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Prognosis for COVID-19’s hit on Cook County finances plagued by ‘unknown unknowns’
“It’s worse than a hurricane, it’s worse than 9/11, it’s worse than the 2008 economic … downturn because this is a comprehensive stopping of the economy, a threat to public safety that forces total disruption of most traditional, economic activities,” said Laurence Msall, president of the Civic Federation.
Sunday, May 17, 2020 Chicago Sun-Times by Rachel Hinton
No one knows when the pandemic will end. No one knows when different areas will be able to re-open. And no one knows just how big an economic hit it will all take on governmental budgets.
But what is known is that COVID-19 has already killed over 4,000 people in Illinois and cost Cook County and others hundreds of millions of dollars in lost revenue. Another known reality is that all of the very activities that governments depend on for revenue – shopping, travel, filling gas tanks – have been either put on hold or severely disrupted.
And everyone knows the fiscal future is grim – even if no one knows the full extent.
“It’s worse than a hurricane, it’s worse than 9/11, it’s worse than the 2008 economic … downturn because this is a comprehensive stopping of the economy, a threat to public safety that forces total disruption of most traditional, economic activities,” said Laurence Msall, president of the Civic Federation, a non-partisan government research organization.
Already facing a $200 million shortfall due to usual revenue sources drying up, Cook County could be faced with an even larger budget shortfall ahead because of the pandemic. The depth and width of that hole will likely be unveiled next month as the county begins its 2021 budget season in earnest, though it could grow depending on how long the pandemic stretches on.
Planning has been frustrating.
Ammar Rizki, the man in charge of the county’s finances, said the county’s biggest challenge is the “unknown unknowns” — the things the county can’t prepare for because it doesn’t know what the future holds — and that’s made forecasters such as Rizki “very nervous.”
“No one really knows what the outcome is going to be,” said Rizki, the county’s chief financial officer. “It’s one thing to understand what the pandemic itself, the shutdown of the economy, is doing — where the critical focus is now being made by the forecasting community is what are the permanent impacts of this?”
Even once the state reopens, the old normal likely won’t return, which means that the “old ways of how [people] shop and entertain themselves at restaurants and bars and concerts and things like that” are out as possible revenue-growing measures for the county.
It’s also a growing “concern and possibility” that whatever preliminary forecast the county puts out in June could change dramatically by the thick of budget season later in the summer and fall.
The county is in a better shape than many other governmental bodies — it has a $300 million “rainy day” fund and access to a line of credit that should help offset some of the effect the pandemic is having on the county’s pocketbook.
But the threat to revenue is already a challenge. The county gets nearly two-thirds of its revenue from economically sensitive taxes such as hotel, amusement and gas taxes.
The county’s health system already took a hit to its own revenue stream when the Centers for Disease Control and Prevention issued guidelines halting elective surgeries.
Rizki said the impact on the taxes “that we generate from those activities is something that we have to look out for, and there’s a good chance that we may not know that by June, and so whatever we put out there will be a best guess with the data at the time.”
Michael Belsky, the executive director of the Center for Municipal Finance at the Harris School of Public Policy at the University of Chicago, said the effect of the pandemic on the county’s finances long term depends on how quickly the economy can come back.
“They have a hotel tax,” Belsky said. “People [who] are out of work are not coming to Chicago for summer vacation, people out of work aren’t going to go out to restaurants as much. And so this can cause some of these businesses to close, your sales tax base to contract, and it might be that Cook County just becomes a smaller government, and does less until the economy comes back.”
That could entail laying people off and focusing on just public health and public safety, Belsky said.
The money from the first iteration of the Coronavirus Aid, Relief and Economic Security, or CARES, Act should help a bit with the health side of the budget. But if the second package of aid and relief dollars doesn’t include any revenue replacement measures for municipalities, the county would have to “adjust” its budget to the worst case scenario, Belsky said.
Rizki said the county has looked to other cutbacks for the time being, like not filling some positions.
Despite Msall’s dire characterization of the situation, the Civic Federation leader said the county can help itself by managing the crisis in front of it, and “continue to deliver the essential services in the healthcare system, continue to promote the need for social distancing” and more.
From a financial standpoint, it’s “very difficult to plan until you know when the end is coming and when the economic restart will occur, and unfortunately, that is not something that anyone has a strong handle on.”