Cities awash in rescue cash want to save it for rainy day | News

America’s states and cities are receiving $ 350 billion from Washington, an unprecedented move to avert a financial crisis that would have derailed economic recovery.

But at least two dozen local governments and lobbying groups are urging President Joe Biden’s administration to use the federal funds to do something the Treasury Department didn’t plan: pay off or cancel debt.

Among them is Oceanside, a 176,000-resident city on the Southern California coast. Michael Gossman, deputy city director, wants the federal aid to replenish the reserves drawn last year so that the city can increase services for the homeless and deliver meals to the elderly during the pandemic.

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

The push shows a small chasm that is opening as the economy returns from the pandemic, saving governments from facing the kind of crippling budget deficits that have persisted for years after the last recession. With their finances in good shape by and large, some officials want to use it to replenish depleted savings accounts or pay off debts that ramped up last year to stay afloat as much of the nation was shut down. That brings them into conflict with Treasury Department regulations, which are designed to ensure the money is pumped back into the economy.

Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, an impartial think tank, said the rejection of government rules reflected the fact that governments have been given more “than they know what to do with them” .

“However, it is completely in line with the spirit of the law to say that states cannot put this money away,” he said.

Overall, states and cities have sought to turn the aid into action by funding direct aid to small businesses, upgrading water and wastewater infrastructure, and even funding local experiments with a universal basic income. And the wide range of expenses that the aid can be used for can easily free up locally generated funds for debt reduction or boosting savings. Both Illinois and New Jersey, for example, have used unexpectedly high tax revenues to pay off their debts.

Even so, cities like Philadelphia and lobby groups like the National League of Cities have asked the Biden government to ease some of the restrictions. Tax officials could make changes to their rules after accepting comments due on Friday.

The Treasury Department’s initial guidelines emphasize potential uses of the money such as re-employment of workers and support for lower-income and minority communities hardest hit by the pandemic. It also contained a variety of restrictions, including a ban on using it to offset tax cuts. These rules are designed to encourage states and cities to spend the money quickly, said Dan White, director of public sector research at Moody’s Analytics.

Putting the money in Rainy Day funds “won’t do anything today to boost GDP or job growth,” White said.

It is unclear how much economic impact it would have if the Treasury Department cut some of the borders back. But many governments sold debt in the early days of the pandemic as they prepared for tax revenues to collapse. For example, in the second half of 2020, according to Municipal Market Analytics, at least a quarter of government and municipal debt sales over $ 100 million included a significant element of deficit financing.

“We had to balance our books. We had to go into debt, ”said Gary Dickson, city overseer for West Seneca, New York, who took out a $ 600,000 loan last year.

While he said the aid was “fungible,” he said the city had the flexibility to pay off the loan through other means, easing restrictions would make things easier, he said.

Philadelphia finance director Rob Dubow told the Treasury Department that helping local governments rebuild their finances would prepare them for the next economic downturn, according to a letter to the department. Philadelphia, which has drawn heavily on reserves during the pandemic, predicts its total fund balance will fall to a pre-pandemic surplus of $ 78.7 million from $ 438 million, according to a city spokesman.

Rebecca Rhynhart, city controller, wants some of the rescue funds earmarked for future tax losses. She said other funds should be used to fight gun violence, reduce poverty, fight the opioid epidemic and grow business.

“We have to make sure we are financially healthy,” she said. “At the same time, significant amounts of money must be spent on investments in order to meet these challenges.”

Chicago has seen a political debate about how best to share aid. Before the Treasury Department’s rules were released, Mayor Lori Lightfoot’s administration used them to pay off a loan taken out to close a deficit of nearly $ 800 million and to repeal a debt refinancing plan that combined nearly half the city’s $ 1.9 billion recovery fund is expected to receive.

She has been pressured by progressive politicians like Councilor Rossana Rodriguez Sanchez, who said it would be wasteful to pay off debts in the face of a surge in violence and an uneven recovery that leaves people of color and low-income communities behind.

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

As an Amazon partner, I earn from qualified purchases.