Obama's federal budget: What's in it for cities?

In President Obama’s fiscal 2011 budget proposal, the nation’s cities are winners.

Most will not see any significant cuts in programs that help their poor residents. In fact, many of those programs, such as housing rental assistance, will actually see an increase in funding. And with an extra $100 billion proposed for additional economic stimulus, some cities may be able to restart local programs that have run out of funding.

“[T]here is a lot that cities will benefit from,” says James Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities in Washington.

There may even be a “budget saver” that ripples through to municipalities as well: the Obama proposal includes $25 billion to extend a program that has the federal government picking up an increased share of Medicaid expenses. If adopted by Congress, the program would be extended through the end of 2011.

“That has to help big states and cities,” says Mr. Horney. “New York, for example, has one of the biggest Medicaid programs so I would think there would be a significant amount of money for New York State.”

New York Gov. David Paterson (D) said in a statement that the aid would help mitigate the effect of the cuts proposed in his state budget to close a $7.4 billion deficit. [Editor's note: The original version of this story listed the wrong state for Governor Paterson.]

Several of Obama’s proposals will increase funding for programs that benefit low-income Americans. The Department of Housing and Urban Development, for example, is proposing to increase low-income housing vouchers by $1.4 billion over the 2010 funding level. The department also plans reduce its supportive housing program for the elderly and the disabled, but many of the recipients of those funds will now get housing vouchers instead.

“Overall, we felt the support for low-income housing would be adequate,” says Horney.

It’s not clear how much the Obama proposal to spend $100 billion to help generate economic activity will benefit cities because the proposal is not very specific. Some of that money may be used for proposals to help small businesses, says Horney.

Urban unemployment rates will be helped, however, by the president’s $160 billion proposal to extend unemployment benefits, and extending the Making Work Pay refundable tax credit of $400 per individual and $800 per married couple.

Cities will also benefit from an Obama proposal to make permanent the federal subsidy to the Build America Bonds program, in which the federal government subsidizes interest payments to state and local government issuers of bonds. Such bonds are typically for capital projects such as buying equipment or making major repairs.

The subsidy, which expires at the end of 2010, currently provides a 35 percent federal subsidy or rebate on issuers’ interest costs for issuing bonds in the taxable bond market, writes John Mousseau, a portfolio manager at Cumberland Advisors, a New Jersey money manager, in an analysis. Under the new proposal, the subsidy is reduced to 28 percent and made permanent.

“This means lower interest costs for municipalities and certainly lowers the interest cost at the margin for new projects,” writes Mr. Mousseau.

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