Governing magazine: State and local government news for America's leaders

Mayors Lobby Congress on Fiscal Cliff Concerns

Local leaders say sequestration could be devastating to cities, but they also worry about the alternatives.
by | November 15, 2012
 

For full coverage of the fiscal cliff's impact on states and localities, click here.

A delegation of mayors from some of the country's largest cities are lobbying federal lawmakers Thursday hoping that they'll avoid the dramatic spending cuts scheduled to take effect in January and keep the needs of local governments in mind as they develop deficit reduction plans moving forward.

Mayors visiting Washington describe the impact scheduled cuts would have on their cities.

The mayors of Baltimore, Denver and Philadelphia are among more than a dozen scheduled to meet with House Minority Leader Nancy Pelosi and Senate Majority Leader Harry Reid, along with their own congressional delegations, at the U.S. Capitol.

Their message? Cities -- facing their sixth consecutive year of declining revenue -- are at their breaking point. Further cuts to federal programs impacting cities could have devastating effects on municipal budgets, particularly in areas involving social services, economic development and infrastructure.

The cuts are the result of last year's failed negotiations over a plan to reduce the federal deficit. Congress approved a plan last year that gave it a powerful incentive to reduce the deficit by $1.2 trillion. If they failed to do so on their own, then by law, automatic spending cuts of $1.2 trillion split evenly between defense and nondefense spending would take effect from 2013 to 2021.

The mayors face a two-pronged challenge. First, they want to avoid the immediate cuts that would come in January through the automatic process known as sequestration. Then they'll worry about what comes next as Congress continues to look at deficit reduction.

In Denver, for example, Mayor Michael Hancock says the city would lose $800,000 in Community Development Block Grants (CDBG) and another $500,000 in workforce development grants each year if Congress doesn't avoid January's scheduled cuts.

"If we don't get this right and we actually go to sequestration, cities across this nation are going to be in some devastating conditions," Hancock told Governing this morning.

CDBG funds are one of the biggest direct sources of federal aid to cities (much of federal funding is delivered to states), putting it high on mayors' priority lists. It's also important to them because there's wide flexibility in terms of how cities can use those funds.

"We use [CDBG grants] in very diverse ways," Baltimore Mayor Stephanie Rawlings-Blake told Governing. "They're helping us build jobs, helping us stabilize communities -- all of that would be in jeopardy."

Many domestic programs would see an 8.2 percent cut under sequestration come January. CDBG, for example, would lose about $243 million.

Housing would take a big hit too. Although those funds don't necessarily go through cities, the programs have a big impact on cities and their residents. Section 8 rental assistance programs would lose more than $2.3 billion, while HUD's public housing programs would lose $481 million.

"If you lose hundreds or thousands of housing vouchers -- even if that's run through a housing agency -- it's still up to the mayor... to figure out how hundreds of families don't end up being put out," said Mike Wallace of the National League of Cities.

Wallace said city leaders are especially concerned about job training and workforce investment programs; funding for waster and wastewater infrastructure; and rural development programs, all of which would also face cuts under sequestration.

Transportation and infrastructure is a trickier issue. Many of those programs would be exempt from the cuts, but not all of them would be. The administration's popular TIGER grants stand to lose $41 million, and the federal government's primary grant program for funding public transit would lose $156 million. Both those programs provide money directly to cities and other entities.

Other mayors, particularly those whose cities are near military bases and defense contractors, fear the impact of scheduled defense cuts. Jacksonville, Fla., Mayor Alvin Brown says the military has a $12.1 billion economic impact on his city. "I think it's very important that we take a long-term, balanced approach to focus on the future of our country."

But in some ways, the more pressing concern is what will happen if sequestration doesn't occur. Although Washington politicians haven't come anywhere near an agreement on how to avoid the cuts, the good news for mayors is that federal lawmakers on both sides of the aisle appear united in their desire to avoid them. What steps they might take in order to avoid sequestration and pursue deficit reduction, however, is still unknown.

One hot topic among state and local governments is whether Congress could alter the federal tax exemption on municipal bond proceeds as a way to generate revenue.

As it stands, that tax exemption essentially functions as a subsidy to the cost of municipal borrowing. Cities and states can pay bond investors lower interest rates than a corporation could, for example, because investors know their earnings won't be taxed. Mayors argue that if the federal government eliminates or caps that tax-free status, then they'll have to offer higher interest rates to make the deals worth it to investors.

Mayors say that at a time when the country's infrastructure is failing -- and when they've already had to put some projects on hold -- increasing the costs of borrowing will only add to their challenges.

"Everyone says that they want to get this country going again and put America back to work," Brown said. "The best to do that is to make sure we work together and create an environment so that we don't have impediments to moving our cities forward."

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