Massive Budget Bill Would Open Even More State and Local Funding

The roughly $2 trillion domestic spending package Democrats pushed through the U.S. House on Friday includes billions of dollars for programs that are significant for state and local governments, including money for priority areas like housing, workforce training, preschool and economic development.

If the bill makes it through the Senate in the weeks ahead, it would cap off a huge year for legislation funneling federal money to states and localities. The first milestone came with the American Rescue Plan Act, which provided $350 billion in direct pandemic recovery aid for state and local governments. Then, last week, President Biden signed a $1.2 trillion infrastructure package into law.

"It's the trifecta," Nan Whaley, the mayor of Dayton, Ohio and president of the U.S. Conference of Mayors said in an interview, referring to ARPA, infrastructure and the budget bill. She said the housing and pre-K programs in the domestic spending package are what she's most excited to see enacted.

Democrats' now-pending "Build Back Better" legislation includes a $109 billion plan for the federal government to work with states to offer preschool for all 3- and 4-year-olds. That program would gradually shift about 40% of costs to states that opt into it. The bill would also pump about $175 billion towards affordable housing programs, according to estimates from the Committee for a Responsible Federal Budget.

For many progressives and supporters, the spending legislation is seen as a chance to shore up long-deferred federal investments in crucial areas, involving issues like housing, homelessness and community development, where state and local governments are often on the front lines setting policy and dealing with day to day difficulties.

"We're recognizing that these safety nets have just been so woefully underfunded for so long that it takes something like this to get us to a place where we can really invest in our people and our communities," added Whaley, who is vying for the Democratic nomination in Ohio's 2022 governor's race. "It is way, way, way overdue in my opinion."

Housing and Economic Development

Michael Wallace, who lobbies at the federal level for the National League of Cities on housing and economic development issues, described the bill as "really the final piece of the puzzle when city leaders are sort of thinking about what their community is going to look like post-Covid and what people need to live in it and thrive."

He, too, emphasized the importance of the housing investments and made a case that these programs will complement upgrades in areas like transportation and waterworks funded by the just-passed infrastructure legislation. Wallace also noted the "Unlocking Possibilities" grant program, which would open funding for local government efforts to update housing, zoning and land use policies.

"It really makes sense to also be thinking about how to address the need for hundreds of thousands, if not more units, of housing for working class Americans, low-income Americans," Wallace added.

Jennifer Vasiloff is chief external affairs officer for the Opportunity Finance Network, an association of Community Development Financial Institutions, or CDFIs—which can include banks, credit unions and loan and venture capital funds that operate in areas that tend to lack widespread access to capital and traditional banking services.

She highlighted a proposal for a new, $750 million Housing Investment Fund situated under an existing federal program for CDFIs. With this fund, she explained, CDFIs and nonprofit housing developers would be able to compete for grant funding that they could put towards affordable housing projects. "That's pretty exciting," she said.

Vasiloff's group is also tracking a new $3 billion competitive grant initiative under the Department of Housing and Urban Development dubbed the "Community Restoration and Revitalization Fund." Grants could support housing, as well as other types of projects.

"If you're talking about community development," Vasiloff said, "it's great to build the apartment building, but it's also great to have the upgraded playground that's right next door, or the retail strip in the neighborhood."

The bill also includes a $970 million economic development program targeting rural areas. The National Association of Counties says the legislation overall features about $10.9 billion of rural investments, including loan funding for electric cooperatives, money for water and wastewater grants and lead water line replacement.

Workforce Investments

Stephanie Martinez-Ruckman, NLC's legislative director for human development, flagged workforce provisions in the package.

Examples here include a combined $4.5 billion to support three Department of Labor initiatives under what's known as the Workforce Innovation and Opportunity Act and another $1 billion available for apprenticeship-related programs.

Billions of dollars would also go to programs focused on strengthening the ranks of workers in specific fields—like public health and jobs geared towards responding to climate change and improving the nation's resilience to extreme weather.

Workforce programs are a priority for cities, Martinez-Ruckman said, especially given labor shortages in fields related to infrastructure as billions in new federal funding is about to flow in that arena.

"Investments in workforce development have been a critical component for us," Martinez-Ruckman added. “The federal workforce system has been drastically underfunded over the last two decades.”

Many Other Programs

A sizable portion of the bill is dedicated to programs intended to combat climate change and improve the natural environment. Committee for a Responsible Federal Budget estimates peg the amount going to climate and infrastructure at $570 billion, with around $235 billion for clean energy and climate resilience oriented programs.

Here also states would see funding. For example, a $2 billion grant program open to states for forest restoration and resiliency projects, $3 billion for "environmental and climate justice" block grants and $100 million in competitive grants open to local governments to improve access to urban parks and outdoor space.

Additionally, there is a range of changes affecting tax policy—notably for state and local governments, provisions that would sharply raise the $10,000 cap on the federal deduction for state and local taxes to $80,000 in the coming years.

Local government advocacy groups fought but failed to keep the $10,000 "SALT" cap out of Republican's 2017 tax overhaul, warning it would make it more difficult for them to set tax policy. With Build Back Better, they've been quieter on the issue. But a group of congressional lawmakers from states that have higher taxes, like New York and New Jersey, have pushed aggressively to get the cap raised.

Other notable parts of the bill include a $205 billion proposal for providing four weeks of paid family and medical leave for American workers, a roughly $270 billion child care subsidy program with expenses for many households limited to 7% of income and about $190 billion for extending an expanded child tax credit through 2022.

Differing Views

The bill is likely to change in the Senate. Democrats will need their entire caucus to back the legislation to get it through the chamber and key lawmakers have raised concerns about areas like the changes to the SALT deduction and the overall cost of the measure.

Republicans remain staunchly opposed, panning the bill as a needless government spending spree that will fuel rising inflation, while adding to federal budget shortfalls. Although the GOP's deficit concerns come in the wake of their signature tax bill, which included deep corporate tax cuts, and based on different estimates could add $1 trillion to $2 trillion to the nation's deficits over a decade.

"All the new Washington spending in this bill is only the beginning of disaster," said House Minority Leader Kevin McCarthy, of California, during an hours-long speech on the House floor that delayed consideration of the Build Back Better bill. "Spending your money that we do not have on programs you do not want is not the solution."

The Congressional Budget Office says that the legislation would result in an increase to the federal deficit of about $160 billion between 2022 and 2031, after accounting for tighter tax enforcement that is part of Democrats' plan. Prior to the pandemic, the federal government was spending around $4 trillion a year.