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Kansas City Braces for Big Financial Blow From Pandemic

Job Losses, Reliance on Earnings Tax, Make City Particularly Vulnerable

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Above image credit: Kansas City skyline. (Contributed | Mark Stacey)

A recession sucks the joy out of a city.

Shops and restaurants close. Buildings turn shabby. Rebirths of old neighborhoods screech to a halt. Plans for new housing, streetcar expansions, bike trails and park improvements go dormant.

A new analysis predicts that Kansas City may experience those scenarios sooner than most other places as the widespread disruptions caused by the COVID-19 pandemic continue. 

“After less than a month of shelter-at-home edicts, it’s clear that retail sales have plummeted and unemployment is skyrocketing,” authors Michael A. Pagano and Christiana K. McFarland write in the Brookings Institution’s blog, The Avenue.

In just four weeks, 22 million Americans — including more than 480,000 in Missouri and Kansas — have filed first-time unemployment claims, effectively wiping out all of the job gains since the financial crisis of 2008. On Tuesday, the International Monetary Fund predicted that the pandemic will likely cause the worst global recession since the Great Depression.


Weekly Unemployment Claims


source: tradingeconomics.com

“A city that generates the majority of its revenue from sales or income taxes will be hit hard and immediately when it experiences such consumer declines and job losses,” note Pagano and McFarland in the Brookings blog.

Kansas City doesn’t have an income tax, but roughly 45 percent of its general fund revenue comes from a 1 percent tax on earnings both from city residents and people who work in the city but live elsewhere. Money from the general fund pays for police and fire protection, trash pickup and other services that directly affect the lives of residents.

Basic services are also funded with taxes on money that people pay to eat at restaurants and use hotels and motels — activities that have hit the skids. 

And Kansas City also relies heavily on revenues from a collection of sales taxes earmarked for specific purposes.

The Brookings authors describe all of those taxes as “elastic” revenue sources, meaning they respond more quickly to circumstances than the property tax — upon which cities in some regions of the United States lean on more heavily.

Brookings researchers also describe Kansas City as having a “vulnerable economic composition” because 15.6 percent — or more than 163,000 — of the region’s jobs are considered high risk under the current conditions. Overall, the study estimates that 16.5 percent — or 24.2 million — of all jobs nationwide are at high risk.

Map of metropolitan areas with high risk industries during the COVID-19 pandemic.

After factoring in the at-risk job percentage and the reliance on elastic revenue sources, Brookings researchers ranked Kansas City as the nation’s 17th most likely among 140 cities it analyzed to experience immediate adverse impacts from the COVID-19 shutdown.

“We’re getting ready for a fiscal calamity,” Mayor Quinton Lucas said. “I think that’s what the national indicators are suggesting.”

Lucas said he hadn’t seen the Brookings report, but empty streets at rush hours and idle businesses are ominous signs. 

Quinton Lucas
Kansas City Mayor Quinton Lucas.

“I think there will be a longer recovery that anyone’s imagining, even with people going out to restaurants and things,” he said. “You know, that nice dinner at a cool, crowded place after a show at the Music Hall — that might take a little longer than we’re thinking.”

The city has frozen hiring and professional service contracts and is even saving money by not turning on its iconic fountains as early as usual, Lucas said.

As things get worse, the mayor said his priorities will be to protect the jobs of city workers and basic services, like police protection and street maintenance. Non-essential projects, such as a proposed new parking garage at Barney Allis Plaza, may have to wait. 

Recessions are defined not only by how quickly the bottom falls out, but how rapidly a region climbs out of the depths.

Kansas City budget planner Scott Huizenga had a somewhat more optimistic view than the mayor. He said he thought the city could rebound fairly quickly from the initial steep losses caused by Lucas’s emergency stay-at-home order. But he added that the model forecast prepared by the city Finance Department anticipates a “modest recession” for a couple of years, as revenues from the earnings tax, sales taxes and — especially — convention and tourism taxes take a sustained hit.

Frank Lenk, director of research services for the Mid-America Regional Council, said he had read the Brookings report and basically agreed with its findings. 

Regional economies usually experience ripple effects when governments are forced to cut back, Lenk said.

“This is what makes recessions so hard to get out of,” Lenk said. “They cut back and people lose their jobs. Then there’s even less spending, and more people lose their jobs.”

Lenk, who prepares the region’s annual economic forecast for the Greater Kansas City Chamber of Commerce, said the shocking fallout from the COVID-19 pandemic made it almost impossible to predict what will come next.

“This is unprecedented,” he said. “Never have we lost so many jobs so fast. And never have we had as big a federal response, both from the (federal) reserve bank and from the federal government. It’s hard to know how it will balance out.”


Interactive COVID-19 Case Mapper


The city could get a big bounce, Lucas said, if the federal government would deliver on its long-promised infrastructure initiative. “I think people on the right and the left support it,” he said. “A public works stimulus would be an outstanding opportunity for us.”

The exposure of city revenue sources to a sudden economic downtown also could prompt a discussion about the city’s tax structure.

“It probably will, at least some,” Lenk said. “But I also know that people hate the property tax, which is the other way that cities fund services.” 

The Brookings report didn’t say that cities with high property taxes would escape economic grief — only that it will take longer to feel it.

“Over time, as rising unemployment dampens real estate demand, even these property-tax dependent cities will feel COVID-19’s impact,” the authors said.

Lucas, who took office last August, said he was prepared to deal with tough issues like violent crime, crumbling roads and high water rates.

“I thought that would be the work of my term or two,” he said. “I don’t think any new mayor expects to deal with a pandemic the likes of which we haven’t seen since the Spanish flu outbreak of a hundred years ago and a recession which, depending on your prediction, is either like the one 10 years ago or the one 90 years ago with the Great Depression.”

Still, Lucas said, you deal with what you’re handed. “We prepare for things in life and we’re trying to get as ready as we can for a sustained economic challenge.”

KCPT is committed to serving you with high-quality information and entertainment through this challenging time. Visit kept.org/coronavirus.

Flatland contributor Barbara Shelly is a freelance writer based in Kansas City.

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