Stimulus Plan for States: How Will Cities Benefit?

January 19, 2009 03:01 PM
by Anne Szustek
City officials across America are heralding the $825 billion congressional stimulus plan for state governments, yet are skeptical that the money will funnel to municipal governments.

Stimulus Plan Holds Potential For Cities

Democrats in the House of Representatives introduced an $825 billion stimulus plan to the floor late last week for a two-year package encompassing $550 billion in spending and $275 billion in tax cuts that some analysts are likening to the Depression era’s New Deal.

“Obviously they heeded our concerns,” Michael Bird, the National Conference of State Legislatures lobbyist in Washington, D.C., was quoted as saying by Stateline.org. He continued to say the package includes “ample funds to create jobs; help the most disadvantaged get through the recession and perhaps ease some of the really tough budget decisions that state legislatures are facing.”

The package sets aside $87 billion a year for Medicaid, which is jointly administered by federal and state governments; $41 billion to local public school districts; another $79 billion for states to fund K-12 and higher education; and at least $100 billion to shore up spending for infrastructure, which would also help to boost the construction sector, hard hit by the housing crisis.

The credit crunch is also sapping property tax revenue as well as access to municipal bonds. Dallas Mayor Tom Leppert told Reuters that the proposed stimulus, due to be voted on in February, would help to get money flowing through the bond market.

“This stimulus package is a good start,” Los Angeles Mayor Antonia Villaraigosa said at the U.S. Conference of Mayors convention, according to Reuters.

But some mayors, however, including Leppert, are questioning how quickly the money will get to the city level, as states are the direct recipients of the funds.

“If we take these dollars … and we put it in for cities or states simply to make budget shortfalls, we’re in the same position next year as we were in last year,” Leppert told Reuters.

San Ramon, Calif. Mayor Abram Wilson was more frank: “You’re going to give the money to the state and we’re not going to see it,” Reuters quoted him as saying.

States’ revenues are often collected on behalf of local governments and divided as states see fit.

Background: Cities, states push for bailout aid

Facing budget shortfalls, some states have gone to Washington for help. Last autumn, The National Governors Association sent a letter to Congress “asking for immediate action to aid states.”

The Center on Budget Policy and Priorities released a report in November saying that “states are facing ‘a great fiscal crisis’ and their revenue projections are only weakening.” Only nine states—Indiana, Texas, Wyoming, Alaska, North Dakota, Nebraska, South Dakota, West Virginia and Montana—aren’t facing budget shortfalls in the next two years, the report said. In fact, states are facing an $89 billion shortfall this fiscal year.

Mayors are watching what Congress does for local governments. For example, San Jose’s mayor initially told the AP he’d ask for $14 billion for public transportation and other projects. In a statement, he said he wouldn’t request federal money, but would look for the city’s fair share if money became available for cities. San Jose isn’t running a deficit, but its leaders are concerned about what California’s state-level problems could mean for them.

In November, the U.S. Conference of Mayors came up with a “Main Street” stimulus package, “announcing that they’d identified 4,591 infrastructure projects that would cost $24.4 billion but would create more than a quarter of a million jobs in return.”

Opinion & Analysis: Needed boost or state cap in hand?

Texas Gov. Rick Perry and S.C. Gov. Mark Sanford, both Republicans, have come out against the proposed federal stimulus package for states. In a jointly written Dec. 2 Wall Street Journal editorial, they argued that such a bill would trump the free-market system and what they see as the Founding Fathers’ delineation between the separation of federal and state government.

“An expansionist federal government of the last century has moved us light-years away from that model,” wrote Perry and Sanford, “but it doesn’t mean that Congress can’t learn from states that are coming up with solutions that work,” going on to talk about tax cuts in their home states.

But in a Monday editorial in The Boston Globe, Philip Warburg, the former president of the Conservation Law Foundation, speaks to the need for local governments to rebuild roadways and get the construction sector working on green energy projects to spur both building and wean America from its dependency on oil. “In our eagerness to stoke the economy, we need to remind ourselves that the New Deal wasn't built in a day, Warburg writes. “With smart planning, we have a rare opportunity to transform the way we move around our towns and cities, generate power, and fuel our transportation fleets. Let's use the stimulus package to bring America into the 21st century.”

Reference: Guide to U.S. Economy

Related Topic: Suburban Cleveland school district applies for bailout funds

Todd Hoadley, the superintendent of the Olmsted Falls, Ohio, school district, has applied for $100 million in federal funds from the Troubled Assets Relief Program (TARP) Capital Purchase Program, better known as the $700 billion U.S. government bailout program, on the grounds that if cities and car manufacturers can ask for a cut of the money originally meant for struggling financial institutions, so can the cash-crunched school system.

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