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The Sunshine Economy

The Sunshine Economy: Federal COVID-19 Stimulus and Local Governments

AP Photo/Lynne Sladky
Tourism and sales tax revenue for local governments collapsed in the spring because of the COVID-19 pandemic. While property taxes generate the bulk of local taxes, cities and counties await to hear if there will be another round of federal government stimulus.

The clock has been ticking for months on whether or not Congress will find a compromise on another round of federal government stimulus spending, and whether or not local governments could see some direct help.

COVID-19 infections are rising. The South Florida unemployment rate remains above 10%. Tourism remains scarce. Yet, local government budgets are getting through the pandemic — so far.

Financial help to local governments was a sticking point before the election in the debate over any more stimulus from the federal government. In the spring, the stimulus legislation passed by Congress and signed by President Trump included $150 billion for state and local governments.

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The money was designed to fill budget holes created by the emergency response to the pandemic. In Florida, the money flowed first to county governments because the legislation limited direct payments to local governments with at least a half million residents. In Florida, that meant only counties qualified.

Since the election, there is renewed discussion about another round of stimulus spending by the federal government. House Democrats passed a bill in May, but it was not taken up by the Republican-controlled Senate. Whether or not to provide more money to state and local governments is one of the areas of disagreement.

"Many local governments in South Florida were performing quite well from a revenue perspective," said Valentina Gomez, analyst with credit rating agency Moody's Investor Service.

Give credit to real estate. The regional housing market has been incredibly strong during the pandemic thanks to record low mortgage rates and high demand.

Local governments rely on real estate taxes for most of their revenue. And the assessed values that form the basis of real estate taxes sent out recently were set in January, before the pandemic took hold.

But other revenue sources have been much more vulnerable to the virus and the efforts to slow its spread. Sales and hotel taxes plunged in the spring.

"We budgeted this year with a thought process that we were going to, at best, bring in 80 percent of where we were last year," said Key West Mayor Teri Johnston. That meant pay and hiring freezes and scaling back public works projects and major equipment purchases.

Tourism remains under pressure. Hotel occupancy in late October in Miami-Dade County was down 40% compared to a year earlier. The average revenue per available room was less than half what hotels collected last year.

Only 46% of hotel rooms in Broward County had guests in September. In August, $2.8 million in tourism development taxes were collected. That’s down 46% from a year earlier. Fewer visitors mean millions of dollars less in tax revenue for local governments.

"We are very focused on travel [and] tourism. Those narrow revenue streams is where we see the most stress within local governments," said Gomez with Moody's. "And while they are not the largest revenue source, they are important, and that's where we're seeing the stress at this point. I would say it's significant stress, but relatively acute."

The threat to Key West is significant. Monroe County’s economy relies on visitors and for more than two months, the Keys was closed to outsiders. Sales taxes, hotel taxes and other revenue plunged, including a lot fewer people paying for parking spaces — an important part of revenue to the city of Key West.

The next challenge for Key West will be new voter-approved measures that will significantly limit the number of cruise passengers and size of ships visiting Key West if they hold up to expected court challenges.

But Johnston has seen tourism revenue improve in Key West, even without the cruise ships.

"Our sales tax revenue for the month of August was at 95 percent of where we were last August. So we're starting to see tourism come back," she said.

The tougher budget decisions have been delayed, in part thanks to federal stimulus money. Local governments have used money for public safety, to buy personnel protective gear and for public health spending. They’ve also used it for small business grants, rent and mortgage relief, and for food.

Other federal government stimulus efforts like individual stimulus checks and forgivable loans to companies such as the Paycheck Protection Program trickle back into the local economy through consumer spending. It has helped in the short-term even as there’s no guarantee of any more direct help coming to local governments.

"Federal stimulus is not the panacea to local government issues that we think are likely to persist."
Fitch Ratings Analyst Michael Rinaldi

"The federal stimulus [was] certainly was helpful in terms of 2020 [budgets]. It's put [local governments] on a firmer path with regard to 2021 in their budgets," said Michael Rinaldi, analyst with credit rating firm Fitch Ratings. "However, federal stimulus is not the panacea to local government issues that we think are likely to persist through the fiscal year (and) potentially into 2022."

In April, Fitch put all local government bonds backed by hotel bed and tourism taxes on notice. This included bonds in Broward and Miami-Dade counties. It pointed to a collapse of hotel occupancy and tourism travel.

"The uncertainty is really driven by the lack of clarity with respect to the public health conditions and, most critically, the widespread availability of a vaccine and or treatment to help contain the coronavirus," Rinaldi said.

Fort Lauderdale has maintained its strong general bond rating. The city had to fill a $40 million budget shortfall in the spring by postponing some spending. It did not cut any jobs.

"We have been very successful at maintaining the balance that we need to maintain in terms of shoring up our resources and at the same time trying to absorb the deficits that that that are going to hit us," said Mayor Dean Trantalis.

The city holds the unenviable record for the worst sewer spills in the state thanks to massive spills about a year ago. More than 200 million gallons of sewage poured into canals and streets. The city’s aging sewer pipes broke a half dozen times last December alone.

There’s a $65 million sewer main project that will replace seven miles of old pipes. Sewage started flowing through a new one and a half mile section in late October.

Two years ago, Fort Lauderdale okayed borrowing $200 million to help pay to fix the sewer system. The borrowing is paid back by utility fees paid by residents. That kind of bond spending is not at risk as the region deals with COVID-19.

Mack Bernard remembers making tough budget choices when he was a member of the Florida House in the years immediately following the Great Recession. He is now a Palm Beach County commissioner.

"As the pandemic wears on, we're going to have to tighten our belts," Bernard said.

Those tough choices may come later this year for local governments as the COVID-19 pandemic continues. That's why local governments are following the congressional negotiations regarding the possibility of another federal COVID-19 stimulus package so closely, including what types of governments may qualify for direct help — if it comes.

I'm hopeful," said West Palm Beach Mayor Keith James, "Hopeful, that the folks in Washington, D.C. will get their act together and start letting some money flow to local and state governments when the CARES Act money flowed from Washington, we, as a city, got zero dollars out of that."

West Palm Beach, just like every other city, town and village in South Florida, wasn’t large enough to quality. The congressional requirement on local governments, to have more than a half million residents to get the money directly from the U.S. Treasury, created a rift between cities and counties — including in Palm Beach County.

"Initially, it provided a level of tension between the cities," said Bernard. "We've actually created a spreadsheet to show in which cities [is] those funding being spent."

Palm Beach County received $261 million. The biggest item is $75 million in grants for small businesses across the county.

"All of those funds were allocated to businesses throughout the whole county," Bernard said, "And that's helped alleviate some of the tension."

The clock has been ticking for months on whether or not Congress will find a compromise on another round of federal government stimulus spending, and whether or not local governments could see some direct help.

In a journalism career covering news from high global finance to neighborhood infrastructure, Tom Hudson is the Vice President of News and Special Correspondent for WLRN. He hosts and produces the Sunshine Economy and anchors the Florida Roundup in addition to leading the organization's news engagement strategy.