U.S. Federal Budget Cuts to Hit Cash-Strapped City Funds

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Bloomberg Businessweek
By: William Selway
April 12, 2011

(Adds mayor's comment in 10th paragraph.)

(Bloomberg) -- U.S. cities and local governments will lose at least $3 billion in funds for housing, community redevelopment projects, public transportation and police and fire departments as part of the budget agreement that averted a federal government shutdown.

The agreement struck between President Barack Obama and Congressional leaders will reduce money for the Department of Housing and Urban Development's community development fund by $942 million to $3.5 billion, according to a breakdown of cuts released by the House Appropriations Committee today.

It would also eliminate $680 million from public transportation grants, more than $700 million from low-income housing, and $786 million from grants for local agencies that respond to emergencies.

"It's definitely going to have an impact at the local level," said Greg Minchak, a spokesman for the National League of Cities in Washington. "This is going to mean projects aren't going to go forward, cities are going to have to reprioritize what they've been working and we're going to see layoffs because of this."

The community development block grant program is used by local governments from Newton, Massachusetts to Los Angeles County, California, for road work, public housing and other projects.

Averting Shutdown

The cuts affecting cities are among those needed to produce the $38 billion that Obama and congressional leaders agreed to for the remainder of the 2011 budget year. The reductions resolved a standoff between the White House and Republican leaders that last week threatened to force the first federal government shutdown in 15 years.

The $1 trillion legislation is set for a House vote later this week, with a Senate vote to follow, as lawmakers push to bring the budget fight to a close.

City leaders had urged Congress not to cut community development funding, saying doing so threatened to deal a blow to their already struggling economies. The Housing and Urban Development program provides federal grants to states and localities for affordable housing, infrastructure improvements, economic development and other projects.

The cut to the grant program was smaller than the almost $3 billion initially proposed by the Republicans. The budget agreement also cuts $600 million from community health centers.

'Bad Deal'

In Davenport, Iowa, Mayor Bill Gluba said he's anticipating that the budget cut may eliminate some $400,000 the city uses to keep homeless shelters and job-training programs afloat and criticized Congress for slashing the budget after its decision in December to keep in place the Bush-era income tax cuts.

"It's a bad deal for the least fortunate among us," said Gluba, a Democrat. "I'm pretty disappointed in Washington -- all of them -- for essentially abandoning to a big degree those who need help in our society while at the same time having no qualms about bestowing huge tax cuts on the wealthiest."

He said his city can't make up for lost funds by raising taxes, which he said would be a burden to elderly residents.

"We don't have the revenue-raising sources at the local level," he said.

Local governments have eliminated 416,000 jobs since their payrolls peaked in September 2008, before the financial crisis worsened, and state and local tax collections have yet to recover to the peak hit more than two years ago.

Public Transit

The budget agreement also eliminates new financing for high-speed rail projects and rescinds $400 million of funds in previous budgets. The moves save $2.9 billion, according to the list.

Robert Healy, a lobbyist for the American Public Transportation Association, said the cutbacks come at a time when rising gasoline prices are illustrating the need for investments in public transportation.

"We're very concerned about the impact of the deal on public transit and high-speed rail," he said. "It's short- sighted."

--With assistance from Brian Faler in Washington. Editors: Walid El-Gabry, William Glasgall

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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