COVID-19 has turned Memphis and Shelby County into a place we barely recognize.
All of us will deal with its aftermath and how long that will take is as difficult to predict as how long the disease will disrupt our lives.
It will also produce a major disruption to City of Memphis government.
The closing of all entertainment venues will hit its budget with the impact of a torpedo. That’s because city government’s second largest source of revenues – after property taxes – is sales taxes, and consumer spending will be severely constrained.
It’s clear the current coronavirus containment and mitigation are highly likely to continue at least through the end of government’s fiscal year, which ends June 30. If the announced closings continue until the end of the budget year, it won’t be surprising if City of Memphis loses as much as half of its sales taxes in that period – $27 million.
If it continues into the new fiscal year, beginning July 1, the loss in sales taxes could be about $7.5 million a month.
Even if bars, restaurants, movie theaters, trampoline parks, gyms, and other entertainment venues open then, consumer spending is likely to remain weak, as thousands of Memphians have stretched budgets for weeks to pay expenses. When they do get back to work, especially hard-hit workers at bars and restaurants, they will be playing catch-up after months of financial struggles without a job.
A $1,200 check for every adult and $500 for every child in households with a median family income of less than $75000 is welcome, but essentially is a band-aid for too many people whose budgets need surgery.
If the stimulus payments are passed by Congress (and excuse our rough math), it would result in payments of about $777 million to Memphians.
It’s a welcome injection of money into Memphis, but with a $65 billion GDP, it is less than 2%.
That doesn’t mean that the ripples of the economic recession unleashed by the coronavirus won’t be felt by all of us, particularly if the Great Recession of 2008 is any indication. No city in the mainland U.S. took longer to recover – almost 10 years. Companies’ employment was slow to get back to pre-Recession levels, slow to make investments, and incomes were slow to increase.
Finally, in 2017, Memphis caught up with other American cities and was making progress, and by last year, the new momentum became a campaign mantra for Memphis Mayor Jim Strickland taken up by the news media.
The economic collapse of the stock market may dry up investment capital at least in the short-term and call projects into question like the Loew’s Hotel, expansion of the Sheraton Hotel, the 2,000 hotel rooms in the downtown and midtown boom, $1.1 billion plans for the Pinch Historic District (which raised its own questions when the economy was stronger), and 3,000 new apartments in the pipeline for downtown.
Despite all the boasting about momentum and how Memphis development had reached $15 billion, there was of course no slowdown in tax breaks although most development did not receive one. However, even with the economy supposedly running on all cylinders, tax breaks became larger and longer, and compared to other cities, Memphis’ tax holidays for developers and companies become even more excessive.
In the wake of the coronavirus, Memphis will need to develop some innovative tools to support economic growth, understanding there are macro issues beyond local control. Resorting to the same thinking that has failed to significantly move Memphis’ key economic indicators in the past decade are most likely to fail in encouraging the economic rebound the city will be needing.
The coming months may well reveal the structural weaknesses in our economy just as they did in 2008.
Hopefully, this time, we will use it as a wake-up call to improve the fundamentals of the local economy rather than returning to business as usual and failing to transition from a 1990s workforce to one that is competitive in a higher skilled economy characterized by innovation and technology.
As they say, a crisis is a terrible thing to waste.
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