The Impact of the COVID-19 Pandemic on the Fiscal Health of U.S. Central Cities

• In Event: In Honor of Ronald C. Fisher and His Landmark Text on State and Local Public Finance: The Necessity of Non-Economic Considerations in Property Value Assessment

Abstract

Since the COVID-19 pandemic working from home, either full or part time, has become the new normal in many industries. The falling demand for central city office space has led to declines in commercial property values and reduced property tax revenues. We analyze the fiscal impacts of the increases in remote work for a sample of 135 central cities using data from a specially constructed fiscally standardized cities (FiSC) database that accounts for the revenues and spending of all the governments that provide public services to city residents and businesses.

Based on national survey data on the prevalence of remote work by industry and city-specific census data on employment and wages, our results show that the reduction in the demand for commercial-industrial property varies substantially across cities, with the largest reductions occurring in New York, Atlanta, San Francisco, and Boston. In the long run, the average property base will decline by 8.4% in the 135 cities in our sample. However, because cities rely on revenue from other taxes, user fees, and intergovernmental grants, the overall total revenue-raising capacity of cities is predicted to decline by only 2.9%.

The ability of cities to cope with these reductions in revenues depends in part on their fiscal health at the start of the pandemic. Our measure of fiscal health is based on our estimate of the expenditure needs of each city relative to their capacity to raise revenues. On average the FiSCs most heavily impacted by remote working arrangements were in somewhat better fiscal health in 2021 than cities less impacted.

Authors

• Howard Chernick, Hunter College, CUNY

• Andrew Reschovsky, University of Wisconsin-Madison