Fiscal Impacts from COVID-19--Revenue Structure Matters

Guest Contributors: Hai (David) Guo and Can Chen What is the most significant fiscal challenge for the municipal governments facing the unexpected outbreak of the COVID-19 pandemic? It is no surprise that Florida city managers placed the forecasts for the pandemic’s impact on local revenues as the top priority, as local governments are revenue-driven entities. The tradeoff between revenue growth and stability has always been a concern for local governments. With procyclical fiscal policy, local governments usually face abrupt revenue shortfalls and high demand for public service during economic recession. The COVID-19 pandemic-induced recession is no exception. Furthermore, there is tremendous uncertainty regarding the duration of the pandemic, the magnitude and requirement of federal government aid, and the public’s behavioral change. Collaborating with the Florida League of Cities (FLC), we endeavored to provide a simple and practical revenue forecasting strategy to help cities in Florida plan and prepare for the potential impacts of the COVID 19 pandemic on their budgets. We started reviewing the revenue structures of all municipalities in Florida from 2008 to 2018, considering recession exerts different impacts on each revenue source. The revenue structure varies greatly among 411 municipalities. Whether the revenue structure is diversified or concentrated on specific