March 12, 2009

Swaps Stopped: Cities in LA Co. Were Doing Stimulus Funding Deals With One Another

It seems that so-called stimulus package funding is being spread around so widely that some of its beneficiaries can’t figure out how to spend it as intended.

When it became clear to a few small cities in California’s Los Angeles County that they didn’t have appropriate transportation projects for their promised stimulus funding, they decided to sell the rights to that funding to other nearby locales at a discount. The selling city’s resulting cash would then go into its unrestricted general fund and could be spent on anything the city wished.

Apparently these transactions aren’t that unusual in the topsy-turvy world of California state and municipal finance. But it was a, uh, bridge too far for LA County’s Metropolitan Transportation Authority (MTA). After approving a few stimulus-related swaps (noted in stories here and here), the MTA reversed course and putting the kibosh on those and prohibiting any future deals (noted in stories here, here, and here).

Apparently it hasn’t occurred to anyone, including the local media, or the New York Times’s Jennifer Steinhauer, that if these municipalities really don’t need and can’t use the money, US taxpayers ought to be first in line to get it back.

Here’s a portion of the coverage from the Whittier Daily News:

Metropolitan Transportation Authority officials on Tuesday canceled deals that several area cities were poised to make to sell their shares of federal stimulus funds to the highest bidder.

MTA board members allocated a minimum of $500,000 in stimulus funds to every city in Los Angeles County, but had never intended to let cities sell their shares to other cities, board member Richard Katz said.

“That was a misunderstanding on somebody’s part,” Katz said. “It is our intention that all of the stimulus money be for transportation purposes and transportation only.”

In a statement, MTA CEO Roger Snoble said: “Metro is trying to allow some flexibility to the cities, but there is no provision to allow stimulus money to be swapped with general fund money. This is simply not the intent of the Metro board. We will reject anything that is inconsistent with the board’s intent.”

The MTA plans to allocate $215 million in federal stimulus funds to local cities – a number that could rise to $315 million, pending action in the state Legislature.

Board members acknowledged they authorized cities to swap stimulus funds, dollar for dollar, with other cities in exchange for Measure R funds – the county half-cent sales tax hike approved by voters in November to fund transportation projects.

….. “The cities felt the latitude to do this, and Metro frankly was allowing it within the last week,” MTA board member John Fasana said. “But based on the concerns that have been expressed, they decided it might be safer to go back to a strict interpretation. They didn’t want some investigation to put any of the money at risk.”

….. The cities involved in such deals must now come up with shovel-ready projects or swap their stimulus funds for Measure R funds. Sierra Madre officials already have done so, tentatively agreeing to swap their $500,000 share with La Canada Flintridge for an equal $500,000 in Measure R funding.

“Measure R funding” relates to amounts raised in a 0.5% sales tax increase passed last November. Apparently that money is not as restrictive in nature as the money coming from the stimulus package.

This is an early piece of evidence that stimulus money is being passed around like candy with little if any idea of whether it will, or even can, be appropriately spent. It’s likely not the last.

Cross-posted at NewsBusters.org.

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