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Episode 45 – What the American Rescue Plan Means for Economic Development

Site Selectors Guild
Episode 45 - What the American Rescue Plan Means for Economic Development

Rick Weddle (Site Selectors Guild): Welcome to Site Selection Matters, where we take a close look at the art and science of site selection decision-making. I’m your host, Rick Weddle, president of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild or economic development partners and corporate decision-makers to provide you with deep insight into the best and next practices in our profession. In this episode, we have as our guest, Chris Lloyd, senior vice president and director of infrastructure and economic development with McGuireWoods Consulting, a leader in the practice of location advisory services and economic development. Today, Chris will talk with us about the American Rescue Plan, where specifically Chris will discuss just what the plan means for the economic development community going forward. Join me as we welcome Chris Lloyd to Site Selection Matters.
Chris, as we come out of the COVID-19 pandemic, we’re starting to see some of the real impacts of the various federal stimulus plans adopted to help restart the economy. Now we even have a new one, the recently approved American Rescue Plan. To get us started if you will, take a minute or two, help our listeners understand what all is really included in the American Rescue Plan.
Chris Lloyd (McGuireWoods Consulting): Sure, Rick. And again, thanks for hosting us and inviting me to be a part of this today. You know, as you outlined, Rick, you know, this is not the first and nor will it probably be the last federal stimulus plan to come out of Congress. And I know we’re going to talk later about the potential American jobs plan, the infrastructure plan that the Biden administration has floated, but you know what we’ve got here in the American Rescue Plan, which was passed, you know, within the first month of the new administration is $1.9 trillion. Yes, that’s trillion with a T dollars that’s going to flow from Washington to the states and through various federal agencies for a variety of purposes.
What makes this program a little bit different from the CARES Act or some of the earlier stimulus plans adopted by Congress is that while there’s certainly an overlay and a theme that runs through this money that links it to the COVID pandemic and recovery from it, there’s a little bit more flexibility with regards to how this money is used by the states and the federal agencies in that, a lot of those earlier packages were exclusively tied to reimbursing expenses incurred by impacted small businesses, by local and state governments related to PPE expenses, related to overtime for personnel for running vaccination clinics, for running COVID testing.
And while there’s certainly money in the new America’s rescue plan for those expenses as well, there are a number of programs here that really do have an economic development nexus that I think that, you know, many of the listeners of this podcast will be interested in and thinking about how we can use that money for an economic development purpose. You know, starting at the high level of the $1.9 trillion, you first and foremost, you’ve got $219 billion is going directly to states, $130 million goes directly to localities for allocation. There’s $10 billion allocated in a Coronavirus Capital Projects Fund, which is for each state gets at least $100 million for capital projects that are related to work or education or health monitoring related to COVID-19. You’ve got money set aside for travel assistance. You’ve got $4 billion going to USDA.
You’ve got $122 billion to supplement the Elementary and Secondary School Emergency Relief Program to help schools reopen. You’ve got nearly $40 billion going to higher education institutions for them to replace lost revenue, to expand programming. You’ve got more money going in for rent subsidies and mortgage subsidies for those who’ve been hard hit. You’ve got tens of billions of dollars going to the Department of Health and Human Services, again, for vaccinations, for Medicaid supplements, and other programs. You’ve got $3 billion more going to the Economic Development Administration for additional grants to worthy programs around the country.
So, we really do have…again, there are some things that are very traditional and similar to the stimulus programs that we’ve seen earlier, but, you know, again, there are those that…and then again, some programs that will help individuals directly, such as, you know, of course, there’s the $1,400 payment to every eligible person. You’ve got money, like I said, for rental assistance and other things, but really there is great economic development nexus here that I look forward to talking about.
Rick: You know, Chris, listening to you take through that litany, or itemization if you will, of allocations, I’m reminded of the quote that was attributed to the late Senator Everett Dirksen, who said one time, “A billion here and a billion there, next thing you know it’s real money.” You’re talking real money. This is a lot of money and it should very well have a significant impact. Could you dive a little bit deeper from just your perspective and kind of help unpack what you would see the elements that might just have the most impact for economic developers?
