COIVD-19 & Cities: How are they coping?

Recap by Carly Berke

On Wednesday, April 15^th, 2020, the Initiative on Cities held a webinar that examined the effects that COVID-19 is having on cities bearing the brunt of the public health and economic crisis triggered by the global pandemic. IOC Director Graham Wilson was joined by Katherine Levine Einstein, Assistant Professor of Political Science and Faculty Fellow at the IOC, and Bruce Katz, Founding Director of Nowak Metro Finance Lab at Drexel University and Distinguished Fellow at the Lindy Institute for Urban Innovation.

“Governors and mayors are required to fill a leadership gap that has otherwise existed in the political system,” opened Wilson. “This crisis has two dimensions: public health, questions of life and death, [the] other is economic consequences of crisis and economic crises that are endangering livelihoods and wellbeing of citizens.”

Einstein began by reaffirming the significance of the gap between federal and local responses to COVID-19, explaining that while there hasn’t been a strong and centralized response from the federal government, state and local governments have stepped up with aggressive policy responses across a wide domain. Governors, courts, city councilors, mayors, and a variety of state and local offices across both parties are working hard to formulate policy responses on several different fronts.

Einstein and her colleagues study local governments’ response by documenting when leaders started to pay attention to COVID-19. They scraped tweets from the nation’s largest cities to determine when they started speaking about COVID-19 and its impact on their community. Einstein noted that a sizable cluster of mayors started tweeting about COVID-19 as early as January and February, well in advance of when national leaders were treating it as a serious public health and economic crisis worth an aggressive policy response.

While the federal government was delayed in their response, governors, mayors, and other state and local leaders began to formulate their response: issuing shelter-in-place orders or declarations of emergency, closing down non-essential businesses, regulating restaurants and grocery stores, limiting evictions and foreclosures, and providing housing relief and support. A disparate group of political actors worked across offices and party lines, from city councillors negotiating with housing courts, to mayors working with sheriffs.

“This is requiring a variety of different local and state officials to work together to address this crisis,” said Einstein. “Not one type of official governance approach.”

She then dove deeper into the crisis that COVID-19 has triggered for homeowners and renters, who face eviction, foreclosure, rent and mortgage payments, and property taxes—all burdens that state and local governments are tasked with the huge responsibility of relieving.

Einstein and her colleague, Maxwell Palmer, an Assistant Professor in the Department of Political Science and a co-principal investigator of the Menino Survey of Mayors, collected information from the 50 largest cities in the United States to document if they had engaged in any sort of eviction protection, rent relief, foreclosure protection, mortgage relief, or property tax relief. The resulting data set captured either when local governments took action before the state government in implementing policy, or when local governments provide more generous support than state government.

They found that a large number of local governments are taking the lead in eviction bans—over 60% of the nation’s 50 largest cities have passed some form of moratorium on evictions that happened either in advance of their state government or goes beyond what their state government has mandated. Over a quarter of cities have provided some form of rent relief, like temporarily banning rent increases, while others have provided generous sources of funding for those who are income eligible to apply to support their rent; still others have implemented lottery-based programs for rent relief. A smaller share of cities are delaying property taxes and providing mortgage relief.

Einstein highlighted Oakland in particular as a city that has taken a rapid and aggressive response to COVID-19. The city has limited rent hikes during the outbreak; landlords cannot raise rents by more than 3.5% through June 30th. Evictions are banned through May 31st, which continues into June if tenants are unable to pay rent due to a financial hardship caused by COVID-19. Oakland has also issued a ban on late fees for rent payments that are missed as a result of health problems or unemployment from COVID-19. Einstein also noted that while these responses are aggressive, what remains true of almost every government is that rent freezes do not signify complete rent forgiveness—renters must still pay back the full rent to landlords, although slow repayment can never be used as a grounds for eviction.

Einstein also gave a brief overview of Boston’s own response to COVID-19. Boston is one of the few cities to set aside money for both renters and homeowners. It has created a $3 million fund to help Bostonians pay rent, and income eligible tenants at risk of losing rental housing can apply to the fund and receive up to $4,000 in assistance. 

The fund is managed by both the city government’s Office Of Housing Stability and local nonprofits, Metro Housing Boston and Neighborhood of Affordable Housing. In this sense Boston has taken a public-private partnership approach to its COVID-19 response, working jointly with the nonprofit community and the private sector to provide relief for Bostonians. Other rental protections Boston has issued include urging local housing courts to ban evictions as early as the beginning of march. The Boston Housing Authority has stopped pursuing all non-essential evictions and has been working with Boston Public Schools to create a partnership to house up to 1,000 student families at risk of displacement over the next year. Boston is also one of the only cities in the country to offer mortgage relief; 12 of the largest lenders in Boston will offer at least three months of deferred mortgage payments for those financially impacted by the public health crisis. These lenders will also not charge late fees nor report non-payments to the credit bureau, and homeowners will not be required to pay back deferred payments in a lump sum.

