The COVID-19 pandemic presented unprecedented fiscal challenges to local governments, transforming budgeting into a complex problem for adept problem-solvers.¹ Municipal leaders were tasked with addressing increased demands for public services amid substantial revenue losses, all while striving to maintain balanced budgets. The pandemic disrupted traditional revenue streams, heightened healthcare and social service needs, and imposed new financial burdens, necessitating swift and effective decision-making by governments.

To better understand these challenges, we conducted the Pandemic Management Survey (PMS) in spring 2021.^2,3,4 This survey was distributed among municipal executives across Pennsylvania local governments, yielding 93 responses. The survey focused on the following themes:

1. Preparedness for natural, technological, and health-related disasters.

2. Risk perception among local government managers regarding public health, economic, and budgetary impacts of the pandemic.

3. Fiscal strategies adopted to address budgetary disruptions.

4. Approaches to community engagement and communication during the crisis.

5. Actions taken to mitigate the socioeconomic impacts of COVID-19 on vulnerable populations.

By capturing detailed financial and operational information, the survey provided critical insights into how municipalities navigated fiscal disruptions and maintained essential services. This article builds on these findings, outlining the cutback management strategies employed during the crisis, the factors that influenced these decisions, and actionable recommendations for future fiscal resilience.

Local Budget Policies

During the pandemic, local governments deployed a variety of strategies to maintain balanced budgets amidst economic uncertainties and fiscal stress. As has been common in past crises, municipalities employed cutback management strategies to minimize budget gaps. These strategies fell into three general categories: expenditure reductions, revenue enhancements, and productivity measures. Each approach reflected the unique challenges and opportunities faced by municipalities as they worked to address fiscal pressures.

Expenditure Cuts

According to our survey, expenditure reductions were the most commonly used strategy, adopted by 70% of municipalities. These actions focused on limiting spending in areas deemed less critical during the crisis. Key measures included:

Postponing capital projects: Delaying infrastructure and maintenance investments to free up immediate funds.

Hiring freezes, furloughs, or layoffs: Reducing personnel costs by freezing recruitment, temporarily reducing staff hours, or terminating personnel.

Benefit reductions: Scaling back employee benefits to lower ongoing expenses.

Revenue Enhancements

Revenue-raising measures were the second most popular strategy, implemented by 63% of municipalities, providing a crucial supplement to local budgets. These strategies aimed to increase available resources to support essential services. Common actions included:

Applying for federal aid: Leveraging programs like the CARES Act to secure additional funding.

Borrowing: Issuing bonds or securing loans to cover immediate budget shortfalls.

Productivity Measures

Productivity improvements were the least utilized strategy, with only 12% of municipalities adopting these measures. However, they represented innovative approaches to maintaining service delivery while reducing costs. Strategies included:

Reorganizing, consolidating, or closing departments: Reorganizing, consolidating, or closing administrative units to streamline operations.

Reducing hours of operation: Adjusting service hours to lower operating costs.

Municipalities’ cutback management strategies during the pandemic were shaped by various factors. Expenditure reductions were most commonly observed in municipalities where managers had high confidence in their jurisdiction’s preparedness. Conversely, revenue enhancements were more prevalent in communities with active resident engagement, whose input supported initiatives like applying for federal aid and pursuing borrowing options. Lastly, productivity measures were predominantly favored by council-manager governments, where professional management facilitated the implementation of efficiency-driven approaches.

Factors Influencing Fiscal Strategies

The survey uncovered key factors that influenced municipalities’ choice of specific cutback management strategies during the pandemic. Insights from our regression analysis, featured in the recent study, “Analyzing Cutback Management Strategies Amidst the COVID-19 Pandemic: Insights from Pennsylvania Municipalities,” published in Public Money and Management, elucidate the reasons behind the adoption of particular approaches by municipalities.

