Greising: Trying to Measure Depth of COVID Hole With No Yardsticks
BGA President David Greising writes a regular column for Crain's Chicago Business.
Mayor Lori Lightfoot has made it clear that protecting lives is a consuming passion as she leads Chicago through the COVID-19 pandemic. Behind that all-important purpose, keeping the city solvent is a high purpose, too.
Protecting Chicago's fiscal health is a big undertaking even in typical times. There's a reason Chicago's credit rating has hovered at or near "junk" status in recent years. And Moody's last year called Chicago and Detroit the two cities in the country least prepared for a recession.
There are recessions, and there are—whatever is happening to the economy right now. Two straight weeks with 6.6 million new jobless claims nationwide. A virtual shutdown in travel; very little trade. Stay-at-home orders affecting 95 percent of the U.S. population.
Chicago is getting hit hard: The $1.56 billion Lightfoot expects in federal aid is targeted chiefly at reimbursing losses arising from coronavirus. The mayor is pushing to get through this without city layoffs—and counting on spending by 30,000 city workers to be a factor in recovery.
Fortunately for Lightfoot, her economic team—headed by Chief Financial Officer Jennie Huang Bennett and Budget Director Susie Park—had a head start on coronavirus. Late last year, they conducted planning for varying degrees of economic crisis.
The worst-case scenario for at least some parts of city government, Bennett says in an interview, was this: "What happens if we get no revenues for a certain period of time?"
That may have sounded extreme then. These days, it's closer to a description of what is happening in certain areas.
In the weeks since coronavirus hit the U.S., last year's planning work is coming in handy. "If we hadn't had that in place, it would have been difficult to do some of the analysis we need now," Park says.
Lightfoot in a press call April 9 said the earliest days of the COVID-19 outbreak had her spending considerable time comparing notes with counterparts in Los Angeles, San Francisco, Seattle and New York City. She was looking for comparables as Chicago's case count climbed.
Likewise, Bennett and Park turned to reliable sources: contacts at the Federal Reserve, the big banks, the credit rating agencies and the global Organization for Economic Cooperation & Development.
Despite the helpful data, it still is too early to estimate the impact on Chicago from the looming recession. Meanwhile, the city is busy managing cash flow—making certain to collect every dollar available and minimizing losses. One tricky big-ticket item: leases at the airports. Negotiations with the airlines are never easy, and the city today is negotiating with airlines to collect those payments, even though very few passengers are coming and going.
Lightfoot in her press call referred to a "yin and yang," saying that many revenues are down from, say, restaurants and entertainment, but they're up in other places. Revenues from the city's "cloud tax," levied on streaming services, are zooming.
Federal spending will make up for some of the lost revenue. The $470 million to Chicago from the federal Coronavirus Relief Fund is the biggest single item. But most of the money from Uncle Sam is intended to cover COVID-19-related costs. Its net economic impact may be limited.
And despite the efforts by Park, Bennett and others to plan and respond, there still are some big unknowns. The Federal Aviation Administration has allocated $10 billion for airports, but the city doesn't yet know how much O'Hare and Midway will get.
In their effort to project forward, Park and Bennett have looked back, digging up revenue and expense data from past economic shocks. The 9/11 attacks and the SARS pandemic—a respiratory disease that in 2003 affected 26 countries, including the U.S.—were not very instructive. Chicago's diverse economy was resistant to both.
But the Great Recession, which finally ended in 2009, hit Chicago hard, and Park and Bennett are worried this one could have similar effects. "We're taking that experience and adjusting it for what we're looking at now," Bennett says.
The data is murky enough, and the course of the disease so unknowable, that no one quite yet knows what exactly we're looking at.