We wanted to share testimony that was presented to the Philadelphia City Council’s Committee on Fiscal Stability and Intergovernmental Cooperation on April 13, 2021. The testimony builds on two signature research products published by the Nowak Metro Finance Lab and our partners — a Federal Investment Guide to the American Rescue Plan (ARP), which shows how ARP funds will flow to 84 programs from 19 federal agencies via 7 distribution channels, and the Small Business Equity Toolkit, which shows where the top 100 metropolitan areas stood before the pandemic on the number, size and sector concentration of women and minority-owned firms.
We want to highlight four key takeaways for you to keep in mind as you peruse our testimony. We see this as a framework that local leaders can employ to get their arms around the ARP.
1. City Governance Doesn’t Stop at City Hall
In many cities, local media, advocates and activists have reduced the ARP to their subset of the $130 billion in flexible funding that will flow directly to general purpose local governments at the city and county level. This is understandable given the historic scale and flexibility of the local government aid that the federal government is allocating starting next month and the fact that, in most cities, mayors are the personification of and proxy for all local government. But this reductionist approach radically understates the amount of funding that cities (i.e., governments, networks, residents, enterprises, etc.) are set to receive.
The ARP provides a helpful civics lesson: cities are governed by a plethora of authorities and agencies and amplified by networks of business and non-profit intermediaries. To this end, the Plan will directly fund school districts, public housing authorities, public health centers, and transit authorities via a series of block grants as well as support individuals, enterprises and non-profit organizations via an array of financial products, grants, tax incentives and competitive grants. Focusing exclusively on what City Hall receives undermines the full potential of the ARP to stabilize local economies and put them on course towards a more inclusive and sustainable trajectory.
In reality, City Hall will play a variety of roles deploying the full ARP. Mayors and their senior staff would be wise to chart out a plan that encompasses 2-3 key local priorities and weaves together their roles as a driver, a convener, and a communicator. Flexible relief funds are but one tool in the ARP toolbox to achieve local priorities.
2. City Hall Decisions Must Be Made in the Context of Multiple Funding Sources
City governments are now under pressure from multiple constituencies to fund a disparate set of needs that have emerged from the pandemic. The broader picture of ARP funding and distribution channels described above informs how city governments make decisions about the funding they are receiving directly.
The allocation of flexible local aid dollars, for example, needs to take account of funding for specific purposes (e.g., housing, food insecurity, childcare) that are flowing through other channels. At the same time, federal local aid dollars could have the potential to leverage substantial public, private and civic resources if they are structured correctly. We wrote several months ago about Philadelphia’s efforts to link as many MWBEs as possible to federal Paycheck Protection Program loans, by connecting these enterprises to accountants and other financial navigators on one hand and capital providers (e.g., banks, CDFIs) on the other.
City governments would be well served to deploy their direct funding in a way that builds capacity among existing organizations and intermediaries so that other public, private and civic sources can be fully leveraged. We are past the point where city governments should be providing $10,000 grants to small enterprises, which was needed in the earliest stages of the pandemic. Rather, small amounts of funding to connect the dots between small enterprises, financial navigators and federally backed grants and loans (including Paycheck Protection Program loans, Economic Injury Disaster Loans, Shuttered Venue grants, Restaurant Revitalization Fund Grants and the Child Care Stabilization Fund, State Small Business Credit Initiative and SBA Community Navigator Pilot Program) is what’s needed now.
Capacity-building outside of City Hall should also emphasize efforts that help individuals access relief intended for them. As we outline in the Federal Investment Guide, direct individual relief makes up nearly half of the ARP. Aside from $1,400 stimulus checks, much of this relief is delivered through the tax code (e.g., the EITC and Child Tax Credit) and through state and local agencies (e.g., Unemployment Insurance and Emergency Rental Relief), both of which have suffered deployment issues over the last 12 months. Ensuring that the relief gets into the pockets of the individuals who need it will take work: communicating eligibility, collecting proper documentation and filling out paperwork. As with Philadelphia’s PPP Prep initiative, there are models like the EITC Campaign that can be scaled locally but require an immediate communication effort.
3. Use Safety Net Funding to Simultaneously Drive Business Growth and Development
We wrote recently that “it is best not to judge a [federal] program solely by its label or the administering agency.” Indeed, the ARP includes a diverse set of tools to support small businesses hurt by the pandemic and resources to help small business ecosystems grow back that aren’t necessarily obvious. This is especially the case for social safety net funding. Central elements of the social safety net (e.g., food, childcare, and housing) are ultimately provided by private firms that grow and transport food, care for children, build and manage housing, etc. Public social safety net spending is directed towards these firms so they increase access by providing higher quality services at lower costs to the user. Put another way, social safety net funding is actually a process of public contracting or subsidy (and often both) directed at businesses (small and large) to provide services to eligible recipients. It can therefore be spent in ways supportive of growing Black- and Brown-owned business ecosystems.
Childcare is emblematic of the potential impact of this approach. It’s a sector that is dominated by razor-thin margins, informality, and small firm size — and one where small businesses were hit hard by the pandemic. It is also a sector where 13% of Black-owned firms concentrate (largely run by Black women) and where Black firms have revenues that are 60% smaller than their White-owned counterparts. The ARP provides $175 billion in child-care related funding through an array of block grants, tax credits and existing programs. These funding streams are a potential win-win for cities seeking to help struggling families and close the racial wealth gap. But achieving this potential requires deploying ARP funding with a clear focus and strategic sequence.
To that end, our testimony to the Philadelphia City Council focused on the ARP’s unprecedented support for child care, on both the demand side (helping families afford quality child care) and supply side (helping small enterprises scale to meet demand).
4. Funds in The American Rescue Plan will not all arrive at once. That’s a good thing.
Despite the speed at which some ARP funds will arrive, cities don’t need to invent new priorities overnight. Flexible funds will be best spent on initiatives that help cities build toward the local economy they want ten to fifteen years in the future. ARP funds may ultimately arrive hand-in-hand with additional investments delivered through President Biden’s American Jobs Plan and other federal legislation on infrastructure, innovation, and human capital. Knowing this, cities must plan ahead and make sure ARP funds connect to broader metro goals.
The ARP is a large bill that funds a mix of existing programs and new programs. Each program has unique limits on when funds must be spent (which we highlight in the Federal Investment Guide). The upshot is that not all funding will arrive at once. In fact, funding will arrive in waves as direct transfers get processed, new programs get established, and new applications get processed.
Cities should plan accordingly. They should sequence funding plans across local priority uses for three periods: the next 100 days, the next 6 months, and the next 12 months. More immediate uses should focus on time- or amount-limited programs that already exist (EITC, PPP, etc.), uses six-months out should focus on capacity-building investments, and uses 12-months out should focus on longer-term city priorities that will work alongside the American Jobs Plan. This approach will help make fund deployment more manageable for overwhelmed and understaffed City Halls.
The Bottom Line:
As you go through our Philadelphia testimony and linked documents, keep these four takeaways in mind. The deployment of the American Rescue Plan and existing flows of federal funds resembles a multi-layered game of chess. In the end, winning the game requires not only technocratic skill, clear communication, and strategic choice but a firm conviction about local priorities and smart investment in building the capacity of organizations that can deliver these priorities effectively, efficiently and equitably.