As federal pandemic aid winds down and state and local budgets normalize, government policymakers face an inflection point: Some issues—such as housing affordability and infrastructure investment—are familiar. Others, such as political polarization, are more recent developments that make it more difficult for leaders to make sound, long-term decisions about the public purse. Though the challenges seem daunting, the last four years also pushed leaders at all levels of government to collaborate and communicate in unprecedented ways.
Their experiences have yielded lessons about intergovernmental collaboration that can help guide policymakers in the coming years. To capture those lessons, the Volcker Alliance, with support from The Pew Charitable Trusts, held a symposium in September in which federal, state, and local officials examined how all levels of government can use these lessons to more effectively address shared challenges. The event was part of the alliance’s Richard Ravitch Public Finance Initiative, which highlights promising practices for building sound, sustainable budgets that enable residents and communities to thrive.
The day featured open conversation about the challenges and successes that government officials have experienced with federal funding and how that affects state and local budgeting, fiscal planning, and infrastructure investing. Attendees discussed strategies, policy tools, and responses in three main areas: managing federal funds effectively, building capacity at the state and local level, and future-proofing with innovative financing. The Ravitch Initiative’s recently released report, Resilient State and Local Finance, outlines actions that policymakers can take to advance goals in these areas.
Although pandemic legislation helped ensure that federal dollars got to where they were needed swiftly, the spending rules and requirements also created management and reporting challenges for public officials. Importantly, the funding also obscured the budget picture of some states and localities during the pandemic years, papering over potential structural deficits by injecting historic amounts of money into government coffers. More broadly, increased political polarization and the seemingly constant threat of federal shutdowns during the congressional budget cycle add uncertainty to even discretionary and formula federal funding—roughly $1 trillion annually, making it difficult for governments to budget and plan for the years ahead.
Speakers at the Ravitch Initiative event noted how sustainable budgeting practices can help governments manage against fiscal risks and better plan for long-term investments in economic growth. For example, state and local governments benefit from using budget stress tests, writing long-term budget assessments, integrating budgeting with strategic planning, creating an exit strategy for temporary funds, and measuring unfunded infrastructure liabilities.
Federal support can help state and local governments invest in long-term projects and create more sustainable paths for their budgets. But when it comes to leveraging these funds, many governments—especially smaller local ones—lack the time and resources to engage in exercises such as long-term planning or even to effectively access federal funds. This was made clear when the 2021 American Rescue Plan Act handed many municipalities historic levels of federal grant money. For many local leaders, the reporting requirements alone were daunting, never mind the idea of leveraging the money for long-term strategic investment. Some local officials rely on public colleges and universities to help fill this resource gap, but weakening enrollment and budget deficits in recent years have begun to curb this resource.
Symposium speakers said that expanding capacity and resources through alliances and consortiums can help state and local leaders better capitalize on opportunities and enable their communities to better withstand economic volatility. They also recommended regular intergovernmental engagement to establish open lines of communication and build understanding of state and local governments’ needs. For example, several officials suggested bringing back in some form the U.S. Advisory Commission on Intergovernmental Relations, a bipartisan group that helped promote collaboration for more than 35 years until it was defunded in 1996.
The Ravitch Initiative event also touched on how the expected impact of climate change, including the increasing frequency and severity of natural disasters, highlights the need for infrastructure planning. But investing in infrastructure can be tricky: Many state and local leaders struggle to find access to affordable financing or grant funding, and some leaders are reluctant to take on infrastructure debt. Moreover, state and local governments face a combined estimated $1 trillion in deferred maintenance on assets including bridges, roads, and public utilities.
The report outlines new and more equitable ways to plan and pay for infrastructure investments through innovative financing and a more cohesive approach to federal grants management. For example, state policymakers can consider creating state bond banks, leveraging the state infrastructure coordinator positions created by the Infrastructure Investment and Jobs Act into a more strategic position, and designing long-term capital plans.
The policy agenda for the symposium was based on interviews with federal, state, and local policymakers and stakeholders conducted by the Volcker Alliance earlier in the year. The recommendations and practices that emerged from the event provided the basis for the new Ravitch Initiative report outlining specific ways to strengthen budgeting and finance through stronger intergovernmental partnerships and promising public finance practices.
“As the pandemic-era funding fades,” the report concludes, “the ideas and recommendations [from the Ravitch Initiative] can help guide public officials and government stakeholders in strengthening their communities and preparing for the uncertainties that lie ahead.”
Liz Farmer works on The Pew Charitable Trusts’ Fiscal 50 project.