Unpredictable Intergovernmental Aid Is Particularly Challenging for Cities

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Route Fifty’s 2018 Management Survey reveals an emerging hindrance to sound budget planning at the state and local levels.

State and local officials mostly find intergovernmental financial support unpredictable, despite viewing themselves as collaborative with public sector partners, according to Route Fifty’s recently released 2018 Management Survey.

Only 35 percent of respondents—a mix of state and local employees across 48 states—felt they could rely on intergovernmental aid despite 91 percent saying they have such partnerships.

Route Fifty’s findings reflect an emerging trend also identified by the National League of Cities in its 2017 City Fiscal Conditions report, which which flagged federal and state aid as the municipal revenues that had decreased most broadly.

“That unpredictability is the key challenge,” Christina McFarland, research director at the NLC Center for City Solutions, told Route Fifty by phone. “Intergovernmental aid has become less and less vital as part of cities’ general funds.”

Many cities now prepare for decreases in intergovernmental aid by proceeding as if federal and state funding is not a sure thing, she said. In that way they ensure the sustainability of critical programs like housing, as well as personnel.

The Housing and Urban Development Department’s long-standing Community Development Block Grant, which funds affordable housing, anti-poverty and infrastructure programs, has been decreasing for years now. State budget stability remains a larger concern for cities though because that’s where most of their intergovernmental aid comes from, McFarland said.

About 60 percent of mayors expect less support from state government in 2018 and 57 percent less support from the federal government, according to the 2017 Menino Survey of Mayors released in late January.

Route Fifty’s survey further found that state and local leaders were more concerned with federal and state preemption, respectively, hindering their organization than rank and file employees. About 50 percent of leaders said they were negatively affected by federal preemption, compared to 74 percent by state preemption.

Preemption efforts have involved the withholding of intergovernmental aid, McFarland said, though it’s not a “widespread” occurrence.

The Justice Department, for instance, has effectively held up justice assistance grants in legal disputes with sanctuary cities, and Arizona threatened to withhold revenue from Tempe to deter the city from adopting paid sick leave measures.

A bigger hindrance to city finances are state limits on property and sales taxes that would otherwise fund critical infrastructure, McFarland said.

Then there are unfunded mandates like highway maintenance, which some states pass on to localities directly or indirectly by waiting until they make the repairs themselves. When that happens, local priorities take a backseat, McFarland said.

“There are a whole bunch of pieces in play,” she said. “Intergovernmental aid is just one component.”

Dave Nyczepir is a News Editor at Government Executive’s Route Fifty and is based in Washington, D.C.

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