Thursday, June 25, 2020

What effects might the "Great Cessation" have on North Carolina's counties?

By Whitney Manzo

“Doggone scary” and “grim” are two ways one state lawmaker has described North Carolina’s state budget outlook after learning that we’re looking at a $4 billion shortfall during the next two years due to the economic impacts of Covid-19. The state budget director has also said North Carolina will experience a recession soon, if it isn’t already here.

But what about county budgets? After all, these local governments have arguably been even harder hit than the state, given that counties run many of the hospitals that care for Covid-19 patients and administer many of the state’s welfare programs that help families get through business closures and unemployment. Since counties run elections, too, they’ve been doing all this while trying to administer the upcoming 2020 election cycle; no small feat in a “normal” year, it’s been a nightmare trying to safely conduct representative democracy in the midst of a pandemic.

Luckily, I have a dataset that covers all 100 North Carolina counties from 2006-2018 and I can calculate what we might expect regarding county budgets by looking at what happened from 2009-2011, the years directly following the Great Recession. Because budgets are generally decided one year in advance, we must begin our analysis one year past the start of the Great Recession (some say it began in December 2007, but we’re going to just go with 2008 as the starting year).

Looking at all North Carolina counties together, from 2009 to 2010, 70% of counties experienced a decrease in their budget. Half of those were double-digit decreases. The largest cuts were experienced by Durham County, which cut its budget from the 2008-2009 fiscal year by a shocking 40%, and Iredell County, which cut its budget by 35%. This is all the more striking considering that Durham County grew by over 5,500 people in that time, and Iredell County grew by 2,300 people. So, at the same time that these counties were experiencing rapid expansion in the number of residents they need to serve, they were also drastically cutting services.

This chart shows the county budgets broken out by type: urban, suburban, and rural. Suburban county budgets were cut the most, on average 12.7%, while urban county budgets were cut the least at an average of 10.4% (which makes Durham’s giant cuts even more of an outlier). Despite the fact that urban budgets were cut less, though, they took the longest to recover to previous levels; it took 8 years for urban budgets to return to their 2009 high, while it took half that time for rural budgets and only 3 years for suburban budgets. In good news, these decreases were not compounded, despite the fact that we could reasonably expect to see effects of the Great Recession for two years; beginning in 2011, budgets were stable and suburban budgets had even begun to already bounce back.

Chart 1: County Budgets by Urban, Suburban, and Rural

Which areas of the budget were hardest hit? As this chart shows, education and health and human services spending took the greatest cuts. These are generally the largest spending areas of any county. From 2009 to 2010, health and human services spending- which includes public health clinics, child protective services, and administration of welfare programs like food stamps, Medicaid, and housing- was cut by an average of 16% across all counties in North Carolina. This is especially problematic given that these are the services many residents lean upon most in the midst of an economic downturn. Additionally, health and human services spending in North Carolina has still not returned to its 2009 high, while education spending took until 2017 to bounce back.

Chart 2: Funding Areas of County Budgets

On the other hand, public safety spending was cut by an average of 2%, while economic and physical development actually grew by 94%. This spending is dedicated to economic incentives, to attract new companies and jobs to the county, as well as construction and maintenance of public infrastructure like roads and sewage systems. This increase sounds like a lot, but remember that economic and physical development is also the smallest budget area by far. For example, in 2010 when education was experiencing large cuts, counties still spent an average of $35.5 million on education and only $3.3 million on economic and physical development.

I decided to take a closer look at Durham County, since this was the county hardest hit by the Great Recession. The following chart shows the dramatic cuts to health and human services spending in Durham. Even more striking is that this spending has never been restored- it’s as though post-recession Durham is operating under a new normal in this area, despite the fact that all other areas of Durham’s spending have returned to their previous levels (and, in the case of public safety spending, increased by 50%).

Chart 3: Durham County Annual Expenditures by Spending Type

For comparison, I also analyzed Mecklenburg County, North Carolina’s most populous county. They cut their budget by 16.5% from 2009-2010, but health and human services spending was not a target at that time; education spending took the lion’s share of the hit (33% cut). Public safety spending was also cut 11.3%. Interestingly, though, health and human services spending was cut later- beginning with a 4% cut in 2011, and an additional 16% cut in 2012. In 2013 and 2014, it was increased, and then in 2015 it was cut back down to its lowest point in a decade. Similar to Durham County, the health and human services spending in Mecklenburg now seems to operate at a new, lower normal compared to before the Great Recession, while all other areas of the budget have rebounded.

Chart 4: Mecklenburg County Annual Expenditures by Spending Type*

By request, I have updated the post to include Wake County's budget by spending type. Like Durham and Mecklenburg, education spending was hit hard- cut 29% between 2009 and 2010. However, education spending has bounced back (and then some) since. Unlike Durham and Mecklenburg, health and human services spending has not experienced huge cuts in any one year; it's been more slowly chipping away over time, losing an average of 6% each successive year.

Chart 5: Wake County Annual Expenditures by Spending Type

So what can we expect from the coming economic downturn? We will likely see most counties reduce their budgets, as we saw in 2010. Given the extreme volatility on Wall Street during the pandemic, with the Dow Jones experiencing its highest drop ever in March, some believe the “Great Cessation” may even end up worse than the Great Recession. Based on what happened in 2010, this is bad news for education and health and human services spending. While schools may actually be saving a little money during the pandemic, though (through less lighting, heating, cooling, etc.), health and human services is by necessity experiencing very high demand. Add to this the fact that since 2010 the North Carolina population has increasingly shifted away from rural areas and toward urban areas, and our largest counties are set up to struggle quite a bit for the next decade, if not longer.

*This chart and its accompanying analysis have been updated to correct for a data entry error. I apologize for any confusion.


Dr. Whitney Ross Manzo is an associate professor of political science at Meredith College and assistant director of the Meredith Poll. She tweets at @whitneymnz.