As cities across the United States begin to emerge from the fiscal support provided by the American Rescue Plan Act (ARPA), they encounter new challenges in managing their budgets and ensuring financial stability. The transition from reliance on federal funds to self-sustaining financial practices has prompted a critical reassessment of local fiscal policies. With soaring infrastructure needs and fluctuating revenues, municipalities are engaging in a complex balancing act to navigate present and future financial landscapes.
The approach taken by many local government officials can be likened to a delicate dance; while they celebrate the buffer that ARPA funding has provided, they also grapple with the impending fiscal cliff as those funds dwindle. Lisa J. Cipriano, director of budget and evaluation for Newport News, Virginia, articulated a prevalent concern among municipalities: “Our biggest challenge is not the replacement of the ARPA funds, it’s how are we going to pay for the future debt.” This sentiment reflects a broader anxiety permeating local governments as they transition from a period of enhanced funding to one that demands innovative revenue generation strategies.
The challenges cities face are reflected in the annual report released by the National League of Cities (NLC), which highlights that average municipal spending for the fiscal year 2023 increased by 6.7%, even as revenues showed signs of decline. The disparity raises questions about sustainability, particularly as public safety absorbs a significant portion of city budgets—over 25% of the total general fund. As municipalities are left to strategize where to allocate scarce resources, they are left in precarious positions.
Strategic Planning: Preparing for a Leaner Future
As cities confront the reality of operating without ARPA funds, it’s imperative for them to develop strategic plans tailored to their unique situations. According to the latest NLC report, nearly 65% of surveyed cities are either crafting or have established plans to navigate the post-ARPA fiscal landscape. This proactive approach acts as a critical tool in mitigating budgetary gaps and preempting future crises.
For example, Rebecca Fleury, City Manager of Battle Creek, Michigan, revealed her city’s pivotal shifts in fiscal policy, noting the transformation of their fund balance policy from a conservative 8% to a more robust range of 15%-17%, ultimately achieving a 22% balance. This upward trend in reserves is not just for show; it positions the city favorably in the eyes of credit rating agencies and allows for leveraging better terms for future borrowing. “When you go to the market with a fund balance at 22%, it’s significantly more appealing than an 8%,” she notes, underscoring the link between reserves and municipal creditworthiness.
Debt management remains another critical issue as cities navigate their fiscal futures. Local officials repeatedly cite infrastructure debt as a significant drag on budgets, yet maintaining a healthy reserve can often make it easier to sell new credit to fund essential public projects. The anticipated bond issuance for fire station improvements in Battle Creek, valued at $28.5 million, demonstrates this principle in action. With an elevated fund balance, Fleury feels more empowered to advocate for large-scale projects, reducing apprehension about potential credit downgrades.
Conversely, municipalities like Madison, Wisconsin, face daunting structural challenges in balancing their budgets. After banking on ARPA dollars, Madison now contends with a $22 million gap— a dilemma that has lingered for over a decade. As they seek voter approval for increased property tax rates, the situation serves as a poignant reminder of the fragile balance between revenue generation and public approval for tax increases.
As America’s cities work diligently to chart a course toward fiscal resilience in the absence of ARPA support, one central theme emerges: proactive planning and strategic management of resources are paramount. Each municipality must weigh the benefits of maintaining larger reserves against the opportunity costs of unutilized funds. By facing these challenges head-on, cities can emerge more robust and prepared to meet the demands of their communities while fostering sustainable growth. The journey is undoubtedly complex, but necessity and ingenuity will drive local governments toward new horizons.