Expenditure Cuts

Expenditure reductions during the pandemic were significantly influenced by managerial perceptions and fiscal stress indicators. Municipalities where managers had strong confidence in their jurisdiction’s ability to handle a disease outbreak were more likely to prioritize expenditure cuts rather than seeking revenue enhancements or productivity gains. This suggests that managers confident in their existing resources to manage a health crisis saw less need for additional support, leading them to favor expenditure cuts to close budget gaps. Moreover, municipalities that experienced notable revenue declines from 2019 to 2020 were also more inclined to adopt expenditure reductions, highlighting the urgency of budget adjustments under fiscal stress.

Our analysis found that concerns over sharp revenue changes increased the likelihood of expenditure cuts. In times of rising fiscal stress, managers tended to opt for more immediate and significant measures like cuts over milder tactics such as delays or resource stretching. However, results indicated that managers concerned about healthcare resource availability or school reopening were less likely to reduce expenditures, prioritizing community needs instead. While prior studies often link severe fiscal challenges to budget-reduction strategies, during the pandemic, amid escalating public health concerns and increased service demands, managers were less inclined to reduce expenditures.

Revenue Enhancements

Revenue-raising strategies were more prevalent in municipalities that prioritized community engagement. By actively involving resident input during the pandemic, these municipalities were more inclined to pursue federal aid and other revenue-enhancing measures such as borrowing. Community trust and participation were crucial in supporting these strategies, as users of public services generally prefer revenue increases over service cuts to bridge budget gaps. The availability of federal aid and low-interest rates during the pandemic likely influenced the preference for revenue-raising measures. Furthermore, constituents may have supported these strategies, trusting their local governments to use additional funds effectively to improve community services.

Municipalities concerned with healthcare system strain and public safety were also more likely to adopt revenue enhancements, aligning financial strategies with the immediate needs of their communities. Given the substantial federal aid available to address the unique challenges of the COVID-19 pandemic, public managers sought intergovernmental assistance to mitigate potential budgetary shortfalls. Borrowing practices, similar to those observed in state governments, also were employed.

Productivity Gains

Productivity measures were particularly favored by council-manager forms of government, which are well-suited to implement efficiency-driven solutions due to their professional management structures. These governments often reduced reliance on mere expenditure cuts, opting instead to foster innovation and adapt organizational structures and processes. Budget constraints, especially in areas like human services and youth programs, significantly influenced the adoption of productivity measures. This approach allowed them to meet the needs of such populations without sacrificing services.

Municipalities with larger populations also tended toward productivity gains, leveraging economies of scale to modernize operations and streamline services. These larger governments demonstrated adaptability, using their professional frameworks to balance cost savings with effective service delivery.

Conclusion: Building Resilient Fiscal Systems

The COVID-19 pandemic has underscored the critical need for resilient fiscal systems within local governments. By integrating cost reductions, revenue enhancements, and operational efficiencies into their strategies, municipalities have shown their capability to navigate financial uncertainties while preserving essential services. The roles of community engagement and professional management in ensuring decisions are inclusive, transparent, and tailored to both immediate and long-term community needs are vital.

As local governments plan for the future, the lessons from the pandemic serve as a blueprint for creating stronger, more adaptable institutions. Emphasizing innovation, preparedness, and collaboration will enable municipalities to better withstand future crises and foster sustainable growth for their communities.

Theodore Arapis, PhD, is associate professor and chair of the department of public administration at Villanova University.
Vaswati Chatterjee, PhD, is an assistant professor of public administration at Villanova University.

Endnotes and Resources

¹ Arapis, T., & Chatterjee, V. (2024). Analysing cutback management strategies amidst the Covid 19 pandemic: Insights from Pennsylvania municipalities. Public Money & Management, 1-12.

² Chatterjee, V., & Arapis, T. (2024). Crisis communication during COVID-19: Insights from Pennsylvania and Florida local governments. Risk, Hazards & Crisis in Public Policy.

³ Arapis, T., & Chatterjee, V. (2024). Analysing cutback management strategies amidst the Covid 19 pandemic: Insights from Pennsylvania municipalities. Public Money & Management, 1-12.

⁴ Chatterjee, V., & Arapis, T. (2023). Examining COVID-19 response among local governments through the political market framework. Journal of Emergency Management, 21(7), 111-131.