Biden Stimulus Plan to Aid Michigan Local Finances and Economies

Michigan localities will share $4.4 billion in federal fiscal recovery aid. The stimulus package is expected to support some 43,000 Michigan jobs with annual labor earnings of nearly $3.6 million and increase gross state product by $6.7 billion.

Image of U.S. money.
Photo by Cavell L. Blood at FreeImages.

It has been a long time coming, but direct federal fiscal recovery aid for local governments has finally arrived. And it appears to have been worth the wait.

Of the $1.9 trillion COVID-19 relief package, the American Rescue Plan Act of 2021, $130.2 billion is earmarked for distribution to localities. Payments are to be distributed directly from the U.S. Treasury to counties and certain metropolitan cities. Local governments not fitting either of those categories, which the legislation refers to as “nonentitlement units of local government” will receive a pass-through payment from Michigan’s Treasury Department. In total, the aid package represents nearly $4.4 billion in new public revenues for Michigan’s government units.

Michigan’s metropolitan cities will receive just over $1.78 billion. Allocations are determined by CBDG formula as per section 106 (b) (1) of the Housing and Community Development Act of 1974. The first half of these funds are to be distributed within 60 days after the U.S. Treasurer receives the required certification signed by the locality’s fiscal officer. The second half of the local unit’s funds will be allocated one year later.

These federal stimulus dollars will benefit Michigan’s metropolitan cities, especially localities that have been struggling financially for some time. In some cases, such as in Benton Harbor, Muskegon Heights, Flint, Saginaw and Lincoln Park, the federal stimulus funds are 50% or greater than the governmental and business revenues these cities generated in 2020 (Table 1).

Table 1: Stimulus Dollars as Share of Total Revenue by City

City Stimulus dollars as share of total revenue
Battle Creek 28%
Bay City 33%
Benton Harbor 80%
Canton Township 7%
Clinton Township 13%
Dearborn 21%
Dearborn Heights 48%
Detroit 41%
East Lansing 20%
Farmington Hills 7%
Flint 53%
Grand Rapids 24%
Holland 5%
Jackson 49%
Kalamazoo 27%
Lansing 23%
Lincoln Park 50%
Livonia 5%
Midland 6%
Monroe 21%
Muskegon 41%
Muskegon Heights 87%
Niles 23%
Norton Shores 11%
Port Huron 31%
Portage 9%
Redford 38%
Roseville 48%
Royal Oak 25%
Saginaw 58%
Southfield 12%
St. Clair Shores 25%
Sterling Heights 15%
Taylor 13%
Warren 16%
Waterford Township 11%
Westland 26%
Wyoming 15%

Michigan counties will share over $1.9 billion, which will be allocated by county population. Counties are required to submit certification signed by the county fiscal officer to the U.S. Treasury and then within 60 days, half of the county’s funds will be distributed directly to the county. The second half of the county’s funds will follow one year later.

An additional $686 million will be set aside for all other general-purpose governments that are not counties or metropolitan cities. According to the act, the state is required to distribute half of these funds within 30 days of receiving them. The second half of each local unit’s funds will be allocated one year later. Funds will be distributed based on the relative population counts. However, local government units cannot draw more than 75% of the pre-pandemic annual budget. All funds not distributed due to the funding cap, will be returned to the U.S. Treasury.

A local government has a lot of latitude in what it is able to use the stimulus relief funds for including to defray costs incurred, to replace revenue or mitigate negative economic impacts sustained as result of the COVID-19 public health emergency. Funds can be used for water, sewer and broadband infrastructure. However, these funds cannot be used to support tax cuts or shore up pension deficits. Recipient local governments will be required to provide to the U.S. Treasury detailed accounting of how these funds were used. Funds are to be spent by the end of calendar year 2024.

We modeled the economic effects of the expected distribution of the Coronavirus Relief Fund. To do this we created 84 economic simulation models using IMPLAN - one for each of the 83 counties and one for the state of Michigan. The IMPLAN model is an input-output economic model, commonly applied to estimating regional or state-level economic impacts of direct injections into the economy. In this analysis, federal funds allocated under the COVID-19 relief bill are treated as new outside funds injected into the state and county economies. By assumption, these funds will only exist in these economies because of the pandemic relief bill.

