Everyone wants in on the bailout gravy train, cities too

Hank Paulson may have created a monster. He has recently said that he does not want to use the TARP (Troubled Asset Relief Program) to buy dodgy assets as he originally billed the U.S. bailout measure. Instead, he wants to inject cash into consumer-oriented areas, now that the finance sector has seen major bailout cash. As a result, a lot of companies see a prime opportunity to get some desperately needed cash. But, cities are also lining up for cash too.

I have seen multiple sources reporting on this but two in particular bear mentioning. First is the Calculated Risk post, “San Jose to Request $14 Billion from TARP” taken from a San Jose Mercury News article:

San Jose Mayor Chuck Reed said Friday he’s working with leaders of other large California cities to make sure they’re not left behind.

The stimulus package Congress passed last month wasn’t designed to dole out money to governments, so it’s far from clear whether San Jose will get a piece. But with $1.6 billion in unfunded retiree health care obligations, plus $500 million worth of local and regional road work to be done and the $750 million price tag to bring BART to the South Bay, Reed noted the city has a full slate of needs.

The Wall Street Journal also covers the desperate need for cash at the municipal level in the U.S. :

Requests for federal emergency funding are piling up, with the latest requests coming from cash-strapped cities seeking help to shore up budgets strained by sinking revenue, pension-plan losses and difficulty getting financing amid the credit crisis.

On Friday, the mayors of Philadelphia, Phoenix and Atlanta asked the Treasury Department to set aside $50 billion of the $700 billion Troubled Asset Relief Program to spur infrastructure investment to create jobs and lift local economies. The mayors also asked for loans to cover short-term borrowing needs and to meet payroll.

In a letter to Treasury Secretary Henry Paulson, the mayors warned that their dire fiscal situations would result in layoffs and tax increases that would place another drag on the economy as the country tries to climb out of a recession. The chances of getting TARP funding appear remote, however.

On Wednesday, Mr. Paulson reiterated that the focus of the program is “to stabilize financial institutions and strengthen the financial system,” rather than to provide assistance to state and local governments.

Philadelphia Mayor Michael Nutter, who is leading the campaign for federal help, said the mayors are targeting TARP because it has already been approved by Congress. “If our federal partners have a better source of funding, that’s fine with me,” he said.

One option would be a stimulus package that would include infrastructure spending that could benefit cities. Tom Cochran, head of the U.S. Conference of Mayors, which hasn’t sought TARP help, said many mayors are hoping that Congress will take some action soon on a stimulus package that would include aid to cities.

In the past week, the National League of Cities and the U.S. Conference of Mayors both called for government funding for local infrastructure projects that can be ramped up quickly to create jobs and economic activity. On Thursday, the mayor’s group said it had identified 4,591 infrastructure projects, from repairing sewer lines to renovating libraries, that would cost $24.4 billion and create more than 250,000 jobs.

Philadelphia, which has a $4 billion budget for 2009, faces a $108 million shortfall, nearly half from slower business activity and a drop in sales taxes, and the rest from lower real-estate-transfer and wage taxes. “Our revenues have fallen off the table,” said Stephen Agostini, the city’s budget director. Philadelphia’s roughly $4 billion pension plan, which covers 33,000 retirees, had losses of more than $600 million through September.

In Atlanta, Mayor Shirley Franklin told city employees that a projected shortfall of as much as $60 million this year would result in a hiring freeze and a 10% reduction in wages and work hours of municipal employees beginning in December and lasting through June. That is in addition to layoffs of 350 employees earlier this year. “This is an emergency,” said Ms. Franklin.

Like many other big-city mayors, Ms. Franklin said federal funding could help kick-start much-needed infrastructure projects, including a $30 million program to repair bridges and roads throughout the city. She said it could be launched within 90 days of funding approval, putting about 5,500 people to work.

Phoenix Mayor Phil Gordon says the city is facing about a $250 million shortfall in its annual general-fund budget of $1.5 billion. About 60% of the city’s budget comes from sales-tax revenue. “Business is down, fewer people are buying, people are losing their jobs,” he says.

Mayor Gordon says Phoenix has about $250 million of federally approved capital projects, such as runway work at the airport and local mass-transit projects, “which we could start today” if the money were available.

These are not isolated incidents. Counties across America are cutting costs and services. Where I live in Montgomery County, Maryland, the county has announced a $50 million budget cut and hiring freeze. $19 millio of this must come from the school system. With home prices declining, municipalities are in dire straits and its only a matter of time before we see this in services offered and in municipal bond defaults.

It will probably be days before we understand how Paulson plans to spend his money. He has already indicated that the auto makers are in line for some cash. Are municipalities as well? The money is very much needed. Nonetheless, one can’t help but feel that the bailouts are starting to become very expensive for U.S. taxpayers.

Cash-Strapped Big Cities Seek TARP Funds to Stimulate Local Economies – WSJ
San Jose to Request $14 Billion from TARP – Calculated Risk

  1. Tom Lindmark says

    If cities and states are to get aid it should be in the form of a loan not a grant of money. Their problems are partly of their own making and partly because they’re getting rained on like all the rest of us. They like any other entity had some responsibility to plan for adverse conditions. I won’t take up a lot of space here but I wrote a couple of posts yesterday and today about this. By the way I happen to live in Phoenix.

    Just another thought, I think Paulson has come out against the use of TARP funds for the auto makers.

  2. Edward Harrison says

    Hi Tom,

    Obviously I see this whole affair as a real problem of patronage for special interests more than a real working solution. So, TARP is a bit of a fiasco right now. Everyone wants in. I agree that we should limit t and cities need to look elsewhere for their fiscal remedies.

    Irrespective, we are going to see some major service quality declines.

    A far as Paulson and the automakers go, here is what Reuters had to say about the matter:


    With Paulson you never know where he stands. He has been quite slippery about past statements.

Comments are closed.

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