Einstein emphasized her excitement at the urgency and commitment to policy activism at lower levels of government, and she reiterated that complex partnerships have developed as a result of local and regional coordination. But despite the lead that local and state governments have taken in response to COVID-19, the response thus far has faced many challenges. Conflict has arisen between local and state governments that tout ideological differences, as governors have fought back against mayors who want more aggressive measures and shelter-in-place orders. Above all, local and state governments are limited by a lack of coordination from the federal government.

“[Local and state government leaders] can do a lot, but they could also do a lot more with support from higher levels of government,” said Einstein.

At the same time, Einstein acknowledged that putting together rent relief packages is an enormous privilege for some cities. Based on the structural inequalities both between and within cities, some don’t have the resources to provide financial relief for renters and homeowners. Eviction moratoriums and bans on rent increases are more feasible in the short run because they are inexpensive to implement and don’t require multimillion dollar relief packages. Moreover, local and regional government response must recognize the disparities between neighborhoods within cities; while wealthier communities are isolated, the effects of COVID-19 are felt hardest in clusters based on racial and economic disparity gaps.

Bruce Katz built upon Einstein’s presentation by exploring the threat small businesses face from COVID-19 and the difference in the response that cities have taken to help support small businesses compared to the federal government.

“Going back to early March, a number of cities began to realize this economic shutdown was going to have devastating effects on their small business,” said Katz. “And they realized this was not going to be a typical kind of natural disaster, like a weather event, which is geographically contained and time limited.”

Instead, COVID-19 has created a hurricane that is raging across the U.S. and has no definite end in sight. Katz emphasized that thousands of small businesses, particularly sole proprietorships and those between 0 and 20 employees, are particularly vulnerable to economic shutdowns. “Main street” businesses, and in particular food and beverage businesses, have little cash reserves and will have a harder time rebounding from the economic crisis triggered by COVID-19. 

Cities hit early on by COVID-19, such as Seattle, San Francisco, and New York, were the first to establish local relief funds. As the weeks progressed and the crisis intensified, dozens of other cities began to join them as the federal government’s response was slow and forestalled. “Relief funds are not uniform by any stretch,” said Katz. “They reflect the fact that cities are not governments, they’re networks.”

To demonstrate the diversity in relief funds size and structure, he pointed out a few examples: some are formed by municipal governments, like in Birmingham, Alabama; others are formed by local authorities, like the Erie County Gaming Revenue Authority; or by philanthropies, like the New Haven Community Foundation; still others are formed by business chambers, like the Indianapolis Chamber; and some by local national and financial institutions, like Goldman Sachs. Notably, Goldman Sachs has committed $10 million for loans for small businesses in Rhode Island through a partnership with the Rhode Island Commerce Corporation and the Community Reinvestment Fund, the largest non-profit, non-bank Small Business Association 7(a) lender in the country. Applications opened the week of April 13 and the fund was oversubscribed within hours. 

These local funds, as Katz explained, have certain characteristics that are critical to the nature of the crisis and its impact on small business. Federal relief comes from funding like the SBA Paycheck Protection Program or Injury Disaster Loans, which typically benefit businesses that already have established banking relationships. Local and state funds, on the other hand, target microbusinesses, particularly black- and brown-owned businesses that don’t have traditional banking relationships and are self-funded in many respects.

These local funds, focused on microbusinesses, activate several networks within a city. While a fund might be administered by one sector, such as the government or a public authority, it may actually be distributing capital that has been invested or donated by another sector. Funds might use community finance development institutions as fiscal agents to distribute funds, whether grants or loans, and will use the entire network to communicate the existence of funds and provide technical assistance so small funds can be used.

This is where the impact of these local funds differ from federal: Federal funds typically operate vertically, using traditional financial institutions, and thus are only available to businesses with banking relationships. Katz argued that we haven’t really activated all the distribution channels or capacity of the country to respond to this crisis. Moving forward, Katz claimed that once cities begin to innovate, either on the housing side or small business side, city networks will keep a close eye on each other and follow suit. In the past few weeks, Katz and his colleagues have codified different relief funds, providing documentation on their website to enable speedy replication and adaptation across the country. 

