Could politics put your city's funding at risk?

0:01NPR.

0:06Sierra Juarez:This is The Indicator from Planet Money. I'm Adrian Ma. And I'm Waylon Wong. Federal funding is getting more political, maybe even personal. Department of Energy officials admitted in a recent court filing that they had canceled hundreds of grants based on whether projects were located in blue states. And if the administration gets its way, it could be empowered to make funding decisions based on political leanings. And not just with energy-related grants, but all federal grants. That's because the Office of Management and Budget has proposed sweeping changes to how the federal government doles out money to academic researchers, nonprofits, and local governments.

0:44Among these changes, senior political appointees would have to sign off on federal grants. And funding could be cut off mid-project if there's a change in, quote, agency priorities.

0:54Sierra Juarez:The OMB says these revisions will increase accountability and help ensure that taxpayer money isn't wasted or misused. But the proposal is worrying many grant recipients who don't want future funding to be at the mercy of shifting political winds. Today on the show, we focus on one big category of recipients, local governments. We go back to the pandemic when cities and towns got hundreds of billions of dollars in federal grants. We see how they used this money, whether it was effective, and how these new proposed changes could upend future dollars for these communities.

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2:41Sierra Juarez:The Office of Management and Budget released its proposal in May. And among the groups that read it with concern was the National League of Cities. It's this organization that lobbies on behalf of more than 19 ,000 cities, towns, and villages in the U.S. Dante Moreno is a lobbyist there. The federal government would be able to terminate any federal grant moving forward, not because your community isn't doing a good job, but because the federal agency doesn't want to fund it anymore. You're now putting communities in this really awkward position of like, I thought I could trust the federal government, but it turns out when we sign a grant contract, maybe that's not worth anything.

3:18Dante says, imagine a city applies for and gets awarded a$500 ,000 grant for a construction project that will take four years to complete. The city breaks ground and starts building. Then, two years in, the federal agency overseeing the grant says, we're canceling your grant because this project no longer lines up with administration priorities. Now you have a problem in blight because you have this project that you can't finish. It's just really concerning. We're in this huge period of uncertainty right now. We don't know if the whole federal grant game is going to change in almost two months.

3:51Sierra Juarez:Dante says it's important to look back at a recent example of how federal grants to local governments have played out. And perhaps there's no better example than the American Rescue Plan Act, or ARPA. President Biden signed it into law in 2021 during the thick of the COVID-19 pandemic. We call it once-in-a-generation type of investment in America. ARPA was so flexible that a community could say, what do I need to not only get on my feet, because right now it's the middle of COVID, But also, what have I been needing to do for often 30 or 40 or 50 years that I can now do? The program distributed$350 billion to state and local governments.

4:33It was meant as a lifeline for communities that saw revenues fall off a cliff with the pandemic.

4:38Sierra Juarez:Cities like Rochester, Minnesota. Kim Norton is the mayor there. Rochester, Minnesota. Not New York. Rochester, Minnesota. Do you have to make that distinction all the time? I often do, and I get emails for New York all the time. Rochester, Minnesota, has about 127 ,000 residents. It's home to the Mayo Clinic. And in normal times, it gets a lot of money from hotel taxes when visitors travel to the hospital. That revenue dried up when the pandemic hit. So we had to figure out how can we continue to provide the services that the city is expected to provide, particularly during this time. We needed EMS.

5:13We needed fire. We needed police to be working and ready. Rochester got$17.4 million in ARPA funds. Kim says the city government decided its priorities were keeping everyone on the payroll and padding the budget during a lean time. We didn't have a great amount to spend, but I think we spent it wisely so that we did not have to raise property taxes during that year and not lay off any staff.

5:38Sierra Juarez:A few months ago, the National League of Cities released an analysis of ARPA funds. And what they found was about a third of the money that went to state and local governments went towards the sorts of things that Rochester spent it on, paying employee salaries and replacing lost revenue. Usually with federal grants, they have specific targets like roads or public safety. In contrast, ARPA recipients had a lot of leeway in how to spend their money. Take the city of Athens, Ohio. In 1997, the city acquired a historic armory building that used to belong to the Ohio National Guard. Andrew Chicky is the city's deputy service safety director.

6:13Sierra Juarez:We spent the better part of 25 years debating, arguing, envisioning, re-envisioning what that space could be. That's almost a quarter century where this historic building sat empty. Then Athens received$2.5 million in ARPA funds. It committed$500 ,000 of that to renovate the armory. And that encouraged other investors to pitch in with their own funds. Today, the armory building is open. The first floor is a co-working space, and the second floor is an event space that can be rented out for weddings and community gatherings. The Armory is also outfitted with a new fiber optic network that connects different buildings in the city.

6:52That network was paid for with ARPA funds, so it was a different infrastructure project that is relocating transmission lines underground.

6:59Sierra Juarez:ARPA allowed us to entertain some of those things that have been, I don't want to say pie in the sky. They're certainly achievable, but just having that right mix together to make them go. Now, some uses of ARPA funds have gotten pushback from community organizations and advocacy groups. A county in upstate New York spent around$7 million on an aquarium, and critics said that the money could have been better spent tackling poverty, mental health, or affordable housing. Overall, though, the National League of Cities considers ARPA to be a positive program for local governments. Still, the OMB's proposal envisions a federal grant-making system that will look quite different than ARPA.

7:37Sierra Juarez:Mayor Kim Norton in Rochester, Minnesota, says she's already gotten a taste of what these changes could look like. The city has applied for other kinds of federal grants. And Kim says the city received a letter from the federal government that basically said, are you aware that if you take this money, you cannot use it for anything involving DEI? It did make me pause. Is this what we're going to be seeing more of? One of the proposed changes is that federal agencies would not be able to fund projects that are deemed as promoting DEI or so-called gender ideology. The OMB asked for public comment on its proposal.

8:14It received nearly 500 ,000 submissions. One of those was from Kim. She sent in a letter asking the OMB to reconsider changes that would, quote, introduce uncertainty and expand federal control over local decision making. The impact could be pretty hard on the city of Rochester. So we hope that OMB thinks these things through and thinks about how it can impact a city, because ultimately it impacts our taxpayers.

8:38Sierra Juarez:So the OMB says the proposed changes will increase transparency and accountability for how federal dollars get spent. And we reached out to the office, asking it to respond to concerns that the federal grant-making process was going to become more political. We didn't hear back. But Dante Moreno from the National League of Cities says she's worried that the proposed changes will roll back the progress achieved with ARPA in terms of flexibility and allowing smaller cities to access funds. I think a lot of the innovative projects that we saw under ARPA probably would not have happened if folks were concerned that the federal government could turn off the spigot at any point.

9:17Sierra Juarez:We don't know yet whether the OMB will tweak its plans, but we will soon. A final rule is expected to go into effect on October 1st.

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