Overstimulated: Governors Got The Goods

10/20/2009 05:12 am ET | Updated May 25, 2011

"But it also had a direct -- direct -- you do not -- you get out of jail, you do not have to, you know, do anything other than you pass Go, you go right and you apply for the -- at a local level, you apply for the grant. That's what we wanted to do for an awful lot of what was done in this legislation."- Vice President Joe Biden, September 3, 2009

Yesterday, Vice President Joe Biden addressed a gathering at the Brookings Institution to describe the stimulus package's successes thus far. He cited independent reports showing that between 500,000 and 750,000 jobs have been created or saved as a result of the recovery package and that the stimulus boosted GDP by 2.2% in the second quarter and will likely increase third-quarter GDP by 3.3%. He applauded significant investments in infrastructure, education, and health and called the diversity of programs included in the American Recovery and Reinvestment Act "silver buckshot" -- rather than a silver bullet -- that has changed the "trajectory of our economy."

What the vice president struggled to explain, however, is how the stimulus is helping the nation's cities and metropolitan areas. Obviously, cities would be worse off without the recovery act. Biden mentioned that the State Fiscal Stabilization funds prevented 14,000 teacher layoffs in New York City; funds have gone to Kansas City's innovative Green Impact Zone; and some spending on infrastructure and transit projects has reached cities.

However, as several recent reports have indicated, stimulus spending in metropolitan areas is proportional neither to the population nor to the economic production concentrated in these regions. But the situation is worse than disproportionate spending.

Recent unemployment statistics for metropolitan areas are dismal: 139 metros have unemployment rates greater than 10 percent, 19 have rates of at least 15 percent, and the unemployment rate in 38 increased between five and six percent between July and August. Construction employment is down in 319 metropolitan regions, according to the Associated General Contractors of America, and up in only 11.

Further, the fiscal crisis that has already dealt a serious blow to state services has barely reached city governments. A new survey released by the National League of Cities shows that city budget officers are increasingly worried about worsening fiscal conditions in their cities. 88 percent report worse fiscal conditions in 2009 than in 2008, compared to only 64% who said the same when asked last year. The lag in property tax assessments -- properties in many cities are assessed only periodically -- means that city property tax revenues have not yet been affected by the housing crash. When such assessments occur, revenue will drop significantly. Combined with the likelihood of prolonged unemployment and depressed consumer spending (which mean lower income and sales tax revenue, respectively), the fiscal condition of cities in the coming years appears grim.

Worse, many cities have already run through the "playbook" for tight fiscal times: hiring freezes, selected layoffs, delayed or canceled infrastructure projects, and sin taxes on products like soft drinks and cigarettes. With these options no longer available -- and with 50% of city budget officers already reporting reductions in state aid -- cities will be forced to consider significant budget cuts and tax increases in order to balance their budgets. As the NLC reports states, "the nation's cities will most likely still be realizing the effects of the current downturn in 2010, 2011, and beyond." Oh, and those 14,000 layoffs the stimulus prevented? New York City Mayor Mike Bloomberg has scheduled them for 2013 when the stimulus has run out.

The vice president is, in fact, aware of the problem. In yesterday's speech, Biden emphasized that the Obama administration wanted funds to flow directly to cities, as is the case with his signature COPS program. This is what Biden is attempting to say in the garbled epigraph above. But, the Vice President lamented, "Congress, in its wisdom, decided that the governors should have a bigger input." Biden even complained that he himself -- the Vice President -- is mediating disputes between governors who want to spend money on highways in rural areas and mayors who wanted to spend money on off ramps in cities. He called the difficulty of coordination "the biggest frustration" of the stimulus package.

It is certainly heartening to hear that the highest levels of government are concerned that cities are not receiving sufficient stimulus funds. But what is worrisome is that Congress has tied the administration's hands: the stimulus is designed to deal primarily with state problems, not urban problems. Thus, when Biden promises a stimulus that is a "platform for growth" as part of an administration that calls cities the engines of growth, one cannot help but detect a disconnect.

Stated simply, Congress and the administration will need to focus serious attention -- and money -- on cities in the near-to-medium term. This could be accomplished through categorical formula grants like the Community Development Block Grant or the Neighborhood Stabilization Program that target aid directly to cities or through General Revenue Sharing, essentially a no-strings-attached infusion of cash to local governments.

States are easy for Congress to work with -- there are just 50 compared to the approximately 80,000 different local governments in the United States. But if the federal government does not turn its attention to urban areas soon, not only will city residents suffer disproportionately from the downturn but the entire economic recovery will be slowed.