Updated: The $1.9 trillion American Rescue Plan stimulus bill signed into law today (March 10) by President Biden will uncap a gusher of cash for state and local governments across the country—especially in New York, where it shapes up as a public-sector windfall of epic proportions, totaling well beyond any reasonable assessment of real public sector budgetary needs created by the pandemic.

New York’s cut of the bill’s $350 billion in direct aid to state and local governments will total nearly $24 billion, including $12.6 billion in unrestricted cash for the state alone, and $10.8 billion to counties, cities, towns and villages, according to U.S. Sen. Charles Schumer, who touted the bill as his “first major victory as majority leader.”

An additional $8.5 billion, based on initial estimates, will flow through the state to school districts based on the formula used to distribute existing federal Title I aid to disadvantaged students. And as Bill Hammond first reported here, it looks like the stimulus formula was rigged to hand approximately $1 billion in temporarily added Medicaid reimbursements to the state, on top of billions already received for that purpose.

Typical of the official hosannas greeting the stimulus bill today was this statement from Comptroller Thomas DiNapoli, who said the aid “plugs massive budget holes for the state, city and many local communities, bolsters our economy, and supports our battered public transit system.”

In most cases, however, the bill goes far beyond simply “plugging holes.”

New York City alone will receive a combined total of $11.5 billion, divided almost equally between education and other municipal services. This is more than double the city’s projected budget gap of $4.3 billion for fiscal 2022, although the gap itself reflected a rollback of previously planned expenditures and a tapping of city reserves—and the long-term recovery prospects of Manhattan’s lucrative business districts, in particular, remain open to question.

In relative terms, however, the most eye-popping stimulus allocations will flow to New York’s mid-sized cities and larger towns, based on the federal Community Development Block Grants formula.

O Albany!

Take, for example, New York’s capital city. Last November, Albany Mayor Kathy Sheehan estimated a pandemic-related shortfall of $16 million in a roughly $180 million municipal budget. According to Schumer, Albany’s stimulus aid will come to $85 million—roughly $20 million more than its total 2021 property tax levy, and nearly half its total expenditures. In addition to this, the separately budgeted city school district is set to receive an estimated $46 million.

Or consider the bonanza awaiting officials in Buffalo. Last August, when estimates of the pandemic revenue toll were at their most pessimistic, a New York Times report estimated the Queen City faced a revenue shortfall of between $73 million and $104 million. But the stimulus bill will pump a whopping $350 million into Buffalo’s municipal budget alone, plus an estimated $245 million for its (very poorly performing) school system, bringing the city’s total stimulus haul to nearly $600 million.

The school money is tied to a complicated maintenance-of-effort provision, but the municipal money—split into two installments over the next two years—has fewer strings attached. As summarized in a helpful guide from the New York State Conference of Mayors, cities and villages can use the money to:

  • respond to the public health emergency with respect to COVID-19 or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
  • provide “premium pay” of up to $13 per hour, not to exceed $25,000 per worker, to employees performing “essential work” during the COVID-19 public health emergency, or by providing grants to eligible employers (such as health care facilities) that have eligible workers who perform such essential work;
  • restore public service cuts related to the fall in revenues blamed on the pandemic; and
  • make necessary investments in water, sewer, or broadband infrastructure.

Taken together, these four conditions represent a very broad array of uses. And unlike states and territories, local governments are not barred from using their added money to pay for permanent or temporary tax cuts.

The fiscal cliff threat

As Governor Cuomo already has pointed out on the state level, the federal stimulus aid amounts to “the ultimate one shot . . . a sugar high.” The highest priority of state and local officials should be to avoid plowing the federal money into recurring spending commitments that will create bigger budget deficits in the future.

In an ideal world, New York pols will embark on a careful, painstaking assessment of needs, weighing short-term relief against recurring long-term benefits. Since most upstate cities are very old, with crumbling physical infrastructures, they would be well advised to invest the bulk of their “Biden bucks” into streets, sidewalks, water and sewer systems. This will save money on maintenance costs—which are high in many of these places. It also will help these cities retain and attract business activity they cannot afford to lose—and were already losing before the pandemic.

Local governments could also consider ways to help small local retail businesses and their landlords, especially restaurants and entertainment venues, which were crushed by the pandemic. One way of doing this might be a property tax holiday, or a long-overdue assessment and equalization update, whose transitional costs could be covered by the federal money.

Moral hazards in the making

However, 2021 is also a local election year across the state, and so incumbent mayors and other local officials will face strong pressure to splurge on crowd-pleasing amenities, including maximum bonuses to some already well-compensated “essential” personnel on public payrolls along with local versions of the federal stimulus checks already targeted to individuals and households.

Expect lines of special interest advocates—including progressive wealth-redistribution crusaders and public-sector union representatives—to begin figuratively forming outside county buildings, city halls and town offices across New York any day now.

“Plugging holes,” indeed.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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