When asked if rent help is available for small business establishments through the federal government, Katz explained that the first line of defense for many small businesses are landowners and landlords—which in turn are small businesses themselves—causing the small business ecosystem to experience a domino effect. The federal government is using the Paycheck Protection Program to help businesses maintain their payrolls, but local programs tend to be more flexible because they’re listening more closely to their small businesses, who are indicating they’ve already laid off or furloughed most of their employees.

In the end, however, he admitted that big capital from the national government is absolutely necessary, which is why he developed a “Main Street Emergency Act”, which would be parallel to the Small Business Administration loan system and call for $50 billion allocated in direct assistance to cities, counties, and states so they can build up their relief funds and target underserved businesses and communities. A bipartisan bill is expected to be introduced in the Senate in the coming weeks by Senator Cory Booker (D-NJ) and Senator Steve Daines (R-MT).

“My hope is that in the next week, if not sooner, this becomes a new vehicle/distribution channel, so that small businesses, particularly those with less than 20 employees and those located in low income communities, can begin to receive capital that’s more fit for purpose,” said Katz of his Main Street Emergency Act. “That’s not just administered by large, distant banks that just don’t have relationships and don’t have the trust relationship with many of these small businesses.”

Katz stressed the importance of acting quickly. He noted that many small businesses have less than two weeks of cash on reserve; some have up to a month. He fears we are at risk of losing 30-50% of small businesses, which will heighten the challenge facing cities looking to rebound and rebuild from the crisis.

Katz predicts cities will begin to innovate new business models as small businesses fail to quickly bounce back, considering their ability to raise capital is hampered after the crisis. When asked the nature of these new business models, Katz acknowledged the threat of replacement with large corporate chains. He reminded that while low income communities have been victim to the invasion of parasitic capital and low-quality big-box retail, the vibrant commercial corridors that some urban communities enjoyed 50 years ago haven’t been lost. Many of the hardest-hit communities during the 2008 financial crisis still haven’t recovered from the decimation of their local commerce, and Katz fears that this crisis too will result in large capital crushing small business with a larger portion of commerce controlled by big-box retail causing income to be extracted and sent elsewhere.

He believes the restoration of Main Street businesses will arise with new collective business models for Main Street and commercial corridors, where a master platform or mediator will be needed, in addition to new financial models and legal mechanisms. He pointed to models already used in Europe and some parts of the United States, where a foundational organization serves multiple purposes and communities invest in cooperative bank financing. He particularly emphasized that these are capitalistic business models, but that there is an important distinction between individualistic capitalism and collective capitalism. These new models will require new financial models and legal mechanisms. He urged that these new business models are necessary to continue patterns of urban development that have emerged in the past few years, where small businesses, especially black and brown-owned businesses, were starting to make progress and grow in size and scale.

“The more small businesses we lose, particularly main street businesses, the harder it is going to be to rebuild those portions of our cities—our commercial corners, Main Streets, Downtowns, anchor institutions,” said Katz. “It will take not just some time to rebuild and recover, but it will also take different business models. This country has a complicated economy where one size doesn’t fit all, and we should be activating as many of these channels as possible.”  

Einstein and Katz explored other issues facing cities during the Q&A, when they were asked about the impact that losing local tax bases will have on cities. Einstein explained that this fear is the reason cities are relatively reluctant to provide property tax relief. A small share of cities are delaying property tax payments, but a large number are worried about their future revenue streams and cannot afford to delay property taxes. Katz said the federal government will have to step in, as the impact on revenue bases will lead to several years of fiscal hardship for cities like Detroit, which has an enormous loss of income stream from the casino sector. Washington is currently debating how much and when the federal government should provide fiscal relief to localities, and the numbers are a point of contention amongst lawmakers and government officials.

They both agreed that a long term impact of COVID-19 will be behavioral changes in cities as urban residents change their behaviors and avoid congregating in large groups. High density housing and public transit will also be affected, and there is a newfound need to invest in high speed internet for remote work. Moreover, bringing millions back into the workforce will require job retraining and many will be forced to return to school. Above all, cities need to form strong and resilient networks and the country must focus on institutional transformation. Public, private, civic, and community engagement is critical to coalesce city networks and lead effectively. Regional cooperation and durable regional partnerships between local government and nonprofit networks is also necessary.

Katz concluded that the crisis has exposed how much our safety net has been shredded and how much the public sector has been degraded at all levels, as well as deep racial, ethnic, and geographic disparities in income, wealth and public health. “We’ve always talked so much about seeing the country live paycheck to paycheck. We now see the consequences of that.”