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August 25, 2020

State and Local Budgets

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Carolyn Coleman
Carolyn Coleman | Executive Director, League of California Cities
Tracy Gordon
Tracy Gordon | Senior Fellow, Urban Institute
Lois Takahashi
Lois Takahashi | Director, USC Price Sacramento

Lois Takahashi moderates a discussion on how COVID-19 is impacting state and local budgets with Tracy Gordon and Carolyn Coleman. Gordon outlines the nationwide declines in revenue are dramatic and could take up to 10 years for unemployment to fully recover. Coleman’s focus on the local picture illustrates that across the board, cities of all sizes are coming up against a variety of shortfalls in revenue and a likely reduction in services. Richard Green fields questions alongside Takahashi regarding how online retail is impacting tax revenue, how inequities are increasing during the pandemic, and the opportunities that this massive fiscal and social shakeup may provide.

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Please note this automated transcription may contain errors.

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Richard Green: Good morning, everybody. I'm Richard green I'm director of the USC Lusk Center for real estate and it's my pleasure to welcome you back to lusk perspectives. Today we are going to have a panel.

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Richard Green: On how COVID is affecting state local government finances.

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Richard Green: Which is particularly important that those of us in the real estate business because one it determines the taxes that we're going to pay, and I know people in real estate are obsessed with the taxes, they're going to pay

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Richard Green: But also, whether you're going to get the government services that you need in order for your real estate to maintain value. For example, we know school quality.

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Richard Green: Is a very important predictor of residential real estate value and so cutbacks at school spending.

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Richard Green: Can have a pretty profound effect on the real estate market. Similarly, basic services garbage collection police and fire EMT services etc do roads remain paved are pretty important to real estate valuation. And so we thought it would be worth spending an hour, focusing on this issue.

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Richard Green: We have just a great group of three people to do this I'll leading the conversation and the person will be introducing our other two panelists.

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Richard Green: Is Lois Takahashi. Lois joined us at the price school at USC about two years ago she runs our Sacramento center and is the Flournoy professor

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Richard Green: In the price school before she was here, she was at a never another very fine school located in Los Angeles, where she ran a number of things including

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Richard Green: A research center on issues facing Asian and Pacific Islanders. And what's an interesting game for a while.

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Richard Green: I say to people, it's really true. She gave about the best job talk I ever saw when she came down here to interview at USC. I just enjoyed it so much.

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Richard Green: I can't even begin to describe it. And we're really glad she's here. And so with that Lois please take it away and introduce our other panelists and

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Richard Green: Unlike any other less perspective. I'm going to disappear from view because the internet is kind of overwhelmed at the moment. So we're trying to have as few people on video as possible, but it doesn't mean I'm not with you so Lois please take it away.

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Lois Takahashi: Thank you so much. Richard Green for that really nice introduction. It's always great to have somebody up my ego right before I give a talk. So, or given introduction

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Lois Takahashi: It's my really distinct pleasure to introduce these two panels today who, as Richard green so nicely described

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Lois Takahashi: Will be talking about staying local finance issues in this coven 19 wildfire and rolling blackouts and everything else context.

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Lois Takahashi: So the structure of the webinar will be that I will introduce first the two panelists and then each will give about a five minute overview of the issues from her perspective.

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Lois Takahashi: Especially in these turbulent times and then we can move on to accomplish our conversation before taking as many questions as we can. So let me first introduce our two panelists.

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Lois Takahashi: Carolyn Coleman is executive director believe California Sydney's Liga California Cities advances policies.

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Lois Takahashi: To expand and protect local control for cities through education and advocacy to enhance the quality of life for all Californians.

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Lois Takahashi: She joined the lake California Cities in 2016 after a decade, what the National League of Cities in Washington DC as senior executive and director of federal advocacy.

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Lois Takahashi: During her tenure at the National League of Cities. She worked closely with see the Lydia's from across the country and the 49 state Minister leagues to advance federal policies that expand local control.

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Lois Takahashi: That provide funding for local programs related to housing, transportation, public safety and infrastructure.

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Lois Takahashi: Prior to working with the National League of Cities Miss Coleman served as Deputy Mayor for the City of Indianapolis, where she focused on

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Lois Takahashi: Affordable housing economic development infrastructure and community engagement. She previously practice law and held marketing leadership positions in the private sector.

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Lois Takahashi: In addition to her professional endeavors. Ms. Coleman serves on the board of trustees of the university of Indianapolis.

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Lois Takahashi: And on the deans cabinet at the McGeorge school block here in Sacramento. She is also a governor appointed to the California complete count committee and serves on the boards of the National League of Cities.

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Lois Takahashi: And the California foundation on the environment and the economy or sci fi. So welcome, Kevin Coleman, Dr. Tracy Gordon is senior fellow with the urban Brookings Tax Policy Center in Washington, DC, she studies fiscal challenges facing state and local governments.

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Lois Takahashi: Excuse me, little smoky over here.

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Lois Takahashi: Including budget trade offs in the government intergovernmental relations and long term sustainability before joining the urban Brookings Tax Policy Center.

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Lois Takahashi: She was senior economist with the White House Council of Economic Advisers

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Lois Takahashi: She was also a fellow at the Brookings Institution assistant professor at the University of Maryland School of Public Policy and fellow at the Public Policy Institute in California.

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Lois Takahashi: Dr. Gordon was a member of the District of Columbia infrastructure Task Force and the District of Columbia tax revision Commission.

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Lois Takahashi: She serves on the board of trustees for the american tax policy institute and the next national tax Association.

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Lois Takahashi: She's written extensively on state and local government finances, including taxes budgeting intergovernmental relations municipal debt and pensions.

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Lois Takahashi: She's appeared in the New York Times, Wall Street Journal and Washington Post and on C span Fox Business News and National Public Radio

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Lois Takahashi: Dr go overboard and holds a PhD in public policy with a concurrent master's degree in economics from the University of California, Berkeley, which I hear is also very good institution so Welcome to you both.

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Lois Takahashi: Let's start with Tracy Gordon, Dr. Gordon. What are your thoughts on state and local finance issues.

