But city budgets are starting to take a hit, and they can’t go it alone. The National League of Cities calls on Congress to advance a fourth emergency appropriations package to address the immediate need for local budget relief by making direct emergency funding available to every city and town in need, regardless of population. Moreover, NLC calls on Congress to include targeted programs focused on the intermediate and long-term needs of residents, households and small businesses on the economic margins to ensure an economic rebound.

Special thanks to Brenna Rivett for her research support.

 

About the author:

Christy McFarland small

 

Christiana McFarland is NLC’s Research Director. She leads NLC’s efforts to transform city-level data into information that strengthens the capacity of city leaders and that raises awareness of challenges, trends and successes in cities. Follow her on Twitter @ckmcfarland.