Chris: Sure. And I’ll focus in on that…you remember I noted there was about $200 billion that goes to states and about a hundred and some billion dollars that goes to localities. And the way the federal statute is set up for that whole total package of about $350 billion, there’s 4 eligible uses of that money. The first one being you can use the money for direct assistance to households, small businesses, or aid to impacted industries, such as tourism, travel, and hospitality that had negative impacts because of COVID. The second is you can use that money for premium pay to eligible public sector essential workers. The third is that you can cover costs of providing central government services which were curtailed because of COVID-related revenue reductions.
But the fourth one is the most intriguing. The first one certainly had some economic development nexus with particularly the direct assistance of small businesses and impacted industries. But the fourth one very interesting, and it says you can use the money to make necessary investments in water, sewer, and broadband infrastructure. And then I also mentioned there was that $10 billion capital projects money that’s available. It’s $100 million dollars at a minimum for each state.
And so, there’s a great deal of flexibility with regards to using that money. There are two restrictions though on using that money. States cannot use the money that they receive to reduce taxes, and, of course, that is now subject to legal challenge because there are a number of states that don’t feel that the federal government should dictate to them how the money should be used. And then localities cannot use any of the money that they receive to make deposits to their pension funds. So, with the exception of those two statutory restrictions on how the money can be used, and again, we’re still waiting for guidance from the U.S. Treasury, which probably won’t be forthcoming until May, to further define some of those four categories that I talked about earlier, there really is a lot in there for the economic developers to use to advance, you know, not only short-term goals and address short-term priorities, but to maybe even make some long-term investments.
The other side that a lot of people forget about this is, you know, many states have already started their legislative sessions. Some states are already out of it. We here in Virginia are finished, Georgia’s finished, a lot of states have already finished their legislative sessions. So, they made certain allocations for education, for healthcare, for these various categories using state dollars. Now those states and localities are going to be receiving federal dollars to pay for some of those activities.
So, the other opportunity we have in the economic development area is as those federal dollars come in and displace or replace state dollars that were being used for critical COVID-related expenses, that then frees up potentially hundreds of millions of dollars if not billions of dollars at the state level, which could then be reprogrammed into workforce training, into site development, into economic development marketing. So, there’s a lot of dynamics here with regards to how this money, and money is always fungible, how the development community kind of unifies and comes up with a plan for how you take some of this money to address, again, short-term needs but also long-term priorities. I think there is a lot of possibility here for making some strategic investments in economic development across the country.
Rick: So, Chris, since they can’t use that money to reduce taxes, they could, though, what you’re saying, is replace what they’re currently going to spend state money on and free that state money up, and then use that state money for new programs.
Chris: Exactly. Like, let’s take the Medicaid program. You know, Medicaid is a 50/50 cost-share program for most states, but now, you know, under this act and others, the federal government is stepping up and saying, “We’ll cover more of the federal share. We’ll cover more than 50%.” And so, therefore, the state match that was there now can be freed up for economic development or states reusing some of this money for vaccines, for vaccine administration. Well, now, if the federal government’s going to cover those expenses, that state money could then be reprogrammed into meeting other needs, including economic development-related expenses.
Rick: Very interesting. I mean, I think that makes…there could be some special sessions, I guess, and legislatures call later on, I guess depending on what the individual state’s budget authority is to do that kind of thing, or what governors have the authority to do, but that’ll be very interesting. You know, one of the first impacts clearly seems to me also to be that economic impact payments, Chris. The payments that are direct cash payments to eligible individuals, which was $1,400 per person. Some have said that cash should move quickly into the economy. Do you see that as having an impact or a stimulus effect?