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Tracy Gordon: Thank you so much for having me here today. I do want to say a little bit about where I'm from, as well. I need to update that bio

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Tracy Gordon: But the Tax Policy Center is a joint urban Brookings center, as you mentioned, and I'm part of the state and local finance initiative and the

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Tracy Gordon: State, local financial finance initiative, it's really about anything having to do with revenues sending our own investing among state and local governments.

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Tracy Gordon: We come out of the tradition of the Tax Policy Center in terms of trying to

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Tracy Gordon: Look at the distribution and revenue effects of tax changes. I'm using the latest state of the art modeling techniques and we come out of the tradition of the Urban Institute in terms of trying to integrate findings from across the center for

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Tracy Gordon: Justice policy metropolitan communities policy and what all of the research in those areas of their Institute means for state and local governments.

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Tracy Gordon: So you know we are nonpartisan we provide independent objective analysis. We don't have a dog in the fight.

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Tracy Gordon: And, you know, we've been very busy lately. I love talking about state and local government. I wish it weren't under these circumstances, but I did bring a graph. So if we could get that up.

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Tracy Gordon: There we go. So I, you know, as everyone knows, the code 19 pandemic and recession have been sort of an economic asteroid that hit us.

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Tracy Gordon: For state and local governments, the initial shocks from the pandemic and recession have been worse than the initial shock from the Great Recession. So looking at three month average of state tax revenues from March, April and May.

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Tracy Gordon: Personal income tax collections declined about 40% sales tax was declined about 12% of overall taxes were down about 30% and this compares to about 30% decline.

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Tracy Gordon: For personal income taxes 9% for sales taxes about 20% for overall taxes and the Great Recession. Now I promised that I would have some ray of sunshine here because everybody was very freaked out when they saw before we started the call.

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Tracy Gordon: But some of these declines are only temporary. So the federal government when the pandemic first hit extended income tax filing deadline until July and states soon followed. So in California for example.

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Tracy Gordon: The Legislative Analyst Office kind of tracker where they posted the expected personal income tax revenues and actual personal income tax revenues in April and the governor's budget assumed

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Tracy Gordon: $18 billion and they actually got five, but that was expected because people were not filing their taxes.

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Tracy Gordon: So now that July has come and gone. People have filed their taxes. And so some of us will be me back, but of course the economy is still not looking great and so

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Tracy Gordon: There are a lot of macro economic analyses that showed the link between unemployment rates and state budgets.

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Tracy Gordon: Basically with the congressional budget office now projecting the unemployment will remain

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Tracy Gordon: Upwards of 8% by the end of next year, and in fact not regain its pre pandemic level until the end or by the end of the production period by 2030 we're still going to have elevated unemployment, although not quite the levels, we're seeing now a project.

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Tracy Gordon: So that means that the revenue picture is not going to improve dramatically for State and Local Government.

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Tracy Gordon: So you've got this revenue hit on the one hand, states are now projecting about a $200 billion cumulative loss.

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Tracy Gordon: Cities are not projecting about and that's about 11% loss compared to what they are forecasting look. Sorry. Cities are now projecting a 13% loss.

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Tracy Gordon: And then spending is going up for direct expenses, things like personal protective equipment or disinfecting public spaces are switching to remote learning

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Tracy Gordon: As well as indirect costs resulting from people accessing the safety net. More so the

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Tracy Gordon: The budget that just passed in California included projections from the governor's office that they will see something like a 50% increase in people using

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Tracy Gordon: The state's version of food stamps 20% increase in Medicaid so far. A lot of these increases in Medicaid have not come to pass, but so far. Also, people have been laid off temporarily and a lot of economists think that that is about to change. We're seeing increases in permanent unemployment.

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Tracy Gordon: So there is this very significant structural problem. There are a lot of sources of uncertainty. I don't want to mitigate that

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Tracy Gordon: The federal government has done a lot so far spending, you know, in March about 9% of revenues for a single year on these three major pieces of legislation that coffin that month alone that certainly helped prop up spending and

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Tracy Gordon: And state and local finances, initially, but as everyone probably knows we are now kind of in this waiting game to see what the federal government will do next. A lot of relief is time limited

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Tracy Gordon: Or subject to declarations of a public health emergency. And so, you know, in my view, it's not fully recognized the fiscal emergency facing state and local government.

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Lois Takahashi: Because so much

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Tracy Gordon: breath away now.

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Lois Takahashi: Paragraph. It was very scary. Um, let me turn them to Carolyn Coleman and Carolyn, what are your thoughts about staying local finance given this context that Dr. Gordon is just presented to us.

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Carolyn Coleman: Well, thank you, thank you, as well as for inviting me to join you today and it's always a pleasure to be on a panel with with Tracy, I learned something.

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Carolyn Coleman: Every time I'm going to focus quite a bit on the local the local picture and share

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Carolyn Coleman: Sort of what what cities were doing pre coated and and what has happened through cove it and and what we're focused on going, going forward, you know, if you if you wind back the clock to march 2020 which now seems like it was years ago.

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Carolyn Coleman: cities were focused on about five different things at this at the state level.

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Carolyn Coleman: In our partnership with Governor Newsome and in the legislature, we know in the state. We need to do more to produce more housing and we need to produce has and that's affordable across the income spectrum. We also as cities realized that

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Carolyn Coleman: Homelessness is top of mind for so many and we needed to continue the partnership with the state.

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Carolyn Coleman: To address homelessness in our communities. And you know what, what's a conversation without talking about the pension liability and the increasing cost of pensions for our state and also our local government. So we were interested in continuing to work with.

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Carolyn Coleman: The governor, the legislature and calipers on that issue and, you know, before CO, but there were wildfires. And we were very focused on

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Carolyn Coleman: wildfires in recent years and so cities. We're working to strengthen their resiliency, as also and also their disaster preparedness. And then finally, public safety, which is perennially top of mind.

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Carolyn Coleman: For all of us. So that's, that's how we began the year we had a very productive and candid conversation with Governor Newsome in February about all of these issues and look forward to a strong partnerships in 2020 and then in March.

