Local Governments Could Get Short End of Federal Stimulus funds

This is the Valley Industry & Commerce Association’s (VICA) monthly column for the Business Journal. VICA is a business advocacy group representing the San Fernando Valley and surrounding areas. Whether it’s called the American Recovery and Reinvestment Act, the Recovery Act or the stimulus, there is concern that the funds set aside by the federal government to help pull the country out of its recession are not getting where they need to go and are slow to get anywhere. When the federal government was deciding the best and most efficient way to get the stimulus money out across the nation, it opted to use existing channels. This means that all Recovery Act funds must go through the states — the federal government will not work directly with local governments. The argument to distribute the funds in this way was based on putting the money to work quickly. However, quick seems to be a relative term when it comes to government action. Since the Recovery Act passed in early 2009, the best estimates project that only one-third of the funds have been sent to the states. It is up to the state’s discretion to determine where the money goes without any stipulation that the funds be spent in areas of greatest population, where it would often do the most good. The City of Los Angeles has a full-time person dedicated to tracking the stimulus funds and working with the various levels of government controlling the money. Other, smaller Valley cities that do not have the staff to support full-time attention to the Recovery Act are likely missing out on funding. While local governments wait for the money that’s been promised for infrastructure projects including much-needed street repair, they are stretching budgets already in the red and borrowing to pay for the projects in advance. Here is the Recovery Act’s catch: local governments must spend their own money upfront and then wait for reimbursement from the state. Already facing a huge budget deficit, the City of Los Angeles is borrowing funds to start stimulus projects. The city expects to receive about $700 million, but has yet to see an actual penny from the federal government. City officials are hoping that other parts of the Recovery Act will bring much-needed funds into the city through incentives for individuals and businesses. They predict that the money given directly to the local government will only be a small portion of the funding that actually comes into the city. Although the funds from individual and business incentives do not go directly into city coffers, they add revenue to the local economy. The individual incentives offered by the Recovery Act range from unemployment insurance for states with an unemployment rate 1 percent or more above the national average to tax breaks for first time homebuyers. Businesses can take advantage of small business loan programs and payroll tax credits for hiring veterans and at-risk youth, among other benefits. What L.A. will actually do with the money that it receives from the state still remains to be seen. Local officials say they are working hard to be fair to citizens across the city and ensure that the stimulus funds are equitably distributed. Most Valley residents and business leaders would be skeptical of such a claim. California is expected to receive $31-60 billion over the next three years, when and how that money will work its way down to the average citizen or business owner is unknown. Additional information about the Recovery Act as it relates to the City of L.A. can be found at http://recovery.lacity.org. Do you think that the American Recovery and Reinvestment Act is working? Do you think that the state will give local governments their fair share of the funds? E-mail your responses or thoughts about the column to [email protected].