2008 offers key lessons for COVID recession

Austerity and budget cuts are not the best response to a recession

By Gus Vallejo

COVID 19 is a once in a century pandemic. Yet we don’t need to look back a century for clues on how local governments should address the recession and budget strain it has spawned.

When the economy crashed in 2008, Bay Area governments almost universally embraced austerity. Without cash reserves to plug budget gaps, 17,500 public service jobs were slashed. Those who were left to fill potholes, provide job training, housing and public assistance services, and so many other vital functions faced furloughs, wage stagnation, and benefit cuts. Open positions were deliberately left vacant in an effort to control the rising tide of red ink.

New research shows that the effect of these drastic measures continue to be felt.

For example, before COVID 19 emerged as a threat, the Bay Area’s public service employment had still not recovered to 2007 levels. To put a fine point on it, just prior to the onset of a global pandemic that is disproportionately killing low income people who are more likely to rely on public services, Contra Costa County had over 1,000 unfilled vacancies in health services alone.

There are stories like this across our region. But the bottom line is that however well-intentioned, the consequences of decisions made during the Great Recession are still being felt today.

While austerity allowed the municipal governments of San Jose, Oakland, San Francisco, Santa Clara County and Contra Costa County to build a combined $3.6 billion in rainy day cash reserves, there was no real effort to fully restore public services. Similar patterns nationally have led some economists to conclude that Great Recession era cuts cost the U.S. economy 2.3 million jobs, half of them in the private sector.

As a result, GDP growth during the last recovery outpaced public service revenue growth by more than two to one. And by leaving in place a municipal financing model that is heavily reliant on sales and use taxes—local politicians left communities unprotected from an economic shutdown event like COVID 19.

Now, four months into a pandemic, we have lost 125,000 American lives and tens of millions of Americans have lost their jobs. Growing ranks of the economically displaced are in need of woefully under-staffed public services, and overwhelmed city and county departments are now bracing the prospect of yet another round of cuts.

But should they have to?

The COVID 19 recession differs from its 2008 predecessor in a very important respect—the source. In 2008, it was the purely economic disruption of a global financial meltdown that cratered the economy. This year, it was a non-economic public health crisis. If anything, this important distinction creates the possibility of a more expeditious recovery when the pandemic finally subsides.

And the $3.6 billion that local governments have built in cash reserves, as well as additional support from the federal government should be seen as tools to minimize the near-term damage.

Longer term, the lesson from 2008 is fixing our municipal funding model. A solution is already on the November ballot. By closing a loophole that allows large commercial property owners to avoid paying their fair share of taxes, the Schools and Communities First Act will generate $4.2 billion for bay area governments in 2021-2022, and $27 billion over the next decade. It will mean more resilient public services in any economic contingency.

It is said that those who fail to learn from history are doomed to repeat it. Now is the time for us to look objectively at how we got from 2008 to COVID 19, and to take the steps that are necessary to recession proof our public services and ensure they are available when our communities need them the most.

Gus Vallejo is an Information Systems Business Analyst at the City College of San Francisco and the President of IFPTE Local 21, which represents more than 11,000 public service workers across the Bay Area, including nearly 6,000 in the City and County of San Francisco.

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