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Carolyn Coleman: The brakes really hit with

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Carolyn Coleman: But governor began issuing a series of executive orders to protect the health of our residents, a local community is doing the same. We were establishing testing sites.

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Carolyn Coleman: And as, as Dr. Gordon has mentioned, we shut down our local economies and our local businesses which are the lifeline. So the revenues that cities need to operate as she has mentioned, and as you can go to the first slide.

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Carolyn Coleman: These efforts, while they have saved lives.

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Carolyn Coleman: Have resulted in

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Carolyn Coleman: Deep and devastating hits on local budgets, not just here in California.

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Carolyn Coleman: But but nationwide and you see here, just some of the headlines from the local media as well as national media talking about the impact that the coven 19 has had on state finances.

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Carolyn Coleman: In California and in other places. We now have as Tracy has mentioned significant unplanned expenditures for a pandemic that no one could have seen coming. And we're also facing due to the shutdown of our local economies.

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Carolyn Coleman: Pretty severe revenue shortfalls by our counter to the tune of $7 billion over the next 18 months for California local governments. If you go to the next slide.

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Carolyn Coleman: And to give you a sense of the revenue sources that are impacted obviously sales make up the biggest chunk of those revenues, but there are also a whole host of other revenues that have been disrupted by

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Carolyn Coleman: I mentioned sales tax is also in our state. You know, people like to visit California tourism is a primary revenue driver for our local communities.

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Carolyn Coleman: But we've seen a tremendous drop off in our hotel taxes or transients occupancy taxes so combination of a $7 billion revenue shortfall and millions of dollars in unplanned expenses.

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Carolyn Coleman: Mean shortfalls and budgets and when we have shortfalls and budgets, we have to cut services, unlike the federal government, local governments have to balance their budget. Next slide please. And this will give you just a sense of

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Carolyn Coleman: What kinds of services at the local level will be impacted the first let, let me say this, this data that you're seeing. We went out in in

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Carolyn Coleman: April very early on we wanted to get a sense of the fiscal impact. And we also wanted to get a sense at how quickly this impact would be felt at the local, local level.

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Carolyn Coleman: And show the results of our surveys. This is what our cities told us, and I can tell you that nine in 10 cities or local governments.

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Carolyn Coleman: Are projecting that they will have to either cut services or cut staff because of the budget shortfalls and then four and five of our cities.

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Carolyn Coleman: Are saying they're going to have to do some combination of both. I think what's so important about this slide.

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Carolyn Coleman: Is that you know there are 482 cities in California, obviously, with different population sizes, but what this slide shows is that

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Carolyn Coleman: No community is being spared and no part of the state is being spared when it comes to budget shortfalls meaning we're going to have to cut back

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Carolyn Coleman: And services, Richard in his opening remarks, talk a little bit about the importance of a local government, being able to provide services like police and fire like trash pickup.

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Carolyn Coleman: Like addressing homelessness like permitting and inspections so houses can get built all of those are central to the quality of life in a community.

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Carolyn Coleman: But the impact of code has been fast and it's been deep and what we will soon be seeing our cutbacks in in all of these in all of these services.

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Carolyn Coleman: But all it is.

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Carolyn Coleman: You know, we're not we're not giving up as cities we have been lobbying the state government for fiscal assistance and we greatly appreciate

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Carolyn Coleman: The Federal cares X dollars that went directly to the top six cities in California that will go a long way to helping offset expenses.

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Carolyn Coleman: We also greatly appreciated the $500 million that Governor Newsome in the legislature sent to those communities that were smaller than 500,000 in population.

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Carolyn Coleman: There's resources are great, but they don't begin to still be the type of budget shortfalls that you see in the slides.

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Carolyn Coleman: And also very importantly, those dollars coming from the federal government through the cares act. Well, welcome. We're restricted to can only be used to offset expenses.

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Carolyn Coleman: They cannot be used to offset the revenue shortfalls. So those shortfalls overall continue for our cities and we are continuing to work.

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Carolyn Coleman: Very hard at the state level to request additional assistance and also like governor Newsome in the legislature and so many others.

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Carolyn Coleman: Local governments around the country are also still seeking and urging the federal government and Congress and the President to look at a fourth stimulus and to include

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Carolyn Coleman: Resources that would help local governments not only offset these unplanned expenses that will go on until the foreseeable future.

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Carolyn Coleman: But also to help us offset the big revenue shortfalls, you know, at the end of the day, cities are an essential partner in the recovery in this country.

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Carolyn Coleman: And so I say the state and I say, the Fed as we transition to reopening our economy safely and recovering from the pandemic and the recession that investments in our local communities ought to be top of mind. So thank you both. I look forward to the questions and the conversation.

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Lois Takahashi: Before we start the conversation. Dr. Warren, do you have any comments on

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Lois Takahashi: What Carolyn Coleman is just talked about in terms of federal stimulus.

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Tracy Gordon: Yes, I do.

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Tracy Gordon: So the, the Cures Act. And I think there's been a lot in the news lately about

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Tracy Gordon: The Treasury Department had a report that said something like 25% of those funds about 150 billion dollars have been spent, and therefore those funds were available for a supplemental unemployment benefit that the President

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Tracy Gordon: Created through a presidential memorandum, the State Association of budget offers officers quickly pointed out that even if Steve hadn't actually gotten that money out the door, yet they had

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Tracy Gordon: Appropriated it or plan to spend it for various things. And so, you know, on the one hand, the Treasury Department, actually, they've changed their guidance several times on how to use the curious funds, they've taken a

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Tracy Gordon: More open view of what counts as a direct expense. It's really open. So things like switching to remote learning

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Tracy Gordon: You know, I think there's even some guidance and said okay, really any payroll that's associated with public safety, public education. It's all good. But that's for this year.

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Tracy Gordon: It runs out at the end of this year. And I think there's some talk on they call it Carolyn me know better than I, about extending the period during which you could use the carrier's funds, but it's still only $50 billion, which is insufficient to the challenge that we're facing.

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Tracy Gordon: You know, I saw. Yeah, I'll let us get to questions and we can discuss that a little bit more

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Lois Takahashi: Um, so before we get to the questions. Let me ask you about these these cliffs, we've been hearing so much about, you know, when some of these stimulus.

