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The American Rescue Plan's Impact on Philadelphia & Lessons for Infrastructure

Below is the Nowak Metro Finance Lab Newsletter shared biweekly by Bruce Katz


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August 12, 2021

Downtown Philadelphia

(co-authored with Karyn Bruggeman and Colin Higgins) 

In April 2021, the Nowak Metro Finance Lab at Drexel University and Accelerator for America released the Federal Investment Guide to the American Rescue Plan. The guide broke down the Biden Administration’s $1.9 trillion COVID relief package from a “bottom-up” perspective. The guide summarized how funding would flow to over 84 individual programs, originating from 19 federal agencies and through seven different distribution channels.

Today, we’re revisiting our analysis of the American Rescue plan (“ARPA”) and presenting a complementary portrait of how ARPA funds have flowed downward to a single geography, Philadelphia, the home of the Nowak Metro Finance Lab. This new analysis can be found in our new report, released this week, “Localizing and Sequencing the American Rescue Plan Act: Estimating the Impact in Philadelphia.

By looking at the complete picture for our hometown, the complexity of the bill becomes clear. ARPA requires communities across the country to organize, plan, and manage an influx of funds at a scale not seen in this century. It also illustrates that the work is not over. Metro areas will be securing and deploying funds made available through ARPA for years to come. Cities and states have spent months deliberating, often inconclusively, how to efficiently and equitably allocate their share of the $350 billion in State and Local Fiscal Recovery Funds. They’re simultaneously working to secure new ARPA-funded competitive grants that are just now becoming available.

Understanding how ARPA funds have trickled down to cities presents lessons for metros as they anticipate the arrival of new infrastructure funds, and future federal investments in innovation and human capital outlined in both the $3.5 trillion budget reconciliation proposal and Senator Schumer’s U.S. Innovation & Competition Act.

All of these measures direct most investments through existing federal structures, and in doing so, reveal the deep, structural tension between our vertically-oriented federal government and the horizontal nature of local governments. The existence of Congressional committees and over a dozen federal agencies mean the federal government is intensely balkanized, focusing on discrete investments delivered through singular projects and separate transactions, without any semblance of coordination.

Local communities are organized via horizontal networks of public, private and civic institutions, that strive to create regional initiatives that are holistic, integrated and multi-dimensional. They are forced to braid and blend different sources of capital for different purposes to create a whole greater than the sum of its parts, and ARPA was no different. The need for cross-sector collaboration and strategic planning will only increase with infrastructure and innovation funds.

The Philadelphia Story: A $9.2 Billion Opportunity

A careful look at over 60 ARPA-funded programs show the city of Philadelphia could receive over $9.2 billion from the American Rescue Plan, a far larger sum than typically reported. In addition to the $1.4 billion in State and Local Fiscal Recovery Funds delivered to the City itself and $1.1 billion in relief to the School District of Philadelphia, this tally seeks to put a value on individual relief and tax credits available ($3.5 billion), small business and child care relief ($613 million), Dept. of Education awards to 14 local universities ($239 million), CDC funds to the Philadelphia Dept. of Public Health ($94 million), HHS funds to 12 community health centers ($56 million), Dept. of Transportation funds to SEPTA ($667 million), HUD funds to the Philadelphia Housing Authority ($52 million), and much, much more. It also accounts for hundreds of millions in competitive grant funds available only to cities that choose to apply. A full accounting across 64 programs can be found in our new report.

Our analysis makes clear that dozens of public agencies and major institutions, thousands of businesses, and hundreds of thousands of households across the city will receive funds from this one relief bill.

The bottom line for all cities: strategic organizing is necessary. If local leaders don’t understand the full spread of where relief funds are going, they open themselves to a series of risks. These include wasting funds on duplicative efforts, missing opportunities to bring in private or philanthropic capital to complement public spending, not ensuring disparate investments flow to the most disadvantaged communities in a synchronized fashion and missing out on competitive opportunities.

In tracking the flow of ARPA funds — and future federal spending — local leaders must consider which entities are receiving funds. If programs require applications, who must apply, and by when? How do ARPA and infrastructure funds fit into key short- and long-term policy goals? How can collaboration be fostered across silos when dozens of entities are likely to receive funds? And lastly, how can your community leverage private and philanthropic investments to multiply the impact of federal funds in distressed communities?