Table 2 shows the estimated total effects for the State and breaks those out into expected county level estimates. Details of the modeling approach can be found below. The Michigan economy will capture a share of the in-state government spending from the $4.4 billion of new public revenues. The share that is captured is expected to continue to recirculate throughout the economy as secondary expenditures, where one’s expenditures gives rise to another’s revenues. As dollars are spent and re-spent throughout the economy, different sectors are impacted through a process of diffusion. That is, a local expenditure for road repair may eventually contribute to one’s purchase of a movie ticket as the dollars fan out across the economy. Once we account for how these new dollars circulate throughout the economy, the $4.4 billion in direct expenditures transition to a total increase in transactions by $7.35 billion. These new transactions are expected to support some 43,000 Michigan jobs with annual labor earnings of just under $3.6 billion. Accounting for other measures of income, we expect that the stimulus package will increase regional income, or gross state product, by nearly $6.7 billion.

Table 2: Economic Impact Estimates by County

  Economic Impact Estimates
County Population Employment Labor Income Regional Income Output
State Total 9,986,857 43,183 $3,581,438,407 $6,676,992,904 $7,349,698,068
Alcona 10,405 193 $15,932,179 $29,725,709 $31,564,875
Alger 9,108 198 $16,722,319 $30,678,852 $31,306,464
Allegan 118,081 453 $38,427,486 $71,768,207 $79,481,670
Alpena 28,405 254 $21,719,538 $39,922,119 $43,329,132
Antrim 23,324 221 $18,475,600 $35,113,016 $38,169,435
Arenac 14,883 209 $16,243,125 $30,912,239 $37,845,315
Baraga 8,209 203 $16,618,838 $30,522,516 $34,857,785
Barry 61,550 330 $27,242,780 $50,517,672 $56,380,569
Bay 103,126 438 $37,194,756 $69,898,986 $78,256,799
Benzie 17,766 213 $18,908,442 $33,791,408 $35,468,112
Berrien 153,401 555 $45,249,038 $85,774,646 $97,397,452
Branch 43,517 296 $23,974,432 $43,240,988 $48,015,712
Calhoun 134,159 492 $41,011,567 $76,875,178 $87,544,947
Cass 51,787 289 $24,655,887 $45,662,950 $48,760,635
Charlevoix 26,143 269 $21,103,437 $38,466,190 $43,868,056
Cheboygan 25,276 232 $19,038,334 $35,942,325 $41,294,101
Chippewa 37,349 287 $25,518,221 $45,561,121 $46,227,286
Clare 30,950 264 $20,471,918 $38,316,303 $43,115,919
Clinton 79,595 376 $31,402,544 $58,880,981 $64,911,143
Crawford 14,029 210 $18,459,071 $33,459,891 $35,474,767
Delta 35,784 335 $24,069,403 $42,127,676 $48,663,365
Dickinson 25,239 226 $19,113,117 $35,567,483 $41,161,183
Eaton 110,268 431 $35,788,607 $67,636,713 $77,664,855
Emmet 33,415 261 $22,158,796 $41,924,029 $49,496,226
Genesee 405,813 1,409 $117,235,196 $220,109,490 $241,822,774
Gladwin 25,449 221 $17,868,323 $32,931,442 $36,182,944
Gogebic 13,975 212 $17,447,192 $32,622,676 $37,596,352
Grand Traverse 93,088 441 $36,414,951 $67,035,910 $74,920,843
Gratiot 40,711 280 $23,329,792 $43,955,816 $50,375,109
Hillsdale 45,605 342 $24,338,642 $42,921,689 $49,102,855
Houghton 35,684 267 $24,632,729 $44,085,754 $45,395,248
Huron 30,981 253 $20,520,157 $38,839,980 $45,252,358
Ingham 292,406 878 $73,764,881 $137,239,140 $150,968,601
Ionia 64,697 327 $26,262,944 $48,209,850 $53,830,161
