Cities inundated with bailout money want to keep it for rainy days | Best Stories


U.S. states and cities are receiving $ 350 billion from Washington, an unprecedented move to avert a budget crisis that could have derailed the economic recovery.

But at least two dozen local governments and lobby groups are pushing President Joe Biden’s administration to allow federal funds to be used for something the Treasury Department hadn’t considered: paying off the debt or paying it off. .

Among them is Oceanside, a city of 176,000 people on the southern California coast. Michael Gossman, deputy managing director, wants to be able to use federal aid to replenish reserves taken last year so the city can increase services for the homeless and deliver meals to the elderly during the pandemic.

“It’s not that we’re asking for a blank check,” he said.

The push shows a small loophole that has opened as the economy picks up from the pandemic, sparing governments from dealing with the kind of crippling budget deficits that have persisted for years after the last recession. With their finances generally on the mend, some officials want to use it to replenish depleted savings accounts or pay off debt accumulated last year to stay afloat as much of the country has closed its doors. This puts them at odds with Treasury regulations aimed at ensuring that funds are returned to the economy.

Marc Goldwein, senior vice-chair of the Committee for a Responsible Federal Budget, a non-partisan think tank, said the pullback against the rules of administration reflects the fact that governments have received more “than they know what make it ”.

Yet “it is very much in the spirit of the law to say that states cannot set this money aside,” he said.

Overall, states and cities have been eager to put aid to work, using it to fund direct relief for small businesses, upgrading water and sewer infrastructure, and even local experiments with a universal basic income. And the wide range of expenditures on which aid can be used can easily free up locally generated funds to pay down debt or boost savings. Illinois and New Jersey, for example, have used surprisingly large tax revenues to reduce debt.

Even so, cities like Philadelphia and lobby groups like the National League of Cities have called on the Biden administration to relax some of the restrictions. Treasury officials could make changes to its rules after accepting comments expected on Friday.

The Treasury’s initial guidance emphasizes potential uses of the money like rehiring workers and helping low-income and minority communities hardest hit by the pandemic. It also included a variety of restrictions, including a ban on using it to offset tax cuts. These rules were designed to encourage states and cities to spend money quickly, said Dan White, director of public sector research for Moody’s Analytics.

Putting money into rainy day funds “won’t do anything to increase GDP or job growth today,” White said.

It’s unclear what economic impact it would have if the Treasury rolled back some of the limits. But many governments sold off debt at the start of the pandemic as they braced for a drop in tax revenues. In the second half of 2020, for example, at least a quarter of sales of state and local debt above $ 100 million included a significant element of deficit financing, according to Municipal Market Analytics.

“We had to balance our books. We had to issue debt, ”said Gary Dickson, city supervisor of West Seneca, New York, which took out a $ 600,000 loan last year.

Although he said the aid was “fungible”, giving the city the option of repaying the loan with other funds, easing the restrictions would make things easier, he said.

Philadelphia CFO Rob Dubow told the Treasury that helping local governments rebuild their finances would prepare them for the next economic downturn, according to a letter to the department. Philadelphia, which drew heavily on reserves during the pandemic, predicts its general fund balance will drop to a surplus of $ 78.7 million from $ 438 million before the pandemic, according to a city spokesperson.

Rebecca Rhynhart, the city’s comptroller, wants part of the bailout funds to be used for future tax deficits. She said more funds should be used to tackle gun violence, reduce poverty, tackle the opioid epidemic and grow businesses.

“We have to make sure that we are financially sound,” she said. “At the same time, significant sums must be used to invest in order to meet these challenges. “

Chicago has seen a political debate over how best to distribute aid. Before the Treasury rules were released, Mayor Lori Lightfoot’s administration used it to pay off a loan taken to help close a nearly $ 800 million deficit and cancel a debt refinancing plan, which together , would represent nearly half of the $ 1.9 billion in recovery funds. the city expects to receive.

She has come under pressure from progressive politicians like Alderman Rossana Rodriguez Sanchez, who has said it would be a waste to pay off the debt given a surge in violence and a patchy recovery that leaves people of color behind. and low income communities.

“Now is the time to make an argument for the massive injection of resources,” she said.

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