ARPA is NOT the same as Shared Revenue

If you’re a local leader, you are undoubtedly hearing all of these “voices” in your head:

“Don’t spend ARPA dollars on ongoing expenses. It’s not a replacement for property taxes, shared revenues or transportation aids. Think “one-time” money. Take your time. Gather ideas from a range of sources. Pay particular attention to the quieter parts of your community, those areas or residents who may have critical needs, but are unlikely to show up at the municipal podium. Keep good records.”

Cities, villages, towns, counties and the state itself are wrestling with how they can–and how they should–spend the unbudgeted $5.711 billion coming their way as a result of the American Rescue Plan Act (ARPA). The U.S. Treasury Department is scheduled to announce the rules for the program soon, and the dollars will begin arriving shortly thereafter. You have until the end of 2024 to spend your allocation. Perhaps the best thing to do with 2021 is to spend it doing careful planning.

While you’re planning for this short term shot of resources, take the time to speak up for your long-term needs. The state Legislature is putting together the state’s two-year budget, including deciding whether to increase long-neglected shared revenues. This billion-dollar budget item is a significant part of the state budget, but over the last 30 years it has lost ground, a lot of ground, to inflation, education, prisons and Medicaid. Since the 1970s, those four have taken ever-larger shares of the state general fund while police, fire, ems and other local services have received less. Make this the year that local services get their due.

The League is calling on its members to talk to lawmakers about shared revenue. Make a phone call, pass a resolution, give lawmakers a tour of your favorite local potholes. Spread the word: local government matters; it’s time for an increase in shared revenue.

Legislators have a job very similar to your own. They have more needs than resources, so they do their best to make the dollars go as far as they can. Your job is to help them understand where police, EMS and snow plow drivers fit into that priority scheme.

So, when it comes to finances, you have to have your eyes on the present and on the future. How you will allocate the valuable, one-time ARPA resources matters a lot right now. How the Legislature will treat shared revenues matters a lot next year and every year thereafter.  And your job is to balance both.


Don’t screw up your ARP windfall

One of my favorite thought leaders on local government matters is Mark Funkhouser. Funkhouser is the former Mayor of Kansas City, Missouri and onetime publisher of the influential “Governing” magazine. Funkhouser is now the President and CEO of Funkhouser Associates, a consulting firm that specializes in local governments. I enjoyed his recent blog post on ARP funding so much that I asked him for permission to reproduce it. Take the time to ponder “Mayor Funk’s” advice before deciding how to spend the one-time money coming your way. -Jerry D.

As state and local governments celebrate the latest federal stimulus package, I’m struck by what I heard recently from Uri Monson, CFO of the Philadelphia School District: “The hardest thing to do in government,” Uri told me, “is to deal with one-time money and not waste it.”

I’m happy to share my own perspective with a little less elegance: State and local governments had better not be stupid with this money.

Our consultant Liz Farmer, a municipal finance expert, wrote the “The 7 Deadly Sins of Public Finance” several years ago. It should be required reading for anyone in government right now. At the top of the list is the commandment to avoid using one-time funds to fix long-term problems. Frankly, it’s a good thing that governments are barred by the American Rescue Plan from using stimulus dollars to pay down pension debt. But there are other places where it may be tempting to plug gaps with stimulus dollars. If you use that money to paper over this year’s structural problems, you’ll have squandered your cash – and still be in a financial rut next year.

Another trap governments should avoid is using the stimulus to build new assets or launch new programs that will saddle them with new, unfunded operating costs. If you create new long-term operating expenses, you may be in a worse position than if you hadn’t spent the money at all.

The $350 billion heading to state and local governments to backfill revenue deficits and stimulate additional public spending is an incredible opportunity for not only relief but for growth. Localities have wide latitude on their use the money, and the money coming their way is significant. For example, Atlanta, a medium-sized city of about 489,000, will get $178 million. Alpharetta, an Atlanta suburb with a population of 65,000, will get $21 million. Fulton County, where both cities are located, will get $206 million. Given this windfall, what should localities do?

For many of us, it’s been a while since we traveled by air. But we all remember the instructions to “secure your own mask first before assisting others.” The same rule applies for local government. First, fix your own emergency before tackling anything else. Replenishing depleted reserves would be responsible, for example, even if it wouldn’t generate the same headlines as a groundbreaking for a new community center or light-rail line.

Second, consider investing some of that money to reduce your operating costs. We all know deferred maintenance costs more the longer you put it off. Now is an opportunity to make those long-overdue investments in infrastructure. Think of a deteriorating school with major maintenance expenses as the HVAC system fails, the parking lot crumbles and the pipes leak. A new school that doesn’t require frequent, costly Band-Aids could reduce maintenance costs for decades to come. Nailing down this balance – how to spend money today to save money down the road – requires a careful analysis of your data, along with a serious commitment to citizen engagement.

Next, think beyond your borders. Cooperate on regional projects that wouldn’t have been possible before but are now within reach, thanks to everyone’s infusion of cash. This may seem to violate my rule about avoiding new operating costs. But quality infrastructure is a driver of economic growth, allowing governments to get an ROI on these dollars.

And finally, making those overdue investments in technology and cybersecurity is another way to save costs down the road while simultaneously better serving your constituents. During the pandemic, scores of governments invested in technology like video conferencing to keep public meetings accessible or mobile hotspots to provide internet access to underserved residents. In addition, with governments conducting more business online, there has been an increased concern about cyber-threats. Thoughtfully investing in areas such as these can save unnecessary pain in the future.

Of course, some of the money should and must be spent on social services and small businesses in a way that helps avert short-term disaster. And we should pursue all of this work through the lens of social equity. We’ve seen all too often that when governments run into fiscal headwinds, the first people who get hurt are those in marginalized communities. Let’s not repeat those mistakes. Instead, let’s use this unprecedented infusion of cash to make an equally unprecedented commitment to equity. We’ve only got one shot to get it right.

Have you found a creative way to leverage your community’s stimulus dollars? Please send me a note, and we may feature it in the next newsletter.

Thanks, and please stay in touch!