Chris: It certainly does. And I mean, literally, was just on a phone yesterday with one of our clients who’s in the consumer durables goods market. And they said that when the stimulus checks came out, they just saw just such an incredible increase in demand for their product. And now, with the next round of payments coming out, and it’s not only the $1,400 per person, Rick, as you alluded to, but remember now there’s all the provisions that were tucked in this bill regarding increased earned income tax credits, increased child tax credits. So, you have this continuing stimulus payment, particularly for the middle-class or lower-middle-class who really, you know, typically, when money comes in, it gets spent relatively quickly.
So, we’re seeing particularly among our clients that are in the consumer durables market are having to increase their warehouse capacity. They’re having to increase their logistics capacity. They’re increasing their manufacturing capacity for making these products because they see not only is there the short-term stimulus because of the $1,400 per person, but again, if these other programs, the child tax credit, earned income tax credit are going to remain in place, which they are for several years, that there’s a continuing stimulative impact from that.
Now that being said, the question is, how long can you sustain that, first and foremost? You know, I don’t know that we’re going to continue to see more stimulus payments beyond the ones that I’ve talked about earlier, and that’s why, you know, again, I think you have a short-term stimulus which is going to impact, you know, retail and logistics and distribution and maybe food and beverage and some of the really hard-hit sectors, the restaurants and all will get back on their feet. But then it’s taking some of these other monies that I talked about earlier and really putting them into infrastructure and site development and workforce training that has a potential long-term impact.
Rick: Yeah. It seems that we’re going to be a while figuring out all of the different impacts that come from this. But I guess when you really start to total up all of those downstream tax credits, refundable earned income credits, things of that sort, I guess that’s what leads research groups like the Columbia University study that showed how this will actually, at least for the short-term, lift a huge number of children out of poverty for the year, because that’s a huge cash injection in a lot of lower and moderate-income families.
Chris: Absolutely. And if you look at, you know, the way that most people expect, we could see this quarter, 6.4% economic growth in the country, which would eclipse China, which would eclipse…we haven’t seen that kind of growth in the U.S., I think we saw at one quarter of 1984, and then we saw coming out of World War II. I mean, it’s just you know, obviously, we’re coming from a fairly depressed baseline, but you know, that kind of growth when you’re putting that kind of money into the economy, it’s going to have a huge impact.
Rick: So, if you combine that impact that would obviously also, presumably, lead to additional state and local tax revenues as sales taxes and things get spent, and then the $350 billion in funding that goes into emergency funding for state and local and territorial and tribal governments, that’s really pretty a huge windfall for communities and states without any real limitation on those dollars. That’s pretty interesting. How would you posit that most of those new revenues would be used?
Chris: Yeah. I think it’s going to vary state by state and based on the condition of those states. I mean, there were a number of states which were hurting fiscally, whether that was because of declines in certain industries, certainly, energy industry, oil and gas particularly was not doing well before COVID and it has been impacted very adversely. So, you know, some of those states are hurting badly. You had a number of other states with very significant structural imbalances in place because of either pension obligations or because taxes and regulations were getting so high that people were leaving those states.
So, I think you’ll have some subset of states which weren’t doing great financially, which are going to really use these monies really just to hold on, to get on an even keel. You’re going to have other states, however, which were doing financially pretty well before COVID. This was a short-term shock to the system. Revenues did not decline as much as was expected. And so, they, as you noted, Rick, are going to be awash in cash. And again, I think that’s what the imperative of the economic development community is, is to think about how do we make sure that this money that’s coming in, if it can’t be used for tax reduction at the state level, and that again is still subject to legal challenge, how can we make sure we, the economic development community, unite to make sure that yes, we do need to take care of people who are still hurting, and there are those who are still hurting because of the pandemic, but they’ve also been addressed through a lot of the other previous programs?
So, instead, you know, how do we as the economic development community come together and work through our state associations with our economic development agency, with our local government partners to come up with not a wishlist, but really an investment list? And we’re not just talking about, you know, pothole patching and short-term kind of things that we did in the American Recovery Act of 2009, but we really…while there is the requirement that this money get out the door quickly, there is the possibility to maybe either leverage it or bank it in some form or fashion to put in money, like I was talking about earlier, for workforce training, for site development, for some sort of infrastructure, water, sewer, broadband that would have a long-term positive effect.
