How The American Rescue Plan Will Impact TC

Unexpectedly strong pandemic revenues and coming federal dollars from the American Rescue Plan have put Traverse City in a “great financial position,” according to City Treasurer Kelli Martin. City staff reviewed options this week with commissioners for using surplus city funds to pay down the city’s pension debt, as well as to provide matching funds for a wide range of grant opportunities available through the American Rescue Plan – which will not only pour direct dollars into local municipalities but offer grants for everything from housing and transportation needs to small business and restaurant relief to support for the arts and humanities.

The American Rescue Plan is a $1.9 trillion aid package signed into law March 11 that extended $1,400 direct payments to taxpayers making under $75,000 and expanded and extended unemployment insurance through September 6. The package also included hundreds of billions of dollars in aid for different industry sectors, as well as $350 billion for state and local governments. According to the distribution formula for those funds, Grand Traverse County is expected to receive just over $18 million, while the City of Traverse City is estimated to receive over $1.5 million.

The funds will be channeled through the state in two payments to local communities – the first payment will arrive early this summer – and will be available to spend through the end of 2024. There are two notable restrictions on how communities can spend the dollars: They can’t be used to offset tax increases, and they can’t be deposited into any pension funds. The federal government is otherwise offering flexibility in how funds can be spent and encouraging communities to “think boldly about how we can do transformational projects,” City Manager Marty Colburn told commissioners. High on that list are infrastructure projects like water, sewer, and broadband upgrades, which are specifically called out in the plan.

In addition to direct payments to local governments, the American Rescue Plan offers billions in grant funding opportunities in categories like transportation systems and infrastructure, small business support, housing assistance, and food security and public health. Colburn says he’s been in discussion with other community leaders about tapping into those funds for Traverse City. Venue and museum funding could help organizations like the City Opera House and Dennos Museum Center, for instance, while arts and humanities funding could provide a boost to the Traverse City Arts Commission and Traverse Area District Library. Different local organizations could take the lead on tapping into different funds, Colburn said. Traverse Connect and the Downtown Development Authority (DDA), for example, would ideally assist local business owners land small business and restaurant revitalization grants, according to Colburn.

The city manager said that housing grant opportunities “really caught (his) eye,” adding that he’s spoken with Safe Harbor, Goodwill, and the Traverse City Housing Commission about strategies for tapping into $21.5 billion in emergency rental assistance, $5 billion in emergency housing vouchers, and $4.5 billion in low-income home emergency assistance program funds available nationwide. City Commissioner Christie Minervini said she was especially supportive of “pursuing transformational housing opportunities, especially for lower income or voucher qualified individuals in our community.” Commissioner Tim Werner agreed. “The (funding opportunity) that jumps out forefront in my mind is housing,” he said.

Colburn noted that grants will be awarded on a competitive basis nationwide, and said staff have already identified two grant writers the city hopes to work with to stay on top of applications. “There's quite a few different opportunities here to be able to grasp and apply for,” he said, adding the city would need to stay organized as options “come up fast and furious.” Many grants could require at least some amount of local matching funds, which prompted an extensive discussion among commissioners Monday on making sure the city is ready to put up those dollars.

Due to “underspending and unexpectedly strong revenues” during the pandemic, according to a memo from Colburn and City Treasurer Kelli Martin, the city’s fund balance will be at 25 percent at the end of this fiscal year. City policy is to keep the fund balance between 15 and 20 percent, a range designed to protect the city’s financial stability while ensuring taxpayer dollars aren’t being hoarded but instead spent to benefit the public. Staff said there were some options for how commissioners could spend down the fund balance to its intended range, including setting aside funds for grant matches for the American Rescue Plan and making a one-time extra payment toward the city’s pension debt. Making a contribution between $665,000 and $1 million to the Municipal Employees Retirement System (MERS) – the city’s pension plan provider – could help the city become 60 percent funded in its liability, according to staff. That is the state-required funding threshold for pension plans and could take Traverse City out of a current underfunded danger zone, according to Martin, ensuring the city’s bonding rating remains strong going forward.

“In general, the city is in a great financial position,” Martin said. “The only financial metric I’m concerned about is this unfunded pension liability…our financial house is in great order, I would just like to take this metric over the top.” Martin said she didn’t think the city’s current liability status would impact any federal grants, or even immediately hurt the city’s bonding or borrowing power, but said it was a future risk if the city remains underfunded long-term.

Commissioners Monday decided to continue talks with staff over the next few months until approving next year's budget in June, by which point they could have clearer state and federal guidance on American Rescue Plan funding and determine how to potentially allocate dollars for grant matches and/or a pension payment. Mayor Jim Carruthers said that while the American Rescue Plan delegates “a lot of money on paper,” communities across the country will be competing for those dollars. Traverse City needs to be “prepared to go after portions of this funding,” Carruthers said, and target low-hanging fruit to bring the maximum amount of dollars possible into northern Michigan.