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Lois Takahashi: Funds run out or and some of these more Turia get lifted, people are projecting addiction cliffs, all kinds of

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Lois Takahashi: Even more horrible things happening I'm Carolyn Coleman. What's your sense about these cliffs, how quickly they would happen. The sequence of them and how how up differentially they would affect different cities across the state of California.

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Carolyn Coleman: Yeah, I think, I think last the cliffs are real and and two of them.

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Carolyn Coleman: Are on my mind. One is the has to do with the eviction moratorium, I think the State move pretty quickly and some local governments move very quickly last spring.

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Carolyn Coleman: To put those in place RECOGNIZING THAT WHEN ECONOMIES got shut down and then people were or load and so their finances were also being disrupted the same way, frankly, local government and state government was, I believe, in California, the eviction moratorium runs through September 2

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Carolyn Coleman: I know that the the administration, the governor and legislators legislators are looking at that very closely, some options to to extend that

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Carolyn Coleman: And we are very anxious to hear about the fruit of those talks, and I know a number of communities also still have moratoriums in place.

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Carolyn Coleman: You know having, having the eviction moratorium listed and having folks lose their housing at a point in time where, you know, we cannot mass Kongregate so the normal safe safety net shelter system, if you will, although not perfect isn't going to be available. So, you know, the

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Carolyn Coleman: Good thing we could do is to help folks stay in place while we manage through this, but I also recognize that

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Carolyn Coleman: You know you have landlords involved, who also have an interest. They might have mortgages that they're trying to play. I believe there's a federal

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Carolyn Coleman: Moratorium code related that extends out for some time. That's great. If it's a federally insured mortgage

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Carolyn Coleman: But I think there's a gap to be filled here with those mortgages that are not federally totally bad so that's that in the, in the short term, very quickly here.

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Carolyn Coleman: Is a cliff that is approaching the legislature's got a few more days.

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Carolyn Coleman: To get some work done and I hope this is something that they pay attention to the other thing I'd say about the eviction moratoriums let's not forget that, at least in state of California.

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Carolyn Coleman: People of color were disproportionately impacted from a health perspective by coven and also with the disruption in the economy and in their work, their workplaces.

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Carolyn Coleman: As we think about recovery as we think about building and reinforcing the safety net for this pandemic, which we are going to coexist with for some time now.

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Carolyn Coleman: You know, I encourage us to continue to look at equity and to look at how we do what we do with a lens of equity so that we do not further inequities that are built into the system unintentionally or not.

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Richard Green: Good, good, is just a Carolyn, a quick clarification question.

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Lois Takahashi: Of course,

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Richard Green: So your slide you had a $7 billion.

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Richard Green: shortfall for municipalities in revenue. What's the denominator. What would a normal amount of collections be any here.

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Carolyn Coleman: Oh gosh, I don't have that number, Richard.

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Carolyn Coleman: I do have, I think someone on the phone that might be able to get that answer for

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Richard Green: Okay, great, because it would be helpful to know are you about

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Richard Green: 10% or 40% basically terms of how catastrophic. This is. Yeah.

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Carolyn Coleman: Can I, can I give you just an example for first city because

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Carolyn Coleman: I know sometimes in Washington speak, you know, we talked in terms of billions and trillions of dollars, but when it really comes down to the state, you know, we're talking about a city by city basis and and the impact there. So let me give you an example of

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Carolyn Coleman: This is Santa Clara County closer to home Santa Clara County is just projecting a $285 million budget deficit Alameda County is forecasting a 10% drop in sales tax revenues from it's $3.1 million budget Oakland. An $80 million budget hole.

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Carolyn Coleman: And San Jose announced in April, that it was forecasting a $71 million deficit and it's now expected to hit

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Carolyn Coleman: 100 hundred million.

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Carolyn Coleman: And so

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Carolyn Coleman: You know, on a city by city basis is really how I think we have to have to look at these things.

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Are you

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Richard Green: I'm sorry, please.

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Tracy Gordon: Please, we'll just add one thing that I really appreciated about that chart because, again, from a sort of bird's eye view. We often focus on

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Tracy Gordon: At the local level, property taxes income taxes sales taxes, fees.

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Tracy Gordon: But these little toxins that Carolyn mentioned and it showed up in the slide the hotel occupancy tax and in transit occupancy taxes.

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Tracy Gordon: You know those are down in places like LA and New York on the order of 70 or 80%

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Tracy Gordon: So even though it's not one of the big revenue sources. One of the big pots of money nationally for certain cities, you know, the people as Carolyn mentioned like to visit.

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Tracy Gordon: It is revenue that they were expecting that it's not clear when that money is going to come back and I just, you know, honestly, I'm just not used to seeing bosses like that in the 70 to 80% category.

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Tracy Gordon: So, you know, these little, these little pots of money are meaningful and especially to the individual jurisdiction Carolyn mentioned

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Lois Takahashi: So maybe I can follow up with a question from one of our audience members about sales taxes because we've seen this rise and online shopping and a lot of these

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Lois Takahashi: Corporate success stories are all about the the pivot to online shopping. Where do all those taxes co

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Tracy Gordon: So I will again, you know, answer. Generally, and I'm sure CAROLYN HAS things to say about California specific way of being saved and local money but um

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Tracy Gordon: You know, the good news for states before this. And I also want to accentuate, you know, sort of how things looked in January, February of this year compared to march.

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Tracy Gordon: You know states went into this with their highest savings on record about 8% of spending in a given year cities to had incredibly high savings about 30% of sending which is higher than fire to the Great Recession, so

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Tracy Gordon: Again, you know, these governments didn't do anything wrong as sort of economic asteroid hit them.

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Tracy Gordon: You know, and hit these revenue sources that we mentioned as well as these spending areas, but the sort of good pieces of news prior to mark were that the Supreme Court.

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Tracy Gordon: Issued a decision, the weaker versus South Dakota decision that said that states could actually require online retailers to collect sales taxes they didn't have to. And for a long time.

