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Spend Federal Boon Wisely, and Flyover Country Can Win

The mad dash for states, cities and other local units of government to spend the Biden-administration largess has begun. Once the floodgates are opened in a few weeks and the trillions of dollars in “Covid relief,” infrastructure “investment” and other sources of new federal bounty actually start flowing to jurisdictions across the country, America will see a government-spending spree the likes of which this nation has never experienced – not even in the midst of the Great Depression.

All of which presents a huge new opportunity for Flyover Country. If our states -- which mostly have been run responsibly over the decades, compared with coastal counterparts – can free themselves to spend and invest the federal windfall as their leaders want, our region could create some huge advantages in economic development that will further position us favorably for the future.

As the feds get ready to actually sign checks for states, cities, counties and education departments from the backlog of gigantic disbursements that has been ordered up by President Biden, gobsmacked local officials are in a daze about what they will do with a cornucopia of funds that most of them never actually asked for or expected. These are brainstorming sessions they never thought they’d be having, about how to spend literal gifts from Washington, D.C., in amounts of millions and billions of dollars the likes of which they’d never contemplated.

So, ideas on what to do with it are appearing feverishly. Chicago is going to get nearly $2 billion in federal money, giving Mayor Lori Lightfoot a chance to address structural issue as well as help those “hurting all over the city,” she says. Port Huron, Michigan, officials have talked about refunding all 2020 property taxes with the city’s $19-million windfall.

And in Westchester County, New York, a monied suburb of New York City, the $187-million gift will go toward nipping and tucking its economic platform via everything from expanding broadband capabilities for remote work to aiding small businesses.

Now is the time for visionary government, business and non-profit leaders in Flyover Country to understand and grasp a generational, perhaps historically unique, opportunity to buttress their states, counties and cities in economic-development initiatives that will leapfrog them to the front of the pack in the years ahead.

This could involve not only fixing but also significantly enhancing crucial aspects of infrastructure such as roads, sewers, ports and bridges; reimagining high-school education and training programs; buttressing community colleges for the new economy; ensuring the ubiquity of broadband in remote towns and other locations; leveraging legacy industries to create technology ecosystems that fit the strengths and character of each locality -- and on and on.

Many local-government leaders and companies in the region also will want to take this opportunity to hold the line on, or even cut, taxes. Significantly, many states in Flyover Country were in good fiscal shape before Covid and actually didn’t get hurt too badly, if at all, by revenue losses during the pandemic.

The new federal largess presents our leaders with a potential opportunity to further differentiate themselves from hopelessly underwater coastal states like New York, where politically troubled Gov. Andrew Cuomo is actually trying to lift the marginal income-tax rate to 10.9 percent from today’s 8.9 percent – even with $13 billion in direct budget relief New York is slated to get from the Biden administration.

But there’s the rub. Few federal strings are attached to most of the federal monies, but the ones that are, are ties that bind mostly fiscally responsible states in Flyover Country.

“States have big question marks because, so far, the federal government is saying they can’t cut taxes with the federal money they’re getting,” observes Jonathan Williams, chief economist and executive vice president of policy at the American Legislative Exchange Council, and chief author of the policy group’s annual “Rich States/Poor States” report on business climates. “So we may see a whole lot of projects with marginal value get built.”

Flyover Country politicians need to resist such temptations and, instead, fight all the way to the Supreme Court to beat back the Biden administration’s naked attack on federalism – not to mention its attempt to thwart the many well managed states in our region from enhancing their advantages in economic development in the wake of the pandemic.

“It’s too early to tell where the dominoes will fall,” Williams told me. “But my concern is that a lot of low-priority spending will get done, increasing the spending baseline in states, and then setting up the need for tax increases in the future because no one wants to cut back” on newly established benefits.

Williams says that the Biden administration’s rules suggest local governments, by contrast, have the freedom to deal with the federal windfall however they want, including cutting taxes.

In any event, Williams says, while many coastal states unfortunately will spend their federal largess on beefing up compensation for government employees and adding to their bureaucracies, increasing their long-term costs, states in Flyover Country could boost their long-term advantages with companies looking to locate and expand facilities and workforces.

Let’s make our politicians and business leaders keep their eye on this ball.


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