Local governments across the West struggle to make up deficits as revenues plummet
The National League of Cities estimates cities, towns and villages will lose $360 billion over the next three years.
SALT LAKE CITY — In Cripple Creek, Colorado, population roughly 1,200, there’s really only one industry in town: gaming.
The town sits just shy of 9,500 feet in elevation and used to be a gold mining camp. Tourists still come to ride a 15-ton coal-fired train, or take a tour of a historic gold mine.
But today the main business in Cripple Creek is casinos. There’s Bronco Billy’s, Christmas Casino, Johnny Nolon’s Saloon and Gambling Emporium, and the Double Eagle Hotel and Casino, to name a few. (Cripple Creek is one of three historical towns in Colorado where casino-style gambling is allowed.)
When COVID-19 hit Colorado, the casinos closed down from March 17 to June 15. When that happened, the money the city government pocketed from device fees, which were waived during the closures, dissipated.
That alone cost Cripple Creek $762,000.
As soon as the casinos closed, the city shut down the shuttles and trolley, parks and recreation, all tourist related offices, and the historic Butte theater (which remains closed).
Paul Harris, the finance director for Cripple Creek, expects last year’s city budget of about $12 million to be reduced by 25%.
“But we worked really hard to keep all our staff on board,” Harris said. For the past five months Harris was also the interim city administrator. Cripple Creek employs a combination of 100 full- and part-time employees. “I think I went 32 days straight when it first hit, working 12 hours a day, seven days a week.”
Cripple Creek depleted its general fund by about $1.5 million from February. The casinos in town have reopened, but are running at limited capacity and as a result got rid of 839 machines (about 24% of the total) that the city normally collects taxes on.
That means the city’s financial worries won’t be over any time soon, Harris said.
Cripple Creek is just one of many municipal governments across the West that have taken a hit due to the pandemic and shrinking tax revenue. The National League of Cities estimates cities, towns and villages will lose $360 billion over the next three years.
In an analysis by the Bureau of Labor Statistics’ June unemployment data, Brookings found that unemployment rates rose fastest in “Western metro areas that either took early measures to contain the virus’s spread (e.g., Seattle), or had economic specializations such as tourism (Las Vegas and Reno, Nevada) and energy (Bakersfield, California, Beaumont, Texas) that faced early challenges from the crisis.”
Arizona is estimating an $860 million decline in revenue, California a $32 billion shortfall and Colorado a $2.6 billion drop, according to the Center on Budget and Policy Priorities.
There are a few factors that put local governments particularly at risk, according to Adrienne Lu, a researcher with Pew Research Center. Cities and towns that rely on a single employer for a lot of their revenue, and local governments that depend heavily on state aid are more vulnerable in downturns.
Plus, towns that were already experiencing a downturn are in an even more precarious position.
In Cripple Creek, casino’s were already closing — after the recession in 2008 and a wildfire in the region in 2012, business never fully recovered. The pandemic only intensified that trend.
In the beginning of 2008, the city could collect taxes on 5,170 gaming devices, the largest source of revenue for Cripple Creek. Then the Great Recession hit, and by the end of 2010 there were around 3,650 devices.
Before the pandemic, the town taxed 3,556 machines, but that number dropped down to 2,717.
In Washoe County, Nevada, having a variety of businesses (tech companies like Apple, Google, and Tesla have moved in and tourism is no longer the only dominant industry) has helped diversify the economy, Christine Vuletich, the assistant county manager, explained.
Nevertheless, the county had a deficit of about $15 million for the 2021 budget, which began July 1, 2020. It’s planing to use money from the general fund, which totaled $73.9 million in July 2019, to make up the deficit. In total, between budgeting for 2020 and 2021, the county expects to use $25.1 million of its savings.
Washoe County eliminated money used from its general fund for capital projects, reduced its annual contribution to the Other Post-Employment Benefits (OPEB) Trust for retiree health, and departments were told that no new requests would be approved unless the money was reallocated from their existing budgets.
“Of course, the concern is how long is it going to last? When are we really going to be able to fully reopen businesses? We don’t really know that,” Vuletich said.
A few weeks ago, in late July, Washoe County received the first half of its CARES funding to cover expenses related to COVID-19 (in total it will receive about $20 million). It has already spent the majority of the $10 million on dealing with the pandemic: from testing, to contact tracing to setting up medical and quarantine facilities.
“Local government in general, not just counties, but also cities and districts, we are the first line of government, we’re the ones closest to the citizens,” Vuletich said. “We’re providing things like social services, senior services, child protective care, police, sheriff and fire. Those kinds of services directly related to the community.”
That sentiment was echoed by Donnie Quintana, director of New Mexico’s local government division in the department of finance and administration. “I used to tell soldiers in the battlefield in Afghanistan that wars and battles aren’t won by colonels, it’s won by the soldiers in the front lines,” Quintana said. “Local governments are going to change the dynamics. It’s not going to be because of the state government or the federal government, other than providing support and resources.”
Quintana explained that local governments in New Mexico have taken a hit from a decline in sales tax revenue. He said regions in the state that rely heavily on tourism have especially struggled with declining revenue.
“There are definitely municipalities in New Mexico that are so small that without assistance, they may not be able to overcome setbacks,” Quintana said. His department has been working to provide assistance by distributing CARES funding.
In Cripple Creek, CARES Act funding is available for COVID-19 related expenses, but Harris said those have been fairly limited in comparison to the budget deficit it is now facing.
When asked what measures would help Cripple Creek the most, Harris said, “My number one thing would be if we could get more flexibility in how those CARES Act dollars could be utilized. If they could be used for revenue replacement that would tremendously help us rebuild.”
However, funding for state and local governments proved to be a sticking point when Congress attempted to pass another stimulus bill. House Democrats passed a bill providing $500 billion in aid to states and $375 billion to local governments, which could be used to make up budget deficits. The bill passed by Senate Republicans did not provide additional aid, but did allow for more flexibility, according to CNN.
Congress hasn’t reached an agreement on another stimulus bill, and remains at a standstill.
“If more funding came from the feds in the next stimulus that would be great,” Harris said.
“But I’m not too optimistic about that.”