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Tracy Gordon: This was was spot with the idea that it was just too complicated because

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Tracy Gordon: At the local level, they might tax different things. They might have different rates and and then at the state level, it's all different. And what is a multi jurisdiction company to do and

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Tracy Gordon: You know, of course, you know, as someone who at least used to ride taxi cabs where they have little square and other kinds of apps that

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Tracy Gordon: You know, take into account all this variation. I never quite understood why this is such an insurmountable challenge and but nevertheless, the sort of good news, going into this was that

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Tracy Gordon: You know states and localities were forecasting pretty good revenue growth in part because of that way fair decision. And if you look at consumption, that's one area where consumption has kept up so groceries, Home Depot, Lowe's

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Tracy Gordon: And and online purchases other stuff. And this is a big deal at the local level like durable goods purchases cars.

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Tracy Gordon: That is way, way down and obviously services is way, way down and you know there's a really interesting question for anybody who cares about cities.

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Tracy Gordon: A lot of high cost, you know, sort of knowledge, information centered economies.

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Tracy Gordon: Are seeing people working from home, which is great, thank goodness we found that option.

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Tracy Gordon: But also, that means that we're not going out and buying lattes and supporting local businesses and so

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Tracy Gordon: Some of the, you know, high frequency data with job listings and that sort of thing is showing that it's those, you know, high productivity high functioning metros that are actually doing the worst for most skilled workers.

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Tracy Gordon: As Carolyn mentioned. So, you know, everyone has talked about what will the shape of the recovery be will it be v. Will it be, you know, till design a 90 sign

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Tracy Gordon: The thing that's kind of stuck with me lately is this case shaped recovery, where they're going to be some types of people who are able to recover fast and some who are just really, you know, doing worse and worse and I think I agree completely. We really need to keep that front mind.

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Carolyn Coleman: If I, if I could add

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Carolyn Coleman: A fish it Tracy's comments. Now, I think, Well, I've done my share of online shopping during, during this pandemic. But I think at the end of day. What it means is there's a redistribution.

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Carolyn Coleman: Of wealth aware that revenue is going

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Carolyn Coleman: And we can't tell at this point. And if your local government, you have built a budget.

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Carolyn Coleman: Based on a revenue stream that you expected because you didn't know your businesses. We're going to shut down. And so what does it look like in

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Carolyn Coleman: You know yeah my local governments are worried, and rightfully so, about 2020 and how 2020 that's finished 2020

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Carolyn Coleman: But they're also thinking hard about what do our revenue receipts and patterns look like in 21 and 22 because we don't have the data to tell us about how you know i don't i don't talk postcode anymore. I talk

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Carolyn Coleman: Future what our world looks like how do we go back to work. Do we all come back in, probably not. It's a hybrid and that's going to impact the retail patterns that generate these these revenues.

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Lois Takahashi: So. So, Carolyn, maybe I can follow up on that a little bit. I mean, how we're cities and counties, which is not really you're kind of focused, but how are they dealing with this uncertainty in terms of planning for the budget for the next cycle because they have to plan. Don't they

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Carolyn Coleman: Yes, they've had to plan and by this point, many of them have because of their fiscal years their cycles have gone to their councils and they have budgets in place. Many of them are passionate budget today and they've agreed to take

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Carolyn Coleman: Another look six months from now, because there's such a great deal of uncertainty.

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Carolyn Coleman: In in the marketplace and in the state of are we open. Are we not open, you know, we were heading down a path of opening

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Carolyn Coleman: We had to retrench in some instances. And then we've moved out we've shifted to outdoor dining and then you have

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Carolyn Coleman: Wildfires which I know Lois you are personally familiar with. You have wildfires. And now poor air quality that is impacting the ability

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Carolyn Coleman: To to serve and to operate those businesses outside so great deal of uncertainty, but resiliency and I imagine, much like the state will be doing there will be several look back at the budget for planning purposes.

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Carolyn Coleman: Like

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Tracy Gordon: To stay at home or because I just

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Tracy Gordon: I see so much emphasis on what you know and as someone who studies federalism. I've actually found it kind of comical the way that people were sort of arguing over I get to read. Open the economy. No, I get to open the economy and at the end of the day.

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Tracy Gordon: Nobody gets to flip a switch and turn it on and if you look at the data where they've stayed home orders take effect and

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Tracy Gordon: When consumption starts to fall even in states that were relatively late adopters. People were spending less so. So even though the economy was open.

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Tracy Gordon: People were scared and they didn't want to show up. And so, you know, I think that's why you know I think we've kind of moved beyond, I hope, but it's really this false choice between

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Tracy Gordon: Containing the virus and letting the economy grow, you know, you need to contain the virus for people to feel comfortable transacting again in the marketplace.

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Lois Takahashi: And so let me let me continue that line of thinking. Dr. Gordon. So if you're the economy is doing some things and you said there, things are not all bad. We hope that some of these downward declines of temporary

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Lois Takahashi: Is there any sense about how temporary. These things are there was a question from the audience. I know we're asking you to prognosticate here and I swear, none of us will repeat anything you

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Lois Takahashi: Recorded we didn't have a question out there asking whether revenues with below. Did you say that revenues would still be low 2030 and why. Why is it taking so long.

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Lois Takahashi: Looking for some

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Lois Takahashi: Some clarity here. Can you

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Lois Takahashi: Provide us with any

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Tracy Gordon: I saw that question and I'm giving me a chance to address it because. No, I did not mean to say that revenues will be low until 2013 the CEO is forecasting that unemployment will be high until 2030 and so and not as high as it is right now.

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Tracy Gordon: But, you know, it will remain elevated until the end of next year, and definitely the next couple of years. So 2024 2025 and that will affect state and local budgets.

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Tracy Gordon: And one thing that people in the state local world love to remind people of too. Is that not only do you have

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Tracy Gordon: You know revenues coming back very slowly, but you've also lost those years of growth in between. And so, you know, just prior to this, people are talking about, you know, the last decade of the great recession that

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Tracy Gordon: You know, check me, you know. And again, you can't overemphasize the amount of variation that exists. You know, there were some places that came back very quickly from the Great Recession.