Iosco 25,127 226 $18,882,211 $36,026,366 $40,896,343
Iron 11,066 187 $16,672,323 $31,106,475 $33,303,920
Isabella 69,872 359 $28,329,157 $53,498,217 $62,504,799
Jackson 158,510 558 $46,952,540 $88,296,606 $99,575,697
Kalamazoo 265,066 819 $68,920,337 $130,129,308 $145,725,278
Kalkaska 18,038 242 $18,595,831 $34,295,431 $38,116,581
Kent 656,955 1,754 $147,856,577 $278,289,504 $305,763,405
Keweenaw 2,116 189 $15,405,293 $28,238,523 $32,399,295
Lake 11,853 220 $16,079,573 $29,121,882 $32,083,026
Lapeer 87,607 382 $30,894,250 $58,223,515 $66,109,702
Leelanau 21,761 223 $19,004,630 $34,409,095 $37,032,681
Lenawee 98,451 417 $32,960,124 $61,929,239 $71,596,360
Livingston 191,995 630 $51,685,237 $97,353,910 $108,229,654
Luce 6,229 174 $16,316,528 $29,067,602 $28,031,209
Mackinac 10,799 198 $14,936,894 $27,992,130 $33,539,236
Macomb 873,972 2,270 $189,227,589 $355,456,880 $387,491,531
Manistee 24,558 264 $19,980,255 $36,017,021 $40,220,000
Marquette 66,699 354 $31,608,723 $59,296,595 $62,585,757
Mason 29,144 242 $21,646,285 $40,439,969 $44,008,034
Mecosta 43,453 293 $23,763,026 $43,853,875 $48,839,483
Menominee 22,780 253 $18,849,306 $33,259,200 $37,519,706
Midland 83,156 382 $31,546,053 $58,616,796 $65,098,464
Missaukee 15,118 214 $19,835,438 $35,012,085 $33,869,057
Monroe 150,500 539 $44,997,736 $83,972,598 $92,744,491
Montcalm 63,888 316 $26,910,558 $49,600,937 $54,787,629
Montmorency 9,328 191 $14,782,681 $27,367,225 $31,056,782
Muskegon 173,566 588 $49,988,272 $94,555,125 $106,236,230
Newaygo 48,980 295 $24,367,565 $44,002,894 $49,444,317
Oakland 1,257,584 3,181 $265,297,901 $498,956,586 $542,537,758
Oceana 26,467 253 $19,107,485 $34,371,741 $38,217,712
Ogemaw 20,997 234 $19,165,827 $35,316,166 $40,017,668
Ontonagon 5,720 179 $15,182,230 $28,246,998 $29,059,402
Osceola 23,460 295 $16,372,493 $30,260,731 $37,627,490
Oscoda 8,241 178 $15,963,172 $29,713,382 $28,850,262
Otsego 24,668 268 $24,062,151 $43,287,955 $47,514,266
Ottawa 291,830 878 $73,107,712 $136,839,349 $149,297,213
Presque Isle 12,592 216 $18,954,541 $34,144,127 $33,625,080
Roscommon 24,019 236 $19,862,634 $36,968,636 $39,049,869
Saginaw 190,539 644 $53,301,055 $100,560,317 $112,190,757
St Clair 159,128 557 $46,440,192 $87,683,265 $97,958,914
St Joseph 60,964 307 $24,825,087 $46,937,577 $55,217,161
Sanilac 41,170 272 $22,509,274 $40,372,332 $44,386,191
Schoolcraft 8,094 182 $17,494,138 $29,370,630 $28,881,168
Shiawassee 68,122 341 $28,136,856 $51,953,658 $58,647,470
Tuscola 52,245 287 $24,505,222 $45,416,039 $49,370,033
Van Buren 75,677 375 $29,204,707 $53,999,047 $61,157,754
Washtenaw 367,601 1,109 $91,629,416 $170,878,360 $188,034,908
Wayne 1,749,343 8,299 $693,583,359 $1,304,358,400 $1,409,289,214
Wexford 33,631 246 $20,423,727 $37,689,661 $44,256,065

 Figure 1: Employment Impact by County

Employment ImpactAs Table 2 shows, the expected impacts vary by county. Figures 1-3 show the spatial distribution of expected impacts, revealing that higher population counties are likely to experience the larger share of impacts. This is partially because the direct distribution of aid is based on relative population counts, but it also reflects that more populous counties capture a larger share of the instate dollars as they circulate throughout the economy. 

