Economist warns hit from pandemic will rival Great Depression
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An economist warned the Oklahoma City Council on Tuesday they are facing a 25% to 40% economic hit by summer that will rival or exceed the depths of the Great Depression.
It’s a conclusion also made the same day by the International Monetary Fund, which warned the global economy will decline by at least 3%.
A request by Councilman James Greiner, meanwhile, to end emergency shelter in place orders in two weeks failed to get any support Tuesday as the city council agreed to change ambulance response procedures and grant forbearance on loans to private businesses.
Russell Evans, an economist based at Oklahoma City University, said the local economy was already shaky at the start of the year and the collapse in oil prices has exacerbated the challenges faced by the city and state.
“It’s all but a foregone certainty we will see in the second quarter of this year the U.S. economy will shrink 25% to 40%,” Evans said. “We are looking at numbers on par or more adverse than what we recorded from the Great Depression.”
Evans warned the city will face declines in revenues “worse than what we see now.” He predicted a long stretch of declining revenues for the city that will break records from 2009 through 2010 that lasted 14 months, and in 2017 that lasted 17 months.
Sales taxes fund the majority of municipal operations due to a state law that prohibits them from using property taxes for anything beyond capital improvements and economic development. Sales tax checks run a month behind the actual collections. Checks in February and March showed increases. The latest April check, representing revenues collected in late February and early March, before the start of the pandemic, was down by 2.3%.
The plunge, Evans warned, will start soon.
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“My best educated guess, by the time you get to June and July, you will see an atypically bad and particularly severe drop in sales tax checks,” Evans said.
City Manager Craig Freeman ordered a hiring freeze last week “regardless of funding source.” He has yet to announce any layoffs, though such action has been taken in previous downturns.
Even with emergency assistance programs like the Paycheck Protection loans and extended unemployment benefits, Evans advised that money will not reboot the economy but rather help keep pieces in place for when recovery might start by keeping employees and businesses connected through the pandemic.
Evans said his forecast is based on presumptions that even with a quick lift of emergency orders nationwide recovery will be slow.
“It’s difficult to see a path where it doesn’t take a minimum of six to nine months or longer for people to ramp up to normal amounts of economic activity,” Evans said.
Greiner, wants that restart of the economy to begin on May 1 with a lifting of emergency orders declared by Mayor David Holt over the past month, a move aimed to “flatten the curve” of the pandemic and slow the virus’ spread.
Greiner said he was representing residents who had talked to him privately of the economic hit caused by the shelter in place orders.
“I don’t think we need to extend the shelter in place orders beyond April 30,” Greiner said. “I don’t think we can extend this economically long term.”
Greiner argued media and government officials “caused more problems than if we had policies to go about this rationally.”
“All businesses should be open if they choose,” Griener said. “We need to get Oklahoma City, Oklahoma, and all of the country back to work.”
Fellow Councilman James Cooper compared Greiner’s request to the mayor in the movie “Jaws” ignoring safety warnings and reopening the beaches resulting in swimmers getting attacked by sharks.
“This moment is the 1918 flu pandemic meets the Great Depression meets September 11 meets the (2008) financial crash,” Cooper said. “It’s all those things wrapped up in one.”
Cooper said the pandemic may go on for months without a South Korean approach to testing, treatment and quarantines that quickly brought the virus under control in that country. So far, he added, that hasn’t happened and it must be done by the federal government.
Cooper said the city must follow models created by scientists and not one’s “gut” and opinion.
“We have to be honest with our citizens, we can’t give them a happy dance of we are all going back to work on May 1,” Cooper said.
The city council approved several measures aimed at responding to the pandemic, including changing EMSA ambulance protocols that request 911 calls on possible COVID-19 infection first consult with a physician online or by phone to determine whether an ambulance or hospitalization is needed.
That diagnosis ordinarily would be made by the paramedics, but the EMSA trust is preparing for increased virus-related 911 calls that could put multiple ambulances out of commission at the same time for sanitizing after transporting possible COVID-19 patients.
The council also approved a six-month forbearance of loans to businesses and developers hit by the economic downturn. Such requests will be reviewed case-by-case by the city manager and also will involve consideration of whether that forbearance will be passed along to tenants.
If approved, the deferrals would likely be added to the end of the loans.
A $5.5 million assistance fund created by the council last month is now underway. Cathy O’Connor, president of the Alliance for Economic Development of Oklahoma City, reported www.okcsmallbizhelp.com went live on April 6. Some 210 applications were received as of Monday with 58 for $10,000 incentive payments, 62 for low interest loans, 88 for forgivable loans and two for technical assistance.
The applications total $2.3 million in loans and $490,000 in incentive payments. Applications will be taken through April 17.
Holt, who has charter authority to declare emergency orders during a pandemic, said he will continue to follow best practices advised by both local and national public health experts.
As of Tuesday, the state reported 2,184 confirmed COVID-19 cases with 108 deaths, including 39 in the metro area. The U.S. Centers for Disease Control and Prevention reports more than 22,000 people have been killed among more than 575,000 infected nationwide and the World Health Organization advises the pandemic has yet to peak in the United States.
“Oklahoma City obviously doesn’t operate in a vacuum when it comes to making pandemic policy,” Holt said. “It’s not likely that Oklahoma City will do something radically different than the rest of the country."
Holt said not the mayor, the council, the governor or president have the power to end the pandemic with a proclamation. He said he doesn’t have “a lot of direction” about what will happen in May but that two weeks out (from May 1) the virus will still be spreading.
“I see a lot of people struggling to accept the reality that the virus is controlling the economy, not policymakers, and I understand that frustration, but it is what it is,” Holt said. “Any hope that the lifting of a regulation is going to restore normalcy is a false hope. Normalcy depends on controlling COVID-19.”