The Impact of the COVID-19 Pandemic on the Fiscal Health of American Central Cities

The goal of this paper is to assess the long-run impact of the COVID-19 induced increase in re-mote work (working from home, WFH) on the fiscal health of America’s central cities. Our analysis is based on 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.

Increased prevalence of WFH reduces demand for office space, putting downward pressure on the commercial-industrial portion of cities’ property tax bases. Based on survey data on remote work and census data on employment and wages by industry, 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 percent in the 135 cities in our sample. However, because cities also rely on other taxes, user fees, and intergovernmental grants, the overall revenue-raising capacity of cities will decline by 2.9 percent.

The ability of cities to cope with these reductions in revenues depends in part on their fiscal health at the start of the pandemic. On average the FiSCs most heavily impacted by WFH were in better fiscal health in 2021 than cities less impacted. Five of the 15 cities facing the largest reductions in revenue-raising capacity—Atlanta, Baton Rouge, Columbus, GA, Dallas, and Mobile—were in relatively weak fiscal health in 2021. Unless offset by targeted increases in state aid, it will be difficult to respond to their reduced property tax bases without substantial increases in tax rates and/or cuts in public services.