As COVID-19 cases forced lockdowns in spring 2020, city officials around the nation had to quickly find ways to close budget shortfalls for the next fiscal year. Pew’s Philadelphia research and policy initiative analyzed the budgets of 13 large cities to assess how general funds that typically finance most essential services fared with the loss of revenue. Of the cities studied—Atlanta; Baltimore; Boston; Detroit; Houston; Kansas City, Missouri; Los Angeles; Louisville, Kentucky; Nashville, Tennessee; New York; Portland, Oregon; Philadelphia; and San Francisco—all but one have fiscal years ending on June 30.
The shortfalls, which would occur if officials made no changes in spending or plans to raise revenue, ranged from less than 2% to 17% of the prior year’s general fund spending. Philadelphia projected to be 14.7% short in the general fund budget for the next fiscal year, a $749 million gap. Only Detroit had a higher percentage shortfall, at 17%.
Pew’s study concluded that cities more reliant on property taxes for revenue generally faced smaller projected shortfalls as real estate tax revenues tends to remain relatively stable, even during economic downturns. For example, Boston, a city that relies primarily on property taxes for its revenue, had the lowest projected shortfall. Only about 15% of Philadelphia’s general fund typically comes from property taxes, on the lower end among the cities.
To offset its shortfalls, Philadelphia used $229 million from dedicated rainy day funds and general fund balances accumulated from previous years. The city was also able to impose a one-year increase in its parking tax and raised wage taxes on commuters. But many challenges will remain in the next fiscal cycle. For example, suburbanites continuing to work from home after city offices fully reopen could result in less nonresident wage taxes for Philadelphia.
“City officials realize that the measures they used to balance their budgets in this unusual time may not be available to them next time,” says Elinor Haider, director of Pew’s Philadelphia research and policy initiative. “They’ll also be watching to see if they get additional funding from the federal government, and how they can use that money to protect people who rely on city services.”
In 2020, all 50 states experienced upticks in total personal income—a key economic indicator—as historic gains in unemployment benefits, federal aid, and other public assistance drove the sharpest annual growth in two decades, according to analysis by Pew’s state fiscal health project. The study found that without this government support, most states would have sustained personal income declines as the COVID-19 pandemic battered business activity.
The government assistance swelled as policymakers pumped money into the economy to help Americans during the pandemic, which left millions unemployed and upended economic patterns. The increase in government transfer payments more than offset a slight decline in inflation-adjusted earnings, which include work wages plus extra compensation such as employer-sponsored health benefits, as well as business profits. The sum of residents’ personal income from all sources rose 4.9% nationally in 2020, the largest annual increase since 2000, after adjusting for inflation.
Both Arizona and Montana benefited from an increase in their workers’ aggregate earnings as well, unlike most other states. They recorded the year’s top personal income growth: 7.1%. By comparison, Wyoming and several other states with economies more reliant on the energy sector experienced some of the weakest personal income growth as oil production dropped.
After the initial outbreak, additional unemployment benefits and federal economic impact payments of up to $1,200 per adult boosted many Americans’ incomes. Following the disbursement of payments and the decline in supplemental unemployment benefits in the second half of the year, government assistance subsided but remained abnormally high. By the end of 2020, combined state and federal government assistance had climbed 35%, the largest annual increase since the 1940s. And every state experienced growth of at least 22%, which also reflected payments from Medicare, Medicaid, Social Security, and other programs.
States would have fared much worse if not for the unprecedented government support. In fact, when government assistance is excluded, 41 states experienced losses in total personal income last year.
The global middle class encompassed 54 million fewer people in 2020 than the number projected prior to the pandemic’s onset, according to a Pew Research Center analysis. Meanwhile, the number of poor is estimated to have been 131 million higher because of the recession.
The drop-off in the global middle class was centered in South Asia and in East Asia and the Pacific, and it stalled the expansion seen in the years preceding the pandemic. South Asia, specifically India, along with sub-Saharan Africa accounted for most of the increase in poverty, reversing years of progress.
As defined in the report, people who are middle income live on $10.01 to $20 a day, which translates to an annual income of about $14,600 to $29,200 for a family of four. This is modest by the standards of advanced economies—in fact, it straddles the official poverty line in the United States of about $23,000 for a family of four in 2020 (expressed in 2011 prices).
The number of people in the global high-income tier (more than $50 daily) is estimated to have decreased by 62 million in 2020, erasing about half of the gain since 2011, with most of the change emanating from advanced economies. Meanwhile, the upper-middle-income population ($20.01 to $50 daily) fell by 36 million, while the low-income population ($2.01 to $10 daily) is estimated to have increased by 21 million.