Best Practices in Local Revenue Recovery to Inform an Equitable COVID-19 Recovery

The COVID-19 pandemic created unprecedented revenue volatility in the District of Columbia (DC) and most other state and local governments. Across the country, state and local tax collections rapidly collapsed following “shutdown” orders in the spring of 2020 but then recovered—far faster than was anticipated—following both congressional pandemic relief legislation and unforeseen economic shifts. As DC continues its local revenue recovery, it will confront many of the same challenges facing other states and large cities, including fiscal planning during a period of great uncertainty, navigating fast-changing federal policies, and promoting an equitable recovery. However, unlike other jurisdictions, DC’s government uniquely functions and taxes as both a state and a local government, creating responsibilities and opportunities. This memo highlights lessons to be learned—good and bad—from other state and local governments. But it also stresses that the pandemic’s effect on state and local revenue varies significantly depending on both the configuration of a jurisdiction’s revenue system and its economic mix of industries.