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As billions of dollars of federal stimulus money works its way to U.S. state and local governments, the people in charge of figuring out how to spend it face an unusual conundrum. How do you maximize a one-time revenue windfall when so much of a municipal budget, from salaries to building upkeep, is devoted to ongoing expenses?
“This is a nice chunk of change,” said Hughey Newsome, chief financial officer for Michigan’s Wayne County, speaking at a Thursday briefing organized by the Volcker Alliance. “But the issue is, it’s a one-time influx of cash. We can’t give raises. And if we make a capital investment, what about the maintenance? We’d need to make sure we do something in the operational budget to address it.”
The COVID pandemic dealt a blow to the budgets managed by Newsome and Mayor Kim Norton of Rochester, Minnesota, also a participant at the conference.
Rochester’s economy depends on medical tourists coming to the famed Mayo Clinic – usually 3 million visitors a year, Mayor Norton said. Early on in the pandemic, the city cut $100 million from a $472 million budget, but managed to avoid laying off staff. Officials also delayed a tax increase, and cut back on collecting various user fees to support local businesses and households.
In Wayne County, home of Detroit, which had only exited bankruptcy five years earlier, Newsome said officials immediately feared the worst. “We started to prepare ourselves for a recession like in 2008-2009,” he said.
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Even though that worst-case scenario didn’t materialize, the county still got whacked. “As COVID hit as we were still dealing with structural budgetary problems. We have constrained revenues and rely heavily on property tax revenues,” Newsome said.
That means Wayne County officials are thinking big about how to use the rescue money to bring the budget into balance. The county will receive $339 million — compared to a general fund budget of about $560 million — and hopes to get a small share of money from the state as well. “We are trying to be strategic because this is transformative money,” Newsome said.
In contrast, Rochester will receive only $17 million directly, Mayor Norton noted, and “It will be spent to buffer the next five years.” City officials will front-load the money for the next few years, which they expect to be the hardest, even as they prepare residents for a small tax increase.
The city continues to prioritize supporting those who were hit hardest during the pandemic, reopening the city, and on economic development. Rather than using rescue money to directly support small businesses, Rochester is focusing on “getting people out there” to support businesses in person, Mayor Norton said.
