Fiscal Impact of COVID-10 on Municipalities

Summary of Study

The Institute examined the fiscal impacts of the COVID-19 pandemic on local government in Northeastern Pennsylvania. The primary focus is on the six second- and third-class cities in Lackawanna and Luzerne Counties, though many of the broad findings are applicable to other municipalities (as most municipalities in Pennsylvania utilize similar revenue sources).

For example, varying degrees of tax revenue mix will impact resilience to the economic effects of the pandemic. The most vulnerable municipalities rely significantly on elastic revenue sources—taxes and fees that are likely to bring in much less revenue during the pandemic due to increased unemployment and business closures. The Earned Income Tax (EIT) is perhaps the most critical form of elastic tax revenue for municipalities in the region.

As such, the report examines local employment data to estimate EIT loss during the primary unemployment window of the pandemic—under two unemployment scenarios based on different methodologies. Local service tax impacts are also estimated, though these account for a smaller portion of total tax revenues.

Other elastic sources of revenues will likely see declines as well. They include real estate transfer taxes, amusement taxes, mechanical device taxes, local services taxes, and business gross receipts taxes—with the latter two being the most significant for the cities examined. Even inelastic revenue sources such as property taxes will not be immune to risk from the current economic situation. Overall, many revenue sources that municipal governments rely upon are subject to varying degrees of risk due to COVID-19 and the associated widespread economic distress.

Read the full report here

Feature Charticle

The Institute for Public Policy and Economic Development

Findings:

  • Many revenue sources that municipal governments rely upon are subject to varying degrees of risk due to COVID-19 and the associated widespread economic distress.
  • The most vulnerable municipalities rely significantly on elastic revenue sources—taxes and fees that are likely to bring in much less revenue during the pandemic due to increased unemployment and business closures.
  • The Earned Income Tax (EIT) is perhaps the most critical form of elastic tax revenue for municipalities in the region.

Read the full report here