Is Austin Ignoring Economic Warning Signs?
By Daniel Van Oudenaren
No one knows yet how hard the economy is going to be hit by the coronavirus-induced lockdown, but most Austin businesses are hunkering down for a medium- to long-term downturn, laying off staff and canceling capital expenditures.
While businesses and households tighten their belts, the City of Austin has increased spending, on Friday approving $46 million for utility bill relief and $15 million out of its financial reserves for favorite local charities.
The latter amount will be divvied up by Austin Public Health, working with the city’s Equity Office. Food pantries could benefit, as could undocumented persons, who were excluded from the federal stimulus but would qualify for city payments via pre-paid debit cards, gift cards or ACH transfers through hand-picked local charities. “Equity is centered as one of the anchors of our City’s strategic direction,” said Brion Oaks, Chief Equity Officer.
Call it equity if you like. There’s a strong dose of Keynesian economics in the mix too — the idea that government spending can boost output during a recession. But unlike the federal relief plan, which gives money directly to individuals through the IRS, the Austin payments go through nonprofits, which means a chunk of the money will be lost in administrative overheads.
Even as they ramp up spending, Council members seem oblivious to the fiscal impacts of a likely downturn. On a video call last week, they discussed a $38 to $58 million total impact — an estimate that ignores the potential for a decline in property values, as well as the shutdown of the airport, among other factors. It was an emperor’s-new-clothes moment.
They also ignored warnings from city finance staff that dipping into financial reserves now could force the city to make hard choices later on. Unlike the federal government, which has the luxury of Keynesian extravagance because it can issue treasury bills, borrowing vast quantities from deep and liquid capital markets, the city’s options are far more limited.
Austin’s swaggering tech and real estate sectors may be stoking the city’s confidence. The conventional wisdom is that Austin will bounce back quicker than the rest of the country after a downturn, because that’s what happened after 2008. For example, Austin REALTORS Board President Romeo Manzanilla in a recent TV interview said the pandemic has caused “pent-up demand” for housing. In other words, once the outbreak subsides we’ll be back to square one.
What about the job losses, Mr. Manzanilla?
There’s an argument to be made that Austin is actually more exposed than other cities because of its many venture-funded startups that were never profitable to begin with. Elsewhere, Main Street firms face a temporary liquidity crunch but will be able to just reopen when the outbreak subsides. But many Austin firms depend on Wall Street and Silicon Valley cash that is simply evaporating. Capital markets are witnessing an historic flight from risk.
That change in investor attitudes that could last years, rolling back growth for Austin startups and co-working firms like WeWork that lease vast swathes of the Austin office market. That, in turn, could collapse the commercial real estate boom that has fueled growth in city spending for years.
A version of this article first appeared in the Honest Austin weekly email newsletter. Sign up here for weekly insights and analysis like this.