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Local governments are scrambling for a piece of the $787 billion in stimulus money made available through the American Reinvestment and Recovery Act. The funds aim keep municipalities afloat by bolstering social programs, shoring up vital municipal services such as fire and police, and boosting local jobs and business through infrastructure projects. The federal government seems to be coming to the aid of America’s beleaguered cities in a time of great need, but the reality is that cities and towns have for some time relied heavily on the federal government and the states. Ever since general revenue sharing took off in the 1970s, local governments have received around 38-40 percent of their general revenues from the federal government and the states.
In this current crisis, the stimulus package might provide some additional help, but it’s no panacea for what ails America’s cities and towns. Just how much money will actually trickle down to local governments has yet to be seen. In many states, the amounts for which cities have applied exceeds what’s available. Getting what is available won’t be easy. Maneuvering through the federal and state agencies overseeing the funds is a grant application process that will be a challenge for many. One wonders how much municipal staff time and money will be spent. Some local governments might need a federal grant to hire a grant writer. And since many of the grants require matching funds, municipalities face the added challenge of coming up with their share. The bigger issue is that stimulus funds might mask a larger problem—the continued fiscal distress of cities. Earlier this year, the National League of Cities found that 84 percent of cities surveyed said they were less able to meet their financial needs than a year before. It may be that in this highly integrated economy, local governments no longer have the capacity to develop their own revenue sources. Local governments haven’t been fiscally independent for decades, and the stimulus money continues that trend. This commentary is based on a longer discussion of the stimulus and the fiscal challenges facing cities and towns in the April 20, 2009, issue of Research Reports, available only to subscribers. To subscribe to AIER Research Reports, please become a Sustaining Member of AIER. Membership starts at just $39 per year. Interested in a taste of AIER? Buy this issue of Research Reports for just $2. Already a member? Keep your eye out for the April 20 issue of Research Reports hitting your mailbox soon.
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