States, Cities Spar Over Stimulus Money

By: - December 18, 2008 12:00 am

The nation’s cities and counties are asking Obama transition officials to give them most of the infrastructure money from the multibillion-dollar economic stimulus package, setting off a dispute with the states over who can launch transportation projects the fastest.

The disagreement over the stimulus money partly reflects the increased tension between state and local governments during a worsening recession.

Many city and county leaders already are upset at state officials who are slashing aid to local governments to cover budget gaps. Their anxieties over being shortchanged were heightened Dec. 2 when 48 current and incoming governors met with President-elect Barack Obama to ask Obama to direct much of the stimulus money to states.

Especially since that meeting in Philadelphia , the mayors and other local government officials have been stepping up their effort to persuade Obama’s transition team and members of Congress that governors and states should not get most of the money, because cities and counties have most of the infrastructure. The stimulus package could exceed $500 billion, with an undetermined amount going to infrastructure projects that would help create 2.5 million jobs.

“The quickest, most effective way to achieve the intended results of a federal stimulus package is to send federal funds directly to local governments,” the National League of Cities and the National Association of Counties said in a report delivered to the Obama transition staff Dec. 15.

John Horsley, executive director of the American Association of State Highway and Transportation Officials, countered that the simplest approach would be for the federal government to distribute the money as it does now: first to states, which then divvy it up among local governments and transit agencies based on existing formulas.

“If money flows through states, we are confident we can create jobs quickly,” Horsley said. The highway group has identified billion of ready-to-go projects in states.

Speed is critical. Obama and transportation financing analysts say that in order to create jobs fast, the stimulus money should fund only projects that could be started within six months instead of long-term, multiyear projects such as widening an interstate highway, replacing a bridge or building a giant dam.

Often states funnel federal money to cities and counties through a metropolitan planning organization. The local officials are telling Obama’s transition team that it would be faster to hand the money directly to the planning agency, eliminating the state altogether in the distribution of funds.

“We must make sure that the funding is spent quickly, and not stuck in federal or state bureaucracies,” said Miami Mayor Manny Diaz, president of the U.S. Conference of Mayors. The mayors have submitted a $90 billion infrastructure plan to the transition team.

State officials doubt that channeling the money to cities and counties would save time. More to the point, they believe that state governments should oversee the money, because they can determine transportation priorities for the entire state, not just one area.

Raymond C. Scheppach, executive director of the National Governors Association , said Congress set up the current system, with state transportation departments making most spending decisions, because states can look at the big picture of road and rail projects within their borders while local governments are concerned only with their own transportation network. Someone has to integrate all of the projects within a state, he said.

“It has to do with setting priorities,” Scheppach said. “You have to plan statewide.”

But city and county officials worry that the states will favor more statewide projects at the expense of local ones. Obama is broadly defining infrastructure as highway, road, bridge and rail projects but also waterways, hospitals, schools and even broadband Internet.

“The majority of America ‘s infrastructure is built and maintained by counties and cities,” said Larry Naake, executive director of the National Association of Counties. The association has identified $21.9 billion of ready-to-go infrastructure projects.

State lawmakers from metropolitan areas are caught somewhat in the middle of the dispute, because they also represent local governments in the legislature.

“There are probably some local governments that are more nimble, less bureaucratic and able to move quicker” than states, said state Sen. Bruce Starr, a Republican whose district includes four cities outside of Portland , Ore.

Kathleen Novak, mayor of Northglenn, Colo., and current president of the National League of Cities, said states and local governments agree on Obama’s broad goal of investing in infrastructure to help turn the economy around by putting people back to work. “It’s a question of how it (the money) gets there,” she said.

A spokesman for state transportation officials, Tony Dorsey, struck a similar note. State officials are not trying to pick a fight with local governments, he said. “But we have a proven system that works. All we have to do is get the money in the pipeline.”

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.