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Municipalities Hit Spending Struggles with Federal COVID Relief Dollars

July 18, 2023

Article courtesy MIRS News for SBAM’s Lansing Watchdog e-newsletter

Federal funds intended to stabilize the budgets of local communities have proven a daunting task to take down for multiple reasons, a recent policy survey by the University of Michigan found. 

Cities, villages and townships trying to spend the $4.4 billion of COVID-19 relief funding from the 2021 American Rescue Plan Act (ARPA) have hit snags along the way, including inflation, supply chain issues, bureaucracy and the amount, a University of Michigan Center for Local, State, and Urban Policy (CLOSUP) survey found.  

“It’s kind of like a boa constrictor having to swallow a pig. It’s a large infusion of money that many local governments were not prepared for in the beginning,” said Tom Ivacko, CLOSUP Executive Director. 

Ivacko said municipalities were spending the money in 13 different categories and communities with more than 30,000 residents saw 81% spending some of the funding on capital improvement projects. Overall, 53% of all local governments were spending some of the ARPA funds on public buildings, public parks or other such projects. 

He said the next biggest portion that municipalities were spending money on was local infrastructure projects, with 38% spending on roads and bridges and 31% spending on sewer infrastructure, with 44% spending on water projects. 

Ivacko said Michigan was a departure from the national trend in these respects. In other states, the top sources were backfilling lost tax revenue from early in the pandemic. 

“The thing that it says to me is that is a reflection of the fact that the system of funding local government in Michigan is broken,” he said. 

He pointed to the American Society of Civil Engineers 2023 Report Card that had the infrastructure of the state at a C- in May.  

“I believe that is a result of this broken system of funding here in the state, and so to see ARPA funds going, primarily to these kinds of infrastructure and capital improvement projects, isn’t necessarily surprising to me,” he said. 

Michigan Municipal League (MML) State and Federal Affairs Director John LaMacchia agreed that the funding system was broken. 

“In order to correct some of those things, that is really where we need the state to partner with us, because not all of those things require financial resources. Some of it requires policy changes that would allow local governments to better track the economy, rather than always dealing with the negative impacts,” LaMacchia said. 

He said he was glad to see all the one-time funding that was in the current budget waiting for Gov. Gretchen Whitmer’s signature, but that didn’t deal with the ongoing challenges faced by municipalities. 

He said there are budgetary constrictions put on local government that are antithetical to what Whitmer has been asking from them to attract population.  

“If we don’t invest in our communities, it’s kind of a core function of that, we’re going to continue to see population declines or the lack of growth in population being consistent and persistent,” LaMacchia said. 

He said the MML doesn’t tell members how to spend their money, but he said they have set up programs to help them unhinge their jaw further to swallow the pig. 

Ivacko said associations like the MML, the Michigan Association of Counties, and the Michigan Townships Association have helped in those regards, which numbers in the survey bore out. He said 47% of the municipalities that responded to the survey were challenged by bureaucratic issues, which was down from 55% in 2022. 

LaMacchia said the MML has asked municipalities to be mindful about how they are spending ARPA funds and make them last or be generationally impactful. “I have great confidence that our members have gone to extensive lengths to spend these resources appropriately and in ways that are going to have long and lasting impacts,” he said.

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