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Opinion | Michigan strains to spend $4.4 billion in local pandemic funds

As the nation faces yet another battle over a federal debt ceiling this summer, with a divided Congress, some members are calling for claw backs of the American Rescue Plan dollars that went to state and local governments as a strategy to shore up the federal budget.  

The genesis of these dollars was during the first two years of the pandemic and the fear was that business closures and a stagnant economy would wipe out state and local finances.  However, the federal government stepped in and provided massive infusions into the economy including direct aid to local governments on a scale that hasn’t been seen since the 1970s’ federal general revenue sharing.

Eric Scorsone, Mary Schulz and Sarah Klammer
Eric Scorsone is director of the MSU Extension Center for Local Government Finance and Policy. Mary Schulz is associate director of the center. Sarah Klammer is an academic specialist at the center. (Courtesy photos)

This result: $4.4 billion was infused into Michigan local governments beginning in the summer of 2021 through the American Rescue Plan Act (ARPA). Every local government in the state received an allocation, with 77 percent ($3.4 billion) going to 64 larger local governments in the state like Wayne County, Grand Rapids, Lansing and Flint. 

Both opportunities and challenges were evident as this money began to flow. Some of these challenges were mitigated by recent increased spending flexibility. However, other challenges exist which require different remedies — and the clock is ticking.

This $3.4 billion is beginning to be obligated but spending needs to be accelerated.  

As of the 4th quarter of 2022 reporting by these 64 units, almost $1 billion, or nearly 30 percent,  has been obligated to specific projects. A few of these units have obligated 100 percent of their State and Local Fiscal Recovery Funds (SLFRF) ($38 million) and, at the other end, seven haven’t obligated a cent. 

Ironically, the high return on invested money may be impacting the speed of spending ARPA funds.

There are multiple challenges at play when it comes to obligating these funds, chief among them capacity constraints for those local governments used to less resources in general, as well as issues related to the current economic climate. 

Spending ARPA money in many cases means having the workforce and contractor capacity to do so. Michigan local governments have approximately 20,000 fewer employees than a decade ago. The construction and contractor sector also has thousands of fewer jobs than existed a decade ago. These workforce shortages are not going to be resolved quickly or easily. The reality of Michigan’s smaller workforce means it’s harder to get things done just as the federal money arrived.  

Workforce capacity constraints have simultaneously been met by accelerating inflation especially for construction and infrastructure projects. Almost every construction cost index has costs accelerating at double digit levels for the past two years.  

Further, wage costs are rising, a clear benefit to workers, but a potential problem for local government budgets.

Local governments now face the dilemma of being flush with one-time federal and state money but face serious capacity constraints, rising costs and rapidly approaching deadlines to encumber or spend the money. Any future planning on ARPA spending needs to take these factors into account.

Local units have been advised to look for opportunities to leverage their funds and take advantage of additional state and federal resources. Looking for and managing state and federal grants requires having staff with grant writing and management expertise.  

ARPA compliance reporting, while important for accountability and the tracking of vendors or other entities working with the local government, requires staff in the very areas that have often been cut or reduced over the past decade. Workforce capacity for local governments is a major theme emerging in ARPA discussions.     

To date, there has not been much coordination between the state and most local governments on ARPA project spending. However, the state is providing leveraging opportunities. 

Some localities have collaborated and prioritized universal internet access for their ARPA allocations to limit local competition for limited workforce resources. The state launched the $238 million broadband grant program, Realizing Opportunity with Broadband Infrastructure Networks (ROBIN), which received overwhelming interest.  

If collaborative efforts between local units are not prioritized, some communities could find the ARPA spending deadline problematic. 

The work that local governments do and the infrastructure that they are responsible for in service of residents’ health, safety and welfare requires people, lots of skilled people. It also takes resources — technological, raw materials, equipment and factories. 

Michigan adapted to being deprived for so long it just felt normal. It will take time to attract trained and/or retrain workers and supply the resources. Having the money is not the same as being able to push it out the door and invest it in people and places.

ARPA money represents a once-in-a-lifetime opportunity for Michigan local governments to invest in key areas such as infrastructure, quality-of-life services and building resilience for future natural and health disasters.  

These investments will be crucial to offset the years of divestment that have occurred across Michigan communities. These divestments have led to an economy that is slow growth in the best of conditions and a very unfavorable demographic outlook over the next few decades.  

Now is the time to move forward with plans and investment that alter the path of these troubling trends. 

The Extension Center for Local Government Finance and Policy at Michigan State University will continue tracking ARPA state and local funding usage for all Michigan local governments in the coming months. 

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