Gillian Tett at the Financial Times writes:
In early 2020 Francis Suarez, mayor of Miami, Florida, was basking in a boom. His city was thriving and seeing buoyant revenues from property sales and taxes.
No longer. When Covid-19 struck the US, Mr Suarez became the first American mayor to test positive for coronavirus. He soon recovered from the disease, but Miami’s fiscal health has not. “We had a $20m surplus going into Covid and $25m deficit after — and started the fiscal year [in October] with a $35m deficit,” he told me last week.
He is not alone. “I am in a situation where I have spent down our reserve funds . . . cut every dime and nickel we can,” said Bill Peduto, mayor of Pittsburgh in Pennsylvania. “But we are still facing a $75m deficit out of a $600m budget.” Jenny Durkan, mayor of Seattle, Washington, echoed: “Our revenues have been decimated. Without help we are facing depressionary conditions.”
Investors and federal policymakers should be paying attention to these concerns — not least because Seattle, Pittsburgh and Miami are probably among the better resourced and better run American cities…
[W]hile the muni bond market might seem peaceful, the real-world situation in cities and municipalities is alarming. Not only could the current fiscal squeeze eventually raise default rates, deficits are undermining the civic services needed to support recovery. “At the time we need emergency personnel the most, we will be forced to lay off police officers and firefighters and medical staff [without help],” Mr Peduto warns. Mr Suarez adds: “We are looking at the possibility of having to let go policemen and firefighters — those on the front lines.”…
[M]unicipal tax revenues have collapsed as jobs vanished, wealthy residents sometimes fled and commercial activity slowed.
Under these conditions, you have some cities spending as though money is no problem. In San Francisco where revenues are collapsing, Mayor London Breed has launched a program to pay artists to paint the boarded-up windows of stores that haven’t re-started and are creating no revenue of any kind for the city, as if there was actually money to start any new programs.
These politicians are not financial geniuses. They are not even mediocre astute.
This is not going to end well. Many cities will default if not bailed out by the federal government which would provide funds by having the highly inflationary act of having the Federal Reserve print money out of thin air.