Modeling Assumptions and the IMPLAN Model

Modeling entailed using IMPLAN Pro for Michigan. IMPLAN, or economic input-output models in general, use basic constructs of economic theory to model economic impacts of transactions that ripple throughout the economy. The models recognize that dollars introduced into a local economy recirculate in that economy over the course of a year and that one party’s revenue becomes another’s expenditure. It does this by tracing transactions throughout the economy in a system of double-entry social accounting called a social accounting matrix (SAM). The SAM is made up of 528 industries and institutions such as households, governments, corporations as well as import and export sectors that account for trade with regions outside of the modeling region. As new dollars are spent by one entity, they are received by another before being re-spent. This cycle of spending continues up to the point that the dollars leave the local economy to purchase imported goods and services.

Figure 2: Labor Income Impact by County

Labor Income Impact by County

The model starts with estimates of direct effects, measured in dollars of relief funds spent in the state. Not all relief funds remain captured in the state economy. A share of public expenditures goes to the purchase goods and services originating from outside the modeling region. We use estimated regional purchase coefficients to estimate the share of local government funds that remain in state.

The locally captured direct effects create secondary transactions. These secondary effects are estimated as a proportion of the direct effects. The size of secondary effects depends on the county. Larger counties tend to have higher secondary effects than smaller counties, as larger economies by their nature capture a larger share of the transactions.

Figure 3: Output Impact by County

Output Impact by County

The total estimated economic impact is the sum of the secondary and direct effects. The estimated total effects can be represented as a simple multiplier of the direct effect. Hence, this approach to modeling economic impacts is often called a multiplier analysis.

The IMPLAN model provides economic impact estimates in four measures. First, all modeling relationships are based on total value of transactions, or sales. Sales impacts are also called output impacts. Other indicators of economic impacts include employment, labor income and regional income. Each of these three indicators are measured by fixed ratios to output for each of the 528 industries and sectors. That is, at the base year, if an industry has sales of $10 million and employs 5 people, then the fixed ratio of employment to sales (output) for this industry would be $2 million in sales per 1 employee. If industry sales increase to $20 million, we expect employment to increase by 5 people to 10 employees. Labor income and regional income fixed ratios are calculated similarly. Finally, regional income is measured as total income and is the sum of labor income, proprietors’ income and indirect business tax. Other terms for regional income include gross state product and value added.

The nature of economic impacts requires that the sum of the county-level economic impacts will be less than the aggregate impact at the state level. That is, since county-level economies are more dependent on external economies, like the state, the extent of secondary transactions realized at the county level is smaller than that at the state level. Hence, to account for the larger secondary transactions accruing to the state than those accruing to the individual counties, total economic impacts are modeled at the state level and then are allocated to the counties based on county-specific criteria. This is accomplished by first allocating federal pandemic relief funds to the counties, which are distributed along two channels – direct to each county and to cities/townships. We apply county population weights to allocate city and township relief funds to the county. The sum of the county allocations reproduces the total expected federal relief infusion to the state. The state level and county level economic impacts are estimated in isolation. The county-level awards are the estimated relief fund allocations to each county, while the county-level direct effect is the estimated local catchment of expenditures as indicated by the regional purchase coefficients.

County-level secondary effects are estimated by allocating the state-level secondary effect estimates. Not all relief funds result in a direct effect. They are allocated using an index of population weights and county-specific multipliers incorporated in the county-level models. The index is normalized to sum to one. Hence the index of secondary transactions is a weighted average of the state-estimated secondary effects.

With both direct and secondary effects estimated at the county level, the county level total effects are estimated as the simple sum of the two for each county. The county estimates all sum up to the state overall total estimated impacts.

 

 

 

 

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