Local Michigan governments face challenges spending ARPA funds

Most Michigan local governments are spending their federal pandemic aid on capital projects, while facing challenges from rising project costs and uncertainty about future funding.

A new survey from the University of Michigan's Center for Local, State, and Urban Policy shows that 80% of the state's larger local governments reported problems with inflation and other costs, while a majority of the smaller entities noted difficulties navigating state and federal bureaucracies.

Tom Ivacko, the executive director of CLOSUP, said he's not surprised that so many cities and towns are spending their federal aid on infrastructure projects.

"Infrastructure in Michigan has been in very poor condition for a very long time," Ivacko said, citing the C-minus grade given to the state's infrastructure by the American Society of Civil Engineers.

Tom Ivacko

"That relates back to the system of funding for local governments, which has been broken for a very long time," Ivacko said. "They've been underfunded, and that shows up in the poor infrastructure."

The 2021 American Rescue Plan Act provided $350 billion to states and local governments in flexible, direct funds that can be spent on a broad variety of uses, including replenishing operating funds and infrastructure. The money must be spent by Dec. 31, 2026. Michigan was allocated $4.4 billion under the law.

By spending the bulk of its money on infrastructure, Michigan differs from local governments nationally, according to the Local Government ARPA Investment Tracker compiled by Brookings, the National League of Cities and National Association of Counties. That data shows that just under 11% of metro governments put their ARPA funds toward infrastructure, with 41% going toward government operations.

It's the second year that CLOSUP has surveyed the state's cities and towns on their use and experience of ARPA funds.

Ivacko notes that this year, cities and towns reported an easier time dealing with federal and state bureaucracies compared to last year. In 2023, 47% of statewide entities reported some problems with navigating state and federal bureaucracies, compared to 55% last year.

"That's not a huge drop but it's over a very short period of time" Ivacko said. "Federalism has not been working as well as it could for a while and so to see improvement in that area is particularly good news."

Half of smaller entities continue to report struggles with red tape tied to the funds, while only 33% of jurisdictions with populations of more than 30,000 reported problems.

Among 13 spending categories, 53% of statewide entities said they are spending or plan to spend their ARPA funds on infrastructure projects like public buildings and parks, a number that grows to 81% for the largest jurisdictions.

Another 38% said they are or plan to use the money to shore up roads and other transportation-related projects; 31% on water and sewer projects; and 27% on public safety.

Inflation and other cost increases pose a problem to 63% of local governments, the survey found. Procurement is a challenge for 56% of entities, up from 48% last year. More than 40% said they face uncertainty about future funds and 28% reported problems with finding local matching funds, down from 31% last year.

On the bright side, two years after ARPA funds began to flow, more local governments say they have the resources to find it easier to manage the money, the survey found.

"Another thing that's good news is the decreasing challenges for local government resources and capacity to deal with all of this funding and the projects that it's supporting," Ivacko said. He noted that 33% of entities said their resources were proving to be a problem last year, a number that dropped to 24% this year.