Rick: Is it too early to see any best practices emerging out of how this…it’s almost like a do-over budget stimulus, you know, there’ll be a lot of variable resources that can be used in an innovative way, perhaps is it too early to see best practices coming out of this?
Chris: It’s too early because, you know, we don’t even have the federal guidance for the use of this money. What I think people are looking for on best practices though is more of lessons learned from the ARRA from 2009, the American Reinvestment and Recovery Act, is how did that money get squandered? You know, I don’t know that, you know, many people listening to this podcast can remember actually how that money was put to use. You know, there were a few signs that were put up that said, “Hey, this, you know, repaving job was paid for by ARRA.” You know, but remember, there were great promises, I’m sure any of you who’ve been around for a long time, remember sitting through endless meetings in 2008 and 2009 putting together your shovel-ready lists of what all this money was going to be used for.
And I don’t think here we are 12 years later that many of us could point to a project. It’s not like we have new airports, new train systems, and all resulting from that money. So, I think there were a lot of lessons learned from that that I think state, local economic developers, and other leaders need to look at to make sure that we just don’t spend this money on short-term, kind of, opportunities that just get money out the door, and instead do have a long-term tail to them.
Rick: I think what we found then and what we will find now is that the pressure to get the money out means it’s difficult to spend that much money that quickly and spend it correctly or spend it well. And so, oftentimes a lot of projects just get pulled off the shelf that maybe had not been funded before and move forward because it’s easier, quicker, or smoother. Chris, in economic development though, I want to unpack one area. And you mentioned it earlier in our discussion, the need for broadband access in rural areas and even in some urban areas. There are some monies in this plan for capital projects like broadband infrastructure, and it seems to me, I certainly think that we almost couldn’t go wrong by improving broadband access in the rural and suburban areas. Do you agree with that? And if so, how will this affect competitive nature of rural and low and moderate-income communities that have heretofore not had broadband?
Chris: Sure. I mean, I think it’s a game-changer for many of these communities. You know, whether this is going to be enough, I’ve heard figures that, you know, to really wire up the country into what we need is, you know, $100 billion-plus. There might be $10 billion set aside here for broadband. Is it gonna make a difference? Yes. Will it solve the gap? No. But you know, again, I don’t think we still yet what the office of the future is going to look like. But we certainly know that it’s going to be certainly more remote working, more work from home than it had been. I think people will still return to the office, but we need this broadband infrastructure in order to support that. We need that broadband infrastructure to support the opportunities for many rural communities and many urban communities.
And that’s where a lot of people forget is, you know, there are a lot of urban communities that just aren’t very wired. I went on a tour of a community a couple of years ago, I won’t name it, but a core central city that had rates of penetration because just nobody even installed it because there just wasn’t the income to support it, far less than many rural areas. And so, I think, yes, it is. There is a great opportunity there for economic developments come from these broadband investments. The thing we need to do first, though, is what I’m led to believe is that our mapping of where it’s needed is horrible. That we don’t really have even a good grasp right now on where the need is.
Supposedly, the way the data is done is that if one person within a census tract has broadband of a certain quality, then it’s seen as that everybody has it. And that’s just not a very good way to make money, to allocate these resources. So, you know, it seems to me that the prudent thing for many in the economic development arena to do would be to first spend some money on really doing some good data gathering and mapping of where resources are now, where they are not, where they’re most needed, and then strategically allocate that money with an eye towards how we can use it, not only for putting pipe in the ground, which is where a lot of people spend this money, but also then how do you use broadband to deploy it for business?
Is reserving some of this money or taking up some of these freed-up monies that I talked about earlier and teaching entrepreneurs in their homes in rural areas or urban areas how to use the internet for…I mean, you know, the last thing you want is to install broadband internet in rural communities so that they can order products offline that are made in China. You know, that’s not what you’re installing broadband for. You’re installing broadband so people can start businesses from their home, so that they can build businesses, they can build local product and ship it, you know, all around the world. And so, you know, maybe what we want to think about is, again, reserving some of these monies for that deployment strategy of, again, not just the pipe in the ground, of getting it to individual homes, but really teaching people how to use broadband for economic development purposes.
