I’ve often made the observation that change for the better in our nation has to start at the local level with local governments extremely well-positioned to take a leadership role. Having served as a mayor for nine years, there were many projects proposed during my time in office that didn’t come to fruition due to a lack of funding and it wasn’t unusual to have to struggle with balancing Augusta’s budget. I can speak with authority on the number of well-intentioned, and very pricey, master plans our city currently has gathering dust on shelves as often funding sources to implement them were never identified. However, local governments nationally are now in a position to truly leave a legacy for their communities due to what I hope to be a once-in-a-lifetime funding opportunity.
This month, the first of two tranches will begin to be distributed to state, local, tribal, and territorial governments through their $350 billion allotment in the $1.9 trillion American Rescue Plan Act (ARPA). Over the next two years, city and county governments nationwide are set to receive a total of $110.7 billion in funding with most of the funds required to be spent by the end of 2024. Whether or not we agree with the plan from a political perspective, the fact is that local governments have the very real opportunity to use these funds to transform the places we call home if they are invested strategically and with an eye to the future.
The impact of the pandemic on city finances nationally has been uneven with initial budget shortfall projections not coming to pass in many municipalities. Last year, Miami initially projected a budget deficit of $25 million but ultimately experienced a $2 million shortfall. The city fell short of the 500,000 population level required to receive initial direct CARES Act funding approved under the previous administration but will now receive $138 million in direct federal funding over the next two years. In Oklahoma City tax collections dropped 5% during the pandemic but currently sales tax collections are 38% above last spring. With the financial condition improving significantly the city will now receive $122.5 million in stimulus funding with another $155 million allotment for Oklahoma County.
Miami and Oklahoma City are just reference points for the massive funding infusion local governments across the country will be receiving from the federal government over the next two years. They simply serve as two examples where a financial windfall will lead to a difficult decision-making process for local governments. Having been a part of a municipal government for many years the opportunity for the funds to be used for transformational initiatives to shape the future of cities in our country excites me. However, the potential for the funds to be abused without transparency in the decision-making process and without proper planning causes me concern. Another concern is that expending the allotted funding in a timely fashion will create significant logistical challenges for local governments.
While serving as mayor of Augusta in 2009 we dealt firsthand with direct local funding from the federal government. At that point, the $787 billion American Recovery and Reinvestment Act (ARRA) was the largest stimulus bill in American history. The direct allocation to state and local governments in ARRA was $144 billion, a mere 41% of the $350 billion allotment through ARPA. One of the challenges of expending the grant funding was the simple fact that the federal guidelines regarding their investment were regularly adjusted providing for a moving target while creating an unwieldy process at best. To be honest, from a planning perspective our city was not adequately prepared for such a large infusion of funding. I feel certain the same can be said for local governments nationwide as they undertake a budgetary process unlike any most have ever before experienced.
With such a massive amount of money going to local governments, there is major potential for misuse and abuse. The effects of the ARRA stimulus were researched by economists Joonkyu Choi at the Federal Reserve Board of Governors, Veronika Penciakova at the Federal Reserve Bank of Atlanta, and Felipe Saffie at the University of Virginia. Their findings were sobering. In the contracting process around awarding grant funds, firms awarded grants were awarded 1.8 grants on average. The economist’s research showed that firms who made political contributions were the primary beneficiary of the ARRA funding with a 38% higher chance of being awarded contracts versus firms without the same political connections. With more than double the funding available to state and local governments through ARPA, the potential for this type of political cronyism expands exponentially.
The concerns I’ve raised are legitimate and need to be addressed. However, they do not undercut the massive potential for local governments to deliver on transformational projects and initiatives for the communities they serve. ARPA funding to local governments is broadly flexible with four authorized uses based upon the U.S. Treasury Department’s guidelines: responding to public health needs and economic damage from the pandemic; providing premium (i.e., hazard) pay for essential workers; replacing lost revenue and investing in necessary water and broadband infrastructure. The flexibility gives local governments a broad range of projects to be addressed to meet the needs of their communities. With so much money on the table, a major key will be building consensus around how to invest the funding. I believe another key to a successful process will be a commitment to transparency throughout.
Opportunities for elected officials to significantly impact the lives of the citizens they serve for generations to come don’t come along too often. Will every local government invest their funds wisely with an eye to the future while avoiding cronyism in the process? The answer is no. Unfortunately, some will, some won’t, and some will to varying degrees. In the scenario we’re faced with I would strongly encourage the citizens of every local government to monitor the process, to ask questions, and to offer your input on how you would like to see this funding invested to benefit your community as a whole. After all, it is, in fact, your money.