After huge pandemic losses, governments see rapid rebound

State and local governments lost at least $117 billion of expected revenue early in the pandemic, according to an Associated Press analysis, but many are now awash in record amounts of money, boosted partly by federal aid.

In response to the dramatic turnaround, governors, lawmakers and local officials have proposed a surge in spending as well as a new wave of tax cuts.

“The ultimate effect of the pandemic was a net positive,” said Stephen Parker, assistant city manager for the Los Angeles suburb of Upland, where sales tax revenues are soaring. "Isn’t that unbelievable? It’s just crazy to think of that.”

Upland, a city of 79,000, was representative of many cities at the outset of the pandemic. It reported an estimated loss of nearly $6.1 million in 2020 — the result of a steep but short-lived national recession and what Parker describes as a “generous” Treasury Department method for calculating losses. That figure was the median amount among more than 900 cities that reported their revenues to the department under the American Rescue Plan Act.

Upland’s financial situation turned around even before the end of 2020, Parker said. Federal COVID-19 stimulus checks played a role. So did a shift in consumer spending to goods instead of services. That lifted city revenues, Parker said, because services often are exempt from sales taxes, while goods are not.

The pandemic relief law championed by Democrats and signed by President Joe Biden last March included $350 billion in aid to states and local governments. The Treasury Department required states, counties and larger cities to file reports last year detailing their initial plans for the money. Those governments also were asked to estimate their losses for 2020 by comparing actual revenue to expected revenue under a...