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Tracy Gordon: You know, I think, as Richard alluded to, which was a property center recession, a completely different animal than right now. There'll be some places to come back fairly quickly from this license. A few cases places that don't depend on Hospitality and Tourism as much

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Tracy Gordon: You know, places where the right policies were inactive and people responded in the right way places that were lucky. So there's so many sources of uncertainty so much variation

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Tracy Gordon: But this is a multi year problem i i don't think anyone is talking about it, lasting through the end of the decade, but the current economic forecasts adjust that output will be lower jobs will be lower through the end of the day.

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Lois Takahashi: So Karen common maybe I can follow up on some of these issues related to public services, we, we see across the country, there are still

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Lois Takahashi: Large protests going on about, especially in Kenosha Wisconsin and other places about safety funding a police defunding of police all kinds of

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Lois Takahashi: Debates about this. What is your sense about your the cities in California and how they're dealing not only with coven and wildfires and blackouts, but also with this kind of surge of interest and concern about

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Lois Takahashi: Public Safety services, our city councils and your folks rethinking how to allocate of the little funding they have now and uncertain funding into the future related to this public safety issue as well as all these natural disasters.

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Carolyn Coleman: I think that's, that's just the reality LOWEST THAT THAT THEY LIVE WITH I mean 2020 has been a bit of the year of the unexpected and unplanned for for for local governments and

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Carolyn Coleman: So, you know, there's a long, hard council meetings around the state Tuesday nights are busy night in this date, and I think one women to say on the social the the unrest.

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Carolyn Coleman: That was sparked by George Floyd's murder back in back in May.

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Carolyn Coleman: You know, I think in in California. What I have observed and witnessed and had conversations with city officials about

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Carolyn Coleman: Is a lot of interest about having the conversation. How do we have the conversations that maybe we didn't have 10 years ago about racial equity about equity in general.

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Carolyn Coleman: What, what does it mean to talk about systemic racism and and I certainly applaud the city officials and local leaders for raising their hand and saying, I want to get smarter about this because I

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Carolyn Coleman: Want to live in a more equitable community. Again, not just racism but there's a whole host of inequities so

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Carolyn Coleman: Yes, it's been another unexpected on the budget, and that means that you know you've got to go back to the well and say,

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Carolyn Coleman: These are the resources we have, how will we adjust and reset city operations to the five services and deliver the services in the confines that we have, there's no magic. They don't get the prince.

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Carolyn Coleman: New money.

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Carolyn Coleman: It's like, you know, I grew up in the Midwest. It's like when snow, snow storms hit

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Carolyn Coleman: And you don't plan for those. But every now and then. Yeah, they're going to hit and you're going to overtime and you're going to have to reallocate other things in your budget.

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Carolyn Coleman: To me to meet those needs, but I would say just on balance, yes, they're they're doing. They're being fiscally responsible

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Carolyn Coleman: But on balance, I'm so proud of all of the and so many of the California local officials who have stepped up in the aftermath of George Floyd and I presume will, in the aftermath of the sad incident tragic incident in Kenosha Wisconsin earlier this week.

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Lois Takahashi: Thank you. Carolyn. So those comments. Um, so, Tracy Gordon. How do you see the larger picture at the national level in terms of reallocation of resources, given that there are these issues about publicity, but also

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Lois Takahashi: Other issues that are coming up. Um, yeah, great storms. I mean, it just seems like 2020 is the year of everything right as

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Tracy Gordon: I think you know if it tremendously so nerdy, but as a researcher. It's a tremendously exciting time right because

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Tracy Gordon: This idea that

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Tracy Gordon: That everything is on the table right and that we really are thinking about budgets as documents that reflect priorities and values and

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Tracy Gordon: Opportunities to reprogram funds in a way that might achieve the same social objectives, better, more equitably more efficiently and

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Tracy Gordon: The idea that there's this loosening up and then we can re examine some long held beliefs, I think, and then potentially as a researcher, we can play a role and help with that. It's just tremendously exciting to me. You know, I guess.

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Tracy Gordon: I have a friend who wrote an article that got a lot of press about how governor should sort of enjoy their moment in the sun, you know, because

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Tracy Gordon: In the federal government's just say absence and a lot of ways, initially you know government really rose to before. And there was a lot of talk about the year of the governor and I'm sure Carolyn would say, you know, don't forget the mayor's as

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Tracy Gordon: Council members.

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Tracy Gordon: But a friend of mine took issue with that sort of, you know, governors are leading the discussion argument by saying things are so bad, just believe that they're going to be in the role of RAM accounts for for many years to come.

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Tracy Gordon: And I just really take issue with that. I think there are opportunities for leadership in a crisis and

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Tracy Gordon: One of those opportunities. It's reexamining you know long held beliefs about this is the way we do things and

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Tracy Gordon: So, you know, I think you will see, you know, people thinking creatively challenging assumptions and, you know, hopefully, Governor government learning to deliver the goods and services that people want better

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Lois Takahashi: So let me

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Richard Green: Try Louis, but I got an email from Richard brookner who was among other things, to planner of Los Angeles County retired in that Tribe member of the less board and he has a question that I think be

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Richard Green: uploaded to the panel and I just gave him permission to speak.

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Richard Bruckner: Oh, can you hear me, Richard. Can you hear me. Yeah.

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Lois Takahashi: Yes, we can hear you.

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Richard Bruckner: So my perspective is that when this happens with the city managers do immediately put a hiring freeze in place and start to cut and they try and preserve public safety, which is 50 60% of their budget. So what happens then for for the folks who are on the line and in development.

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Richard Bruckner: Is that

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Richard Bruckner: The planning departments. The building departments those services either get cut disproportionately because they're not public safety or

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Richard Bruckner: Or in combination, they lose staffing are in a freeze. So I am very concerned about the recovery and they also these these downturns

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Richard Bruckner: Are almost counter cyclical to local governments, because they don't feel the hit for 346 months because of the way funds flow through. And they're distributed to them. So I'm very concerned that when we get through this. And hopefully soon.

