America’s big cities might be the ultimate victims of COVID-19. Leftist policies have raised their spending beyond self-sustaining levels, making them increasingly dependent on external revenues. Beyond interrupting these external revenue streams, the Wuhan virus threatens a long-term disruption that might be irreversible.
A recent border budget battle in leftist New England demonstrates COVID-19’s growing strain on America’s big cities. In October, New Hampshire filed suit with the Supreme Court to stop Massachusetts from continuing to tax 80,000 of its residents who commute to work in Massachusetts, mostly Boston — or, more accurately, “residents who formerly commuted to Boston” before lockdowns. Like many Americans, since March, these 80,000 are mostly working from home, yet Massachusetts continues to tax them as before.
There is a dire warning for America’s leftist big cities in this early fiscal fight. Like most big cities, Boston has been dominated by Democrat governments for decades. In Boston’s case, it’s nine decades. There is seemingly no end to the initiatives such city governments want to undertake or the dollars they want to spend. Their overextended reach and spending have made them prime targets for COVID-19’s fallout.
To spend more, they have taxed more. The rich, who could afford the taxes, have stayed, along with the poor, who receive tax-funded services and pay little of the overall tax burden directly. Gone are the middle class, the great tax base, who cannot afford the taxes and do not receive taxpayer subsidies.
Of course, this hollowing out of the tax base only exacerbates the dynamic that caused it. So the city governments that started the process must seek external revenues. Federal spending has long supplemented city spending, but even decades of federal assistance have not kept pace with leftist government appetites.
As a result, city governments have become what in economics is called rent-seekers: entities seeking to extract revenue (rent) from an existing relationship to which they do not materially contribute, but over which they can exert control. Enter taxes on those not residing but just visiting there — everyone from commuters to professional athletes, entertainers to tourists.
It is a lucrative racket for cash-strapped cities — or at least it was before the pandemic. Now with people no longer coming into cities to visit nor to work, revenues, both direct from individuals and indirect from businesses serving them, are falling. Federal subsidies have not kept up, and further federal bailout legislation remains stuck in Congress.
Big-city governments’ leftist inclinations have only furthered their predicaments. COVID-19 lockdowns have played to their predisposition to statist solutions. Of course, the lockdowns have only kept more outsiders away, while also encouraging residents to leave. The same applies to the summer riots, which many cities either encouraged or at least did not discourage, and certainly didn’t prevent.
This exodus further exacerbates the big problem of large cities. Due to hollowing out their tax bases, they were already precarious. The Wuhan virus then accelerated their fiscal fix, simultaneously hitting their revenue streams.
Even worse for America’s leftist big cities, these hits might outlast the coronavirus. Coping with COVID-19 has proved to many employers and employees that working remotely is not just technologically doable but also offers some advantages. Permanently capturing these advantages would increase their economic returns, so expect them to explore doing so.
Undoubtedly near the top of this list is the ability of employees and employers to avoid big cities’ rent-seeking behavior. It is therefore highly unlikely that America’s work life will simply return to its pre-pandemic condition and equally unlikely that big cities’ revenues will either.
It is no small irony that a virus fully exposed big cities’ sickness: government monopolies insistently following leftist policies. Their long-term illness is underscored by the difference in how American cities and American capital will respond to the post-pandemic environment.
American capital has repeatedly proved itself to be nimble and mobile. Expect it to prove so again, relocating from urban areas to a new larger suburban workforce. American cities have shown themselves to be plodders, following a single big-government mindset to higher spending and seeking external subsidies to support it. While capital will embrace the change, cities will find the change embracing them.
As with COVID-19, those most endangered by it are those with pre-existing conditions. America’s big cities and habitually blue states have suffered a pre-existing condition for a long time: their left-leaning government monopolies. As a result, do not expect a coronavirus vaccine to suffice for their quick recovery.