Some New York local governments are soliciting input from residents as they decide how to spend billions in pandemic emergency dollars earmarked in March under the $2.1 trillion federal American Rescue Plan (ARP).

It’s a chance to shore up local government finances.

The ARP allocated more than $23 billion to New York, with set-asides to the state ($12.7 billion), 43 cities ($6 billion), 62 counties ($3.9 billion) and nearly every town and village ($774 million). Specific allocations for each of New York’s cities and counties are posted on the U.S. Treasury site. While the state got all its money up front, local governments get theirs in two equal tranches: the first they have or will soon receive; the second arrives next spring. Recipients have until December 2024 to obligate the funds.

Nationally, a total of $350 billion was allocated to states and localities under the ARP. It was primarily intended to fill anticipated budget gaps arising from pandemic-induced revenue loss. But the dip in receipts was unexpectedly modest and short-lived. That’s why the Wall Street Journal suggested this week that unspent allocations to states and localities be redirected to offset the cost of a pending federal infrastructure bill.

That’s not likely to happen. So, New York localities should seize this opportunity. They may not be particularly cash-strapped today, but dark clouds loom on the horizon. New Yorkers are arguably the most-heavily taxed Americans. Yet jurisdictions throughout the state face gaping long-term deficits because they’ve also encumbered future tax revenue by promising unsustainably generous retiree health benefits (aka OPEB) to employees—and set aside no funds to pay for it. A recent study estimated Empire State residents owe an average of $16,000 each as their share of the OPEB liabilities already incurred by every level of government in New York.

ARP funds can be used to address such liabilities and to curb future borrowing needs, however doing so requires localities to negotiate the unhelpful and byzantine Treasury Department interim final guidance issued in May, which explicitly prohibits the backfilling of pension or rainy-day funds. And it circumscribes spending on pay-go infrastructure projects.

But considerable discretion remains. A Treasury FAQ clarifies that funding OPEB is an eligible use of funds. Water, sewer and broadband pay-go infrastructure projects are permitted. And, importantly, to the extent that a jurisdiction identifies a revenue loss in 2020 or subsequent years (via a calculation formula laid out in the IFR), the dollars required to cover that loss can be used broadly for “provision of government services” to include, for example, any type of pay-go infrastructure projects.

At minimum, localities must avoid using this windfall to incur recurring expenses—such as new public employee hires—that must be funded by local revenue sources once the ARP funds are exhausted. That would put them in worse shape than they’re in today.

You may also like

While New York’s Medicaid Budget Soared, Public Health Funding Languished

Four years after a devastating pandemic, the state has made no major investment to repair or improve its public health defenses. While funding for Medicaid over the past four years Read More

New Jersey’s Pandemic Report Shines Harsh Light on a New York Scandal

A recently published independent review of New Jersey's pandemic response holds lessons for New York on at least two levels. First, it marked the only serious attempt by any state t Read More

DeRosa Is Still Hiding the Truth About Cuomo’s Pandemic Response

As the long-time top aide to former Governor Andrew Cuomo, Melissa DeRosa ought to have useful information to share about the state's pandemic response – especially about what went wrong and how the state could be better Read More

Hochul Signals Tough Budget Ahead

Governor Hochul’s administration this week urged agency heads to keep their budgets flat next year. It's the most serious acknowledgement yet of state government’s looming financial shortfall. Read More

Migrants, Medicaid, and More: NY’s Widening Budget Gap

The multi-billion-dollar gap Governor Hochul and the Legislature must confront in next year’s state budget appears to be growing larger.  Read More

The Health Department’s Medicaid ‘Unwinding’ Report Leaves a Key Question Unanswered

As Medicaid downsizes in the aftermath of the coronavirus pandemic, reporting by New York and other states is missing data on an important group – outgoing enrollees who successfully made the switch to job-based insurance Read More

At mid-year, NY still far below most states in pandemic jobs recovery

New York has added private-sector jobs in all but three of the 38 months since the COVID-19 outbreak of March 2020—but the Empire State remains below its pre-pandemic employment level and continues to trail the national recovery. On a seasonally adju Read More

School’s Out and Session’s Out – What Happened this Year?

The 2022-23 school year and legislative session have come to a close—what happened? The following summary outlines key legislative changes affecting education in New York.   New York ranks #1 in spending. Read More