Local governments worry about getting stiffed

As Congress and President-elect Obama’s transition team craft a stimulus plan, one big question they will have to settle is just how the money will be distributed to ailing states and cities.

The recovery package is expected to be the largest government intervention in the economy since the New Deal. Still, some local officials are worried not enough money will trickle down to them.

{mosads}“There is likely to be some tension there, and sharp elbows,” said Gerald Warburg, a lobbyist for Cassidy & Associates who represents El Segundo, Calif., and several other towns and cities in the West.

Some local officials view governors as the public-sector equivalent of bank executives, whom critics accuse of hoarding the federal bailout money they got to repair balance sheets rather than to increase their lending, which had been the original purpose of the cash infusion.

Local officials are worried the money will similarly “disappear” at state capitals, going to fix budget holes instead of building projects, Warburg said.

“I think our clients want to have as much of a role in that as they can and not just leave it up to the states,” said Paul Schlesinger, who lobbies on behalf of a range of cities and counties at Alcalde & Fay.

David Quam, director of federal relations for the National Governors Association, said states and local governments are not at cross-purposes. Money to state budgets — to pay for Medicaid costs, for example — means that state programs that support local budgets won’t have to be raided to make up for shortfalls.

“To the extent that states can be helped out, local governments can benefit from that,” Quam said.

But tension between state and local officials does exist, perhaps nowhere more so than in South Carolina, where Republican Gov. Mark Sanford has voiced his opposition to the outlines of an economic stimulus package while local lawmakers are pushing for federal money.

“Our governor has made it clear he doesn’t like the stimulus,” said Bob Coble, mayor of Columbia, S.C. “If South Carolina is going to get the money that is needed, it will have to go to the cities. I’m not sure what would happen if the money went to the states. We’re very concerned [about] the money get[ting] to the local level to help.”

Coble has submitted an economic stimulus paper to President-elect Obama’s transition team, and is pushing for roughly $100 million in federal money to support local transportation programs and to make local government buildings energy-efficient.

Meanwhile, governors of five large states, among them New York, Ohio and Massachusetts, have recently pushed up their request to $1 trillion over two years, including $350 billion in infrastructure funds, to help states withstand steep budget shortfalls. That is much more than Democrats say they are contemplating for infrastructure projects. The U.S. Conference of Mayors has drawn up its own list of some 15,000 infrastructure projects in 641 cities, worth $100 billion.

“The states are really arguing for the federal funds to go directly to the states and then [they] would dole it out,” said Steve Traylor, of the National Association of Counties. Cities and counties, he says, are arguing that at least a portion should go directly to the local governments because they know what the problems are. “There is a bit of a conflict there,” he said.

Roger Gwinn of the Ferguson Group said his team has focused on building support for federal programs that distribute money directly through cities, towns and counties based on well-known formulas, such as the Community Development Block Grant program, the State Revolving Fund, and an energy conservation and efficiency program directed by the Energy Department.

One particular area of concern is how money for transportation programs will be allocated. Money from the surface transportation bill Congress approves every five years or so is distributed by formula. But that formula may not apply to the stimulus.

“Certainly, the preference among my clients is to put the money out by formula and not make any changes to it,” said John Cline, of the C2 Group. If the money were instead given directly to the states to then disburse to cities, Cline says, his clients might lose out.