Rick: That’s exactly right. Whether it’s an interstate highway, whether it’s a thoroughfare, or a new bridge, water and sewer lines, or broadband, it all has an economic impact if it’s used and allocated correctly, you know, and done very well. And that’s really an interesting thing. It’ll be a lot to be learned about that. But I think you’re exactly right. If we can, kind of, crack that nut, that’ll make a big economic development difference long-term. Finally, Chris, today, there’s a lot of discussion about how an infrastructure plan, now known as the Jobs Act, that may be coming down the pike or at least it’s been announced, when you look in your crystal ball, what do you expect to see in that going forward?
Chris: Well, I think, Rick, there’s a lot of discussion as to what really is infrastructure in that plan. You know, the top line number’s $2.3 trillion, but when you break it up, you parcel it out what’s really infrastructure bricks and mortar the way that people really think about it, there’s maybe $600 billion worth of infrastructure in there, that would be roads and rail and airports and water and sewer. So, there’s a lot of money in there for healthcare and childcare and education, all of which is important, whether or not it’s infrastructure, I think is in the eye of the beholder. And I think that’s where the debate in Congress is going to come from is, you know, how much are we really going to support and pay for?
But you know, if you look at the plan, there is a significant amount of money in there. We do need to rebuild our interstate system. And one of the things we particularly need to do in urban areas is reconnect our urban areas. You know, there are many cities around this country, I’ve driven around where the interstate system really divides cities instead of unites them. So, you know, is there a way that some of these monies can be used to replace or rehabilitate or, you know, take infrastructure and bury it, get it out of sight so you can reconnect communities back together? And think about all the economic opportunities that come from that.
There’s a lot of money in the proposal from the Biden administration for workforce training and retraining activities. You know, again, if we can get that money and really have a business focus to it where business is at the table, shaping the curriculum, and making sure we’re making investments and training for the jobs of today as well as the jobs of the future instead of, you know, just putting people through the system without worrying about what their outcomes is, which unfortunately is the way that a lot of training programs work now, you know, that would be a good use of money.
If we can invest in our ports, you know, trade is here and trade is coming back, trade is going to continue to increase, and, you know, we’ve got capacity constraints. I mean, and this is not just the Suez Canal, before that fiasco a couple of months ago, you know, there were, what, 50 ships waiting in line to get into the ports of L.A. just because they couldn’t be unloaded fast enough. And we need to invest in our port infrastructure, our airport infrastructure, our rail infrastructure. So, again, I think if the infrastructure plan passes in some form or fashion, there is a great deal of opportunity there for the economic development community to really see that money, if it’s invested wisely, have a great rate of return for jobs and investment in the future.
Rick: You know, Chris, it seems while, you know, the pandemic was a horrible, horrible tragedy and a huge dislocation to people’s lives and business, now on the back end of it, there are a couple of bites of the apple to really have some new opportunities if we do all of this right. It seems like a very interesting opportunity, but there’s a lot to be said about how it will evolve. You know, you’ve really given us a lot to think about today, Chris. What a great conversation this has been. But that’s really all the time we have. So, let me just say thanks to Chris Lloyd with McGuireWoods Consulting for providing his insight into what the American Rescue Plan will mean for economic development now and in the years ahead.
Thanks for listening to this episode of Site Selection Matters, and a special thanks today to Chris Lloyd for helping us get inside and better understand just what the American Rescue Plan means for economic development. What an informative discussion, and one that leaves us with a lot to think about. Again, I’m Rick Weddle, president of Site Selectors Guild. This podcast episode presents my views and the views of my guests, and they do not necessarily represent the views or opinions of the Site Selectors Guild or its membership. We hope you’ll subscribe to Site Selection Matters podcast on Apple Podcast, Stitcher, Spotify, or wherever you listen to your podcasts. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.