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America's big cities are about to run out of money

๐ŸŒˆ Abstract

The article discusses the budget challenges faced by cities and states across the United States, particularly due to the impact of the COVID-19 pandemic and the shift to remote work. It explores the various factors contributing to these financial woes, including declining commercial real estate prices, reduced tourism, and rising costs. The article also highlights the long-term structural issues that states and cities are grappling with, such as aging populations, changes in transportation, and unexpected expenses.

๐Ÿ™‹ Q&A

[01] Budget Challenges for Cities and States

1. What are the key factors contributing to the budget challenges faced by cities and states?

  • Decline in commercial real estate prices and property tax revenue due to the rise in remote work
  • Persistent decline in tourism and related revenue
  • Expiration of federal pandemic-related funds and support
  • Increased spending on new programs and investments made during the pandemic
  • Inflation driving up costs for labor, healthcare, and construction materials
  • Financial burden of the migrant crisis in some cities

2. How are states and cities dealing with these budget challenges?

  • Many states have used their rainy-day funds to help address the shortfalls, but these funds will only provide temporary relief
  • Some states and cities have had to make difficult decisions to cut budgets and services
  • There is uncertainty around the long-term "new normal" for budgets in a post-pandemic, post-AI world

3. What are the broader, long-term issues that states and cities are facing?

  • Aging populations leading to a smaller working-age population and increased costs for healthcare and social services
  • Declining transportation revenue as vehicles become more fuel-efficient or switch to electric
  • Unexpected expenses, such as the collapse of the Francis Scott Key Bridge in Maryland
  • Structural deficits and long-standing budgetary issues that were temporarily papered over during the pandemic

[02] Policy Challenges and the Political Nature of Budgeting

1. How do the policy challenges and political dynamics play a role in addressing the budget issues?

  • Deciding how to address the conflicting priorities that come with budgets is a political process, with different stakeholders having different priorities
  • There is no easy, one-size-fits-all solution, as each place is dealing with its own unique set of circumstances
  • Ultimately, the budget decisions are a matter of policy and politics, with various groups vying for their interests to be represented

2. What is the overall outlook for state and local budgets in the coming years?

  • While the immediate crisis has been averted, the long-term picture is more concerning, with most states projecting budget shortfalls in their long-term projections
  • The structural issues and societal changes, such as aging populations and transportation shifts, will continue to put pressure on state and local budgets for years to come
  • There is a need for states and cities to adapt and find new, sustainable revenue sources and cost-cutting measures to address these long-term challenges.
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