ARPA: A Multi-Phased Affair

A core reality with ARPA funds is that they won’t flow all at once. As we head into late summer 2021, we stand in the second phase of ARPA deployment. Short term relief, including individual aid and small business relief represented over half of ARPA, and has largely been allocated. The Nowak Lab previously outlined the sequencing of ARPA funds in a Timing & Sequencing memo.

The second phase will be the most critical for securing ARPA’s maximum impact, with new competitive grant programs opening up that require cities have a strategic vision for expanding economic opportunity in a post-pandemic world and the capacity to execute. Programs to watch include:

  • Economic Development Administration’s American Rescue Plan Programs ($3 billion): The $1 billion Build Back Better Regional Challenge, $500 million Good Jobs Challenge, $500 million in Economic Adjustment Assistance, and more, represent the largest federal investment in economic development, innovation, and competitiveness in decades, and require multi-faceted applications be submitted by coalitions spanning entire regions.

  • State Small Business Credit Initiative ($10 billion): This small business loan program, which we’ve explained previously, anticipates leveraging private capital at a 10:1 ratio to invest in small business growth, expansion, and job creation, amounting to $100 billion in total investments.

  • Childcare Stabilization Fund ($24 billion): Most states must build new systems to distribute this new source of funding to childcare providers, and most, including Pennsylvania, have yet to set up their program or announce an application process.

  • Capital Projects Fund ($10 billion): The to-be-launched fund for broadband expansion will be run through the Treasury Department.

  • Environmental Protection Agency Grants ($100 million): These grants are intended to mitigate air pollution and address environmental justice.

  • State and Local Fiscal Recovery Funds ($350 billion): As of July 2021, only 26 states have partially or fully allocated their awards, and many states and cities will continue deliberating allocation processes, strategic uses and navigating compliance-related questions throughout the fall and winter.

These forthcoming ARPA investments offer insight into how new initiatives present both opportunity and unique capacity challenges. The most challenging ARPA programs for local governments to deliver are new programs that require them to create new, user-friendly digital platforms, bring in staff with specific knowledge and skills, stand up new intermediaries, and design new processes, all with limited funding for expanded administrative capacity. These included rental relief programs, funds for broadband expansion, and childcare stabilization funds. With infrastructure, we anticipate the same challenges will arise with the newest funding streams, like the unprecedented funds for expansion of electric vehicle charging stations, with which most cities have no experience.

ARPA & Infrastructure: Second Order Effects Matter for Equity

Much of the discussion around ARPA has focused on the delivery of funds from the federal to local level and tracking what individuals and businesses have received direct aid. To ensure an equitable recovery, however, local leaders must focus on the deployment of funds and the second order effects of public spending. A major component of that involves contracting and procurement. A range of ARPA funded programs involve construction contracts: for affordable housing construction, community health center construction and renovation, and the installation of new ventilation systems in public schools. The infrastructure bill will layer on funds and projects and is anticipated to create 650,000 jobs nationwide.

A recent study of supplier diversity in Philadelphia commissioned by the Philadelphia Equity Alliance and completed by McKinsey & Co. found that the City, along with nine local public authorities (including SEPTA, the School District of Philadelphia, and seven others) collectively outsourced $6.6 billion in 2020, but less than 15% of that public spend went to minority-owned businesses, despite Black, Hispanic, and Asian Philadelphians making up over 65% of the city’s population.

Increasing supplier diversity, particularly in the construction sector, must be a focus for local governments and public authorities as they deploy new federal dollars. The construction industry, both among contractors and the construction workforce itself, is overwhelmingly white and male, both in Philadelphia and across the country. This raises the question of who stands to financially benefit most from this surge in public spending, without urgent, targeted action to ensure the benefits are shared widely.

Some facets of federal COVID relief spending serve as a cautionary tale. In March 2020, FEMA issued an emergency waiver allowing local governments to make noncompetitive procurements for the duration of the declared COVID national emergency, which is still active. The American Rescue Plan alone offered $50 billion in FEMA Disaster Relief Funds, covered by the waiver. While meant to hasten the public response to the pandemic, this meant that many emergency contracts for FEMA-reimbursable expenses, like PPE, were issued to existing vendors or first bidders, potentially stalling local supplier diversity efforts. The infrastructure bill presents an opportunity for the federal government to do things differently.

Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Karyn Bruggeman and Colin Higgins, are Senior Research Fellows at the Nowak Metro Finance Lab.