Want to maximize the historic investment in our cities? — Don’t forget about investing in local government
Since the start of the COVID pandemic, local governments have faced myriad challenges, from implementing health measures to designing new ways to maintain essential services, all while facing revenue uncertainties. Now, as cities reopen and emerge from the pandemic, local governments face a new challenge: how to spend American Rescue Plan (ARP) funds that will transform the community while complying with all legal requirements. Even before more dollars may come through, the ARP appropriations present an opportunity to make investments that have not been seen in our country in at least a generation. There is no shortage of need. From crumbling physical infrastructure, to increased threats from climate change and the ongoing public health crisis, local officials are staring at immense challenges. Yet it has been widely reported that only 8.5% of American Rescue Plan (ARP) funds allocated to cities have been spent to date, with many cities yet to spend any of the funds that they have received. While local governments have until 2024 to identify uses for funding and until 2026 to spend the ARP funds, the fact that such a small percentage of funds have been spent is a red flag for potential structural issues with deploying available funding.
At Cityfi, we regularly talk with local leaders across the country and have noticed consistent challenges. Three issues stand out. First, cities are hesitant to spend ARP funds because of uncertain guidance from the federal government. Second, the scale of ARP funds has garnered intense interest in their use, and local officials are sorting through various demands from interested stakeholders. Third, municipalities are undertaking this process while departments are understaffed and employees are burned out. These problems can be overcome with thoughtful strategies, and the first step is identifying them and addressing them head on.
City governments are properly concerned about misusing these significant funds and are therefore focused on the rules and restrictions. While budget offices are clear about the timeline to spend ARP funds, there is significantly less clarity over eligibility and compliance requirements. It is often unclear to cities whether specific programs or ideas meet requirements, and many cities have struggled to get helpful technical assistance to their questions. Compounding the challenge, grant management is a job that requires deep subject matter expertise, and those valuable skills are needed elsewhere in governments. When combined with other funding like money received through the Coronavirus Aid, Relief and Economic Security (CARES) Act, reimbursement through programs such as FEMA Public Assistance, and potential new revenue from the Bipartisan Infrastructure Bill and Reconciliation, cities understand they have a once-in-a-lifetime opportunity to make transformational investments and build more resilient and equitable communities. However, it is also easy to get stuck in the web of complex regulatory issues that make it difficult to spend money efficiently and effectively.
The well-publicized nature of major federal funds has attracted the interest and attention of a wide range of stakeholders who would like a say in how the money is spent. While an inclusive and open public dialogue regarding the allocation of funds is appropriate and responsible, the comments often neglect the restriction on the usage of these dollars. Additionally, massive structural issues need recurring revenue to address them every year. However, ARP funds are a one-time allocation, and thus using the funds to start new programs or fund salary increases will create additional unfunded future liabilities unless financial sustainability is built into the program design from the onset. Communicating the intricacies of funding requirements has added an additional wrinkle to an already complex process and slowed the negotiations and planning for many cities.
Staffing Capacity and Morale
The COVID pandemic has been an especially difficult time to be a local government employee. In the early days of the pandemic, many local governments furloughed or laid off employees to cut expenses due to projected reductions in tax revenue. While most furloughs are over, staffing in local government is still down 5.3% from pre-pandemic levels. These staffing shortages are putting even more pressure on the employees who remain, damaging employee morale and retention. As cities find their way in the new environment, civil servants must continue normal operations and government services, implement new programs such as vaccinations or other public health outreach efforts, and now manage and deploy new funds from the federal government. Putting ARP funds to good use adds substantial work on top of an already overburdened workforce.
Although in some cases the additional funds offer flexibility to bring on additional staff, cities are limited by the short-term nature of the funds. This means that in many cases, cities can only offer temporary positions rather than bringing on full-time civil servants. In an already difficult labor market, where 2.9% of the entire US workforce quit their job in August, city governments share the same headwinds in recruitment as other sectors. In previous years, it may have been feasible to hire grants managers on a limited-term basis, but now cities are struggling to find qualified candidates who are willing to take a public sector salary without any of the job security or benefits that often accompany public sector jobs. While engaging consultants can help manage the workload and navigate the complexities of federal requirements, many cities have been frustrated that some consulting firms do not understand the local dynamics and are disconnected from the values and goals that are ingrained in programs when managed internally by civil servants.
The current and potential new funding from the federal government presents an opportunity to make investments in our communities that will be felt for generations. Yet, many cities are paralyzed to actually execute on this opportunity. Many cities still face general fund deficits and have a long list of physical and social infrastructure investments that are needed to create more sustainable and equitable cities.
If we are going to leverage this investment to address historical inequities and lay the foundation for more resilient communities, we must also invest in the capacity of our civic institutions. It is hard to replace the knowledge and expertise of local government employees who have direct ties to the community. However, pressure to reduce headcount and trim expenses has resulted in the hollowing out of many of our most important civic institutions.