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Richard Bruckner: And development starts to pick up. We're not going to be prepared from the public side to service the private side recovery and I've seen that through three or four

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Richard Bruckner: Cycles. So my real concern is how do we deal with that sort of lag in in we're almost counter cyclical, and then we're not prepared and I don't have the answer to that, but I think it's a real concern that people

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Richard Bruckner: In our industry, the audience today should be concerned about in and watching lobby their local governments to to ensure that they have the resources to to come out of this.

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Richard Bruckner: Sorry.

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Carolyn Coleman: Was can I hey, Richard. Thank you for the for the comment Lois, if I could chime in there and I don't know of Maryland. Can you go back to my

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Carolyn Coleman: Third slide.

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Carolyn Coleman: Richard I think all excellent points.

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Carolyn Coleman: This chart aims to highlight exactly what you just mentioned in terms of where the impact will be on city services. The tall blue line across the board is planning and housing.

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Carolyn Coleman: And but I think differently than what we saw at least what I saw in 2008 you're also seeing severe public safety hits on public safety as a part of what we're experiencing.

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Carolyn Coleman: I think I'm like 2007 and eight. The, the hit on local Budgets has been much faster and that we don't have the luxury of the two year lag.

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Carolyn Coleman: That we may have had back in 2007 eight when property taxes were at this

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Carolyn Coleman: Well, they were at the core of it or local government. So I think the hit has been deeper and it's been faster with with this.

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Carolyn Coleman: Pandemic and now recession that that we're going into I couldn't agree with you more about investment as we come out of recovery, because those issues that were challenges for our state before coded

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Carolyn Coleman: Thought exasperated during coven and they are still here with us, but the even more challenging. In some instances, I do think as part of the Great Recession 2007 eight there was across the board. A disinvestment

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Carolyn Coleman: In in terms of how the priority fell out in our planning.

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Carolyn Coleman: And and some of our housing services, and I think we as a state are experiencing the result of that with the need for increased production. So I think your concerns are spot on. And I would just make those tweaks in terms of the differences between oh eight and this year.

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Lois Takahashi: Go ahead, Tracy

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Tracy Gordon: Eats right

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Lois Takahashi: Tracy, you're

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Tracy Gordon: Here.

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Lois Takahashi: Okay, very good.

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Tracy Gordon: Okay, the decline in fees, you know, things like construction fees permitting fees.

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Tracy Gordon: You know, all that is related to this decline in economic activity and those are funds that won't be available.

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Tracy Gordon: For a staffing that returns mentioned going forward. Right. So I think looking at not just taxes, but other revenue sources is really important.

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Tracy Gordon: And I just point out that, again, you know, if you look at the national data on job loss and so far for about 1.2 million jobs have been lost.

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Tracy Gordon: The losses are about on the order of 10% for state education. Local Education local non education, the one area that hasn't seen losses of that magnitude is state non education. And that's because it never recovered from the last recession.

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Tracy Gordon: And one of the reasons that it didn't was because those are the jobs that people don't think about usually you know so state education, higher education. Some administration of K 12 education.

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Tracy Gordon: Local Education obviously as teachers local non education. Maybe you'll feel those services more directly but state non education and stuff like the DMV and, you know,

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Tracy Gordon: Maybe those people, those jobs didn't come back because those departments all learn to do their jobs more productively and I know it's been a lot more pleasant for me lately going to be, you can do stuff online.

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Tracy Gordon: But I think, you know,

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Tracy Gordon: That one what looks like a bright point in the data actually is not so right at the point because it's really just saying that they already have been cut and they haven't come back and it's hard to imagine those

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Tracy Gordon: Aren't pin and manifest themselves and people getting less from government than what they would desire.

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Lois Takahashi: So let me follow up on that set of issues we have, we do have a question about

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Lois Takahashi: Whether they're on the flip side in terms of recovery economic recovery will city see housing development new housing development, whether it's single family and multi family housing development as a way to

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Lois Takahashi: reengage the economy and something that's different than trying to get more people back into retail jobs. So, Carolyn Coleman, what do you think about that.

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Carolyn Coleman: Once I think

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Carolyn Coleman: Look at investment property.

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Carolyn Coleman: If it's going to be housing.

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Carolyn Coleman: And it's going to be, you know, the public sector is going to focus on affordable housing and let the market.

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Carolyn Coleman: market rate housing and but it's going to take a subsidy to do that. And that's what we were

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Carolyn Coleman: You know lobbying the state for an earlier if we're going to increase production and ensure that it happens across all income levels.

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Carolyn Coleman: Either from the state or from the feds or from local housing trust funds, it's going to take a subsidy to do that. So to the extent the feds and the state decide to

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Carolyn Coleman: enact some type of recovery and reinvestment programs. I don't want to call it aura.

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Carolyn Coleman: I would make these kinds of investments at the local level, a high priority. They're not only good for the community. There's need for these services and and this housing.

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Carolyn Coleman: But they also create jobs and I would speak to other types of infrastructure investments as we go forward because it's about jobs as well to accelerate the recovery.

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Lois Takahashi: Trisha, Gordon, you have anything to add about that, about housing production and being an opportunity rather than just being a burden.

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Tracy Gordon: I don't. And I guess I the one thing though, that makes me a little nervous, is that

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Tracy Gordon: You know, in the last recession we had a bunch of unemployed construction workers. Now we have a bunch of unemployed for each does and hair cutters and people in the service sector and just from a macro perspective I worry about those people finding jobs. So I'm you know

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Tracy Gordon: I'm all for, you know, building more housing building more infrastructure, but thinking of that as a jobs program.

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Tracy Gordon: You know, just given the people who are affected. I'm not sure that you know the skills are translatable so

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Tracy Gordon: You know, which is not to say that, you know, we shouldn't have more in that area. We actually have a brief on our website.

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Tracy Gordon: Where I looked at California infrastructure spending compared to other states. And certainly, you know, the state has made a lot of games. Recently, but there are some areas like preparing for climate change were

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Tracy Gordon: Independent evaluations that suggested that there's a lot more that can be done or addressing the backlog in deferred maintenance so

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Tracy Gordon: You know, ideally, there would be some federal assistance to do things like get rid of the backlog and and i think

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Tracy Gordon: You know, Carolyn mentioned the recovery act with the Recovery Act, actually.

