How Will County Spend Stimulus Money?

The $1.9 trillion federal American Rescue Plan Act (ARPA) is providing local governments with a windfall of cash and guidelines for spending it, but one provision could give local governments more freedom in spending some of the money.

Both the City of Milwaukee and Milwaukee County have struggled with revenue shortfalls largely due to an imbalance between the state’s shared revenue payments and the cost to provide government services. There is also the repeated refusal by state legislative leaders to grant a local option for a sales tax increase, hampering local efforts to generate additional revenue. So the infusion of ARPA funding creates new opportunities that may have been unthinkable a year ago.

Unlike the CARES Act, governments have much longer, until 2026, to spend ARPA funds. ARPA also has a spending provision that gives local governments more freedom in how they spend some of the funds.

The County Board’s Finance Committee recently approved a resolution that would create a task force that will review and make recommendations for how ARPA funds will be spent. If it passes the full board, it will be co-chaired by the county executive and board chairperson, and members will include the chair of the Finance Committee, the director of the Department of Administrative Services, the comptroller and the director of the Office of African American Affairs.

Milwaukee County is receiving an allocation of $183 million. Meanwhile, the city is receiving $394 million and the state will get $2.5 billion.
Like the CARES Act before it, this latest stimulus package comes with guidelines from the U.S. Department of the Treasury on what the funds can be spent on.

Eligible categories for spending include the public health response to COVID-19, support for local businesses and industries, support or aid for unemployed, investments in hard-hit communities, pay to or grants for essential workers, investments in water and sewer or broadband infrastructure and replacing lost revenue to local governments.

Joe Lamers, director of the county’s office of performance, strategy and budget, told the Finance Committee that all the areas of potential spending will be reviewed with an eye to the county’s strategic plan, specifically the part about investing in equity. This means targeting funds towards projects that will address health disparities, increase diversity and also create a sustainable financial future for the county.

Given the various overlapping interests the county has with the city and the state, Lamers said the county is looking at areas where there could be combined spending on a specific issue. One example he mentioned was housing.

Compared to the CARES Act, Lamers said, the guidelines have “broader flexibility” for spending to replace lost revenue. This is a much more general category of spending that could allow the county to use funding for general government services or capital projects, he noted.

That means there is potentially a $30 million pot of money that can be spent on any number of county projects or services that have nothing to do with COVID-19.

The county’s structural deficit means it begins each year looking at where to cut, not where to invest, Lamers has said in the past. A spokesperson for the Parks Department described how this dynamic plays out in the parks system, given its massive backlog of capital projects and maintenance, saying, “This is a parks system where we don’t get to build anything new; we spend all our money fixing.”

City elected officials have taken note of the opportunities created by ARPA funding. Alderman Robert Bauman has proposed using nearly half of the city’s allocation to repair homes acquired by the city through tax foreclosure and turn them into affordable housing.

For the county, ARPA funds provide opportunities to support a local recovery from the COVID-19 pandemic, and also “to improve our fiscal sustainability not only during the fund, but potentially beyond the life of it,” Lamers said.

But the ARPA funds alone won’t right the ship. The county is estimating a $20 million budget gap for 2022. And if the imbalance between revenues and the growing cost to operate business continues and even rises with inflation, the county would face deficits in the next 20 years that would consume the budgets of entire departments.

How bad could it get? The budget office projects the county could see structural budget gaps of $250 to $300 million by 2040.