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Published in Economic Development

Local officials continue to seek billions in direct federal budget aid

BY Wednesday, August 05, 2020 03:53pm

A coalition of Michigan local officials is calling on the Trump administration to back additional direct budget aid for municipalities in the next federal stimulus package, maintaining their months-long appeal to avoid a lasting recession.

This week, the Michigan Municipal League sent a letter — co-signed by 18 local officials across the state on the MML’s board of trustees — asking President Trump to support $375 billion in “direct flexible aid for communities of all sizes” across the U.S.

A May analysis by the National League of Cities estimated Michigan cities, towns and villages will see a total 37.3-percent loss in revenue in 2020 tied to less tax revenue as a result of the pandemic. The analysis predicts a $4.9 billion loss this year for cities, towns and villages, followed by $4.3 billion in 2021 and $4 billion in 2022.

“For our local governments, the COVID-19 pandemic is causing our tax revenues to dry up, as local employers and employees struggle with the challenges of re-opening, re-engineering their businesses to operate in accordance with health and safety guidelines, and trying to retain their customer base,” the letter begins, adding that without additional direct aid, “the economic downturn Michigan now faces will linger even longer.”

Based on how local governments collect tax revenue, the NCL predicts a range of local government revenue losses tied to unemployment. In Michigan, the analysis estimates a 2.88-percent loss in revenue for each percentage point the unemployment rate increases. Michigan’s unemployment rate dropped from 21.3 percent in May to 14.8 percent in June.

Local officials have noted that municipalities carry spending power that in turn benefits the private sector through contracts for goods and services. Without federal support, state and local governments will cut spending, resulting in higher unemployment and less contract work for private companies. Experts have previously told MiBiz this reduces consumption and the ripple plays out in the economy through a multiplier effect, while GDP could shrink by 4 percent.

“When cities suffer, economists tell us that local businesses also suffer,” MML CEO and Executive Director Dan Gilmartin said in a statement.

The MML letter says the U.S. Senate’s proposed HEALS Act “does not include additional funds that local governments need to survive the effects of the pandemic and aid the economic recovery. This omission is a significant concern for us and the voters we all represent.”

The CARES Act included $150 billion for state, local and tribal governments, although the funding was limited to large municipalities for pandemic-related expenses. Trump administration officials and Senate Majority Leader Mitch McConnell have said $100 billion is still available under the CARES Act, though the National League of Cities countered this week that “most of that funding has already been obligated and small cities and rural areas have been left out entirely.”

The Democratic-led U.S. House passed the $3 trillion Heroes Act 208-199 in May, which allocates $1 trillion for state, local and tribal governments. U.S. House and Senate leaders along with the Trump administration are actively negotiating a compromise stimulus plan.

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