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Tracy Gordon: A lot of that infrastructure spending really helped a lot. And it had high multipliers country to the conventional wisdom. So the bang for the buck was greater than people thought. And I think it's because

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Tracy Gordon: You know, state, local governments their backs are really against the wall. So they got the money out the door, a lot quicker than they

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Lois Takahashi: Did you want to follow up with any of that that Tracy just mentioned. No. All right.

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Carolyn Coleman: Well you know as Louis, I would just say one thing and Tracy

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Carolyn Coleman: I'm underscored it you know we have to understand who is unemployed today and to the extent there. The baristas and retail and other other folks.

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Carolyn Coleman: You know, we continue to need to invest in our workforce investment programs. Again, this was an issue before coded and Koba just exacerbates that

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Lois Takahashi: We have a question about maybe I'll let Tracy Gordon take this first in states that are opening faster than California. Are we seeing any data that shows how fast sales tax and other tax revenues are increasing.

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Lois Takahashi: Are they seeing a significant increase, increase, slow increase difference. What do you think

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Tracy Gordon: That is a great question and I don't know my colleague Lucy to Diane

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Tracy Gordon: Does like a survey of state revenue has two meters. And so I would say, you know, watch this space or watch our website and see you know what she's writing on that. But so far.

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Tracy Gordon: You know, I think that question sort of hits the nail on the head, that there's going to be a lot of local variation in the data.

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Tracy Gordon: The most recent data that I think she has for me. And even that is reporting thing that happened in April and From what I recall the losses were pretty widespread. But yeah, I think that's exactly the kinds of questions that we're going to be looking at

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Lois Takahashi: So can we have about five more minutes. So let me ask you.

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Both

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Lois Takahashi: Let me start with Carolyn calm and what do you think of the most promising strategies in this Midst of horrible news.

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Lois Takahashi: For, you know,

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Lois Takahashi: I'm waiting for locusts, but I will not come with

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Lois Takahashi: Any practices or strategies that you're seeing from your local folks that seem like they may be working more or things that people are trying, experimenting with it. You think I promise, I mean, I want to close this out on something more.

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Lois Takahashi: Awesome. No.

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Carolyn Coleman: That's kind of, you know, if I before I take that. It's like, at first I want to respond to their riches question about the the denominator.

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Carolyn Coleman: And the $7 billion number. And I think this matches up a little bit with what Tracy was saying it up. Overall, the hit to local governments your projection. The estimate is 13% we have it somewhere in the seven to 10%

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Carolyn Coleman: Range.

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Carolyn Coleman: Just depending on, you know, the way I always think about it is $1 less names $1 less in terms of a person to do a service or a service itself.

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Carolyn Coleman: As lawyers for any notes on it on a bright note I work with folks, the local level, who inspire me every day with their with their creativity.

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Carolyn Coleman: I think seen what's happened in communities to open up their outdoor space so so businesses can operate. I haven't yet decided to get my hair done outside but

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Carolyn Coleman: You know, people are being very creative about making that available and the use of the of the rights of way.

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Carolyn Coleman: What I've seen in Sacramento. When it comes to the great plates program and utilizing restaurant to or close to provide meals to seniors who

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Carolyn Coleman: Need to stay at home and need to be safely at home but need square meals per day. I've seen

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Carolyn Coleman: You know, we don't have a mutual aid system built into the public health system in the same way that we do for for fire services, but I tell you when

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Carolyn Coleman: El Centro and Imperial County needed that space in a county next door, they made that available. I am an optimist by nature.

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Carolyn Coleman: And I hearken back to something that, uh, he didn't invented but I give him credit for it.

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Carolyn Coleman: Rahm Emanuel, who was president obama's verse Chief of Staff what he said during the Great Recession, we were coming out of that was, Let's not waste the opportunities that a crisis presents to us and so

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Carolyn Coleman: You know, many of us thought we would never be teleworking are working remote in our organizations.

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Carolyn Coleman: You know there are 70 great folks at the week of California Cities and we were all sitting at 14,000 K right across the street from the capital and on the term of a turn of a dime.

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Carolyn Coleman: We have been functioning frankly quite productively in a remote environments as. And I think that's the experience of many organizations. So as we think about recovery and reopening. We're also saying

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Carolyn Coleman: What are some lessons learned that we want to carry into the future. I don't think we're going to go back. I think we're all going to go forward, taking the best of what's worked as we as we do that show on I'm inspired to

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Lois Takahashi: Thank you. Carolyn and Tracy Gordon, what sort of

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Lois Takahashi: It's not going to be that bad. What's our other positive message my T

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Shirt.

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Tracy Gordon: I I've talked with more federal staffers analysts policymakers in the last six months than maybe the last couple years of my career. And I have to say it's been really gratifying, how much they already know and care about the state and local sector.

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Tracy Gordon: You know, I, in my field. I think people love to just kind of say, oh, they have no idea what's going on. And that's not true because

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Tracy Gordon: They if anything, they have a vested interest in making sure that the programs that they care about are reaching their intended recipient so

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Tracy Gordon: For me, I feel like and one legacy of the great recession was much better intergovernmental coordination and understanding and I'm hopeful that that'll be a legacy of this crisis as well.

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Lois Takahashi: Thank you Richard, would you like to close this out. I'd like to thank the panelists, but I'll let you thank them to

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Richard Green: Well, I'm going to thank the panelists. I'm going to thank you, Louis for moderating a really terrific discussion.

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Richard Green: Our next lesson perspectives will be on September 2 at and chase sent me the time there it is 10am on nila Richardson.

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Richard Green: From Edward Jones. We've had nila as a speaker at our events before and she is a real clap crowd pleaser and sort of what's going on in the broader economy. So I'm sure you're going to want to dial in for that or web and or whatever it is we're doing nowadays.

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Richard Green: Again, Lewis Takahashi Carolyn Coleman Tracy Gordon. Thanks so much for spending an hour of your day with us today. We all learned a lot for being here.

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Tracy Gordon: My pleasure. Thank you so much.

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Carolyn Coleman: Thank you.

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