How will US cities spend $350B in relief aid? Answers vary.

At the Loma Verde Recreation Center south of San Diego, demolition work is underway on a $24 million project that will rebuild the facility from the ground up, complete with a new pool. An hour’s drive to the north, the iconic bridge to the Oceanside pier is deteriorating because the city lacks the money for a roughly $25 million rehabilitation.

A reason one project is moving ahead and the other isn’t revolves around the American Rescue Plan – the sweeping COVID-19 relief law championed by President Joe Biden and congressional Democrats that is pumping billions of dollars to states and local governments.

Under U.S. Treasury Department rules, certain governments are able to spend as much or less of their money as they wish. The new swimming pool and rehabbed pier are both approved.

Similar differences among the cities in the country led to local officials pushing back against Treasury’s rules.

“They are punishing cities for the pandemic and not giving them relief,” stated Wade Kapszukiewicz (mayor of Toledo, Ohio).

At issue is $350 billion for states, counties, and cities that was part of the massive COVID-19 relief bill Mr. Biden signed in March. This money will be used to support their financial health, to pay for ongoing virus costs, as well as to invest in long-term community strengthening projects. Although the Treasury made this funding available in May, states and cities were slow to spend it.

The Treasury’s guidelines give governments leeway to choose from more than 60 subcategories for spending the money, including COVID-19 vaccinations, premium pay for certain workers, housing aid, grants to businesses, and improvements to water, sewer, and internet infrastructure.

One category is notable for its flexibility. Federal aid can be used by governments that have lost revenue for nearly any service, provided they are not restricted to doing so. This means that they are able to spend federal aid on roads and recreation centers, as well as a pier which may not be otherwise eligible.

A spokesperson for the Treasury Liz Bourgeois stated that the plan provides governments with the “resources and flexibility” they need to prevent cuts, retain or hire workers, provide vital services and emerge from the pandemic more resilient. Democratic lawmakers have also praised the Treasury’s flexible guidance.

However, some local officials feel that the Treasury’s method for calculating revenue lost is too restricted. Instead of using a fund-by–fund approach to calculating lost revenue, it combines most revenue sources. This would allow governments to claim revenue losses from dedicated funds like gas taxes for roads even though other revenues have increased. The calculation should also exclude tax increases that were recently passed. They claim this hides their deep losses from the pandemic.

In Toledo, voters last November approved a temporary one-quarter percent income tax increase that is projected to raise $19 million annually for roads. According to Mr. Kapszukiewicz, this revenue will compensate for other losses in the Treasury’s calculations, so the city won’t be able to spend relief money on old police cars.

” “It falsely appears that our economy has recovered more,” said the mayor. “It’s absurd.”

In California, more than 250 cities and counties enacted voter-approved tax increases since 2018 – most coming during or after the 2018-19 fiscal year that forms the basis for calculating revenue loss, according to an analysis conducted for The Associated Press by government finance consultant Michael Coleman.

The southern San Diego suburb of Chula Vista, which did not enact new taxes, calculated revenue losses of more than $32 million under the Treasury’s guidelines – covering over half its $57.5 million allotment under the American Rescue Plan. Among other things, the city is directing $12.2 million for culvert repairs at two intersections to alleviate flooding and $8 million to add new aquatic facilities to a planned renovation of the Loma Verde Recreation Center. These projects might have been delayed if the city had not been allowed to access the federal revenue loss category.

By doing everything at once, “it’s open the community – boom, everyone’s happy,” said Mr. Valle.

In Oceanside officials are restricted in their control over federal aid. Voters there approved a one-half cent sales tax that took effect in April 2019, reducing its revenue loss under the Treasury formula from $22 million to $12 million and limiting its spending flexibility. The city also spent $2.6 million of its reserves to pay for meals and homeless services. The Treasury prohibits federal assistance from being used for replenishing reserves.

Oceanside officials want to have more federal money available to fix the unsafe and seismically unstable 1920s bridge leading to its pier.

“It is vital that the pier continue to draw visitors,” stated Rick Wright, chief executive officer of MainStreet Oceanside. He added: “I don’t think it’s immediately noticeable to people that it’s in grave need of restoration, but if you look close enough, you can see where there’s cracks and pieces that have fallen out already.”

Other cities also have written to the Treasury asking it to loosen its revenue-loss rule and give them greater say over the money. Although it is a valid request, Marc Goldwein (senior vice president, non-profit Committee for a Responsible Federal Budget) said that the controversy highlights the fact that local governments receive “dramatically more” money than they need.

Treasury officials stated that they have received the comments and are reviewing them. However, they did not give any indication as to whether or when they would change the rule.

In the interim, Des Moines (Iowa) is putting off making spending decisions regarding the $47 millions it has received. Joe Brandstatter, deputy finance director, stated that the city would like clarification as to whether it is allowed to count $34 millions of losses, not permitted by Treasury rules. This would allow it more freedom.

Plans for a new Lincoln parking garage were delayed by the Treasury’s revenue loss rule. Parking revenue plunged during the pandemic, said mayoral aide Kate Bolz, but the city can’t make up for it all because a new sales tax earmarked for streets reduced its 2020 revenue loss from $13.5 million to $2.4 million under the Treasury’s formula.

Flagstaff in Arizona has also put off plans to build a downtown garage because of the Treasury’s rule. It may need to defer replacing its old snowplows and street sweepers as well as trucks. The city lost under Treasury’s formula but has new revenue through storm-water fees and dedicated taxes, which reduces its ability to receive federal aid.

” Congress intended to support cities that suffered large-scale losses in order to provide services. Rick Tadder, city treasurer, stated that this was the intent. But the Treasury’s rule “is restrictive on how cities can demonstrate the true impact on our revenues during this pandemic.”

This story was reported by The Associated Press.