Federal COVID funds offer Boston Mayor Michelle Wu a big boost with her big plans

Mayor Michelle Wu has said she envisions a city that has more plentiful and accessible housing, is more climate-resilient, and offers residents fare-free public transit.Lane Turner/Globe Staff

Progressive politicians are used to the skepticism: Nice idea, but how will you pay for it?

Boston Mayor Michelle Wu has a ready answer: with all that money from the federal government.

Thanks to the American Rescue Plan, Boston is sitting on a transformative sum of money just as it welcomes a new mayor intent on transforming the city. The COVID relief package, signed into law by President Biden in March 2021, has built Wu a fiscal sandbox of several hundred million dollars where she can test new policies that critics warned would never be financially feasible.

Some cities have used most or all of that federal funding to plug budget holes, replacing revenue lost during the pandemic’s economic downturn. But Wu’s administration sees the money as key to funding the vision she laid out in her campaign for a city that has more plentiful and accessible housing, is more climate-resilient, and offers residents fare-free public transit. It’s a sizable financial cushion on top of the city’s regular operating budget that will make it easier for the mayor to deliver the large-scale change she promised.

“We have to make every dollar count, and we have to resist the temptation to divvy that up among 10,000 photo ops, and instead really focus on how to tackle root causes with this one-time, once-in-a-generation funding,” Wu said in a recent interview. “It’s absolutely wonderful to have the chance to do big things and access funds that aren’t usually available to us. But it’s important to remember that once it’s gone, it’s gone, and so we have to really be using these for transformational change as opposed to putting Band-Aids on existing challenges.”

Like local and state governments across the country, Boston is awash in federal dollars doled out for COVID-19 recovery. The city has received more than $1.2 billion, much of that tied to specific needs, such as education or rent relief. But the latest installation, which came through ARPA, brought the city $558 million that officials can spend on any number of priorities. For a city with an annual budget of $3.76 billion, that influx of cash represents a sizable new funding stream.

More than $200 million of that pot has already been allocated, most of it by Wu’s predecessor, former acting mayor Kim Janey. But most remains available — about $350 million, according to city data. Boston has until the end of 2024 to allocate the money and until the end of 2026 to spend it.

Wu has already put the money to work on some of her signature priorities during her first four months in office. Boston will spend $8 million on a pilot program to make three bus lines fare-free for two years. Wu directed an additional $5 million into a relief fund for small businesses. And the federal funds will support a $50 million initiative for improvements at the Mildred C. Hailey public housing complex, bankrolling long-needed ventilation, plumbing, window, and kitchen fixes in more than 500 units, some of which were built in the 1940s.

The largest chunk of the money will be spent on housing, Wu said While the city has yet to make many specific allocations, help for both renters and would-be homeowners are under consideration, aides said.

The administration sees the federal funding as a crucial means for accomplishing Wu’s big-picture priorities, though City Hall officials were light on specifics for how they intend to allocate the remaining money. In addition to housing, priorities will include climate and transit, as well as seeking to close the city’s racial wealth gap, they say.

Wu is hardly the only mayor who sees the federal money as an opportunity to make major impacts on the city’s future. A 2021 Boston University study found that 78 percent of mayors believed the federal funds would empower them to accomplish “transformative aims.”

Of course, the reason for the influx of cash — COVID-19 — also presents perhaps the greatest challenge Wu’s administration will face.

“There has been more flexibility [for Wu] to make certain investments up front,” said Marie-Frances Rivera, president of the Massachusetts Budget and Policy Center. But the money comes as officials grapple “with need that we’ve never really seen before,” she added.

Wu’s plans distinguish Boston from some other major cities, which have said they will use most or all of the flexible funds to backfill lost revenue from the COVID economic downturn. Boston intends to spend $115 million to make up for money the city did not bring in during the pandemic. By contrast, Philadelphia, Los Angeles, and San Francisco are putting all of the money Washington sent them toward plugging budget holes, according to a report from the Pew Charitable Trusts.

That Boston intends to use the money on proactive projects as opposed to patching budget gaps is both an indication of Wu’s priorities and a testament to the city’s financial health, analysts said. Because Boston’s budget relies heavily on property taxes, a revenue stream that was more stable than many others over the last two years, the city has more flexibility.

“It’s a sign that the city’s finances are overall quite healthy and stable,” said Pam Kocher, president of the Boston Municipal Research Bureau, a financial watchdog.

Still, being flush with cash may make it harder for Wu to accomplish other aspects of her agenda, such as a transfer fee she has pitched on real estate transactions over $2 million that would fund affordable housing. Why, Governor Charlie Baker questioned recently, would the city consider raising taxes when it has so much federal funding available already?

“I especially wonder why we’re doing this at a point in time when we have billions of dollars available to us to spend on housing,” Baker said last week during a radio interview, referring to federal COVID funds available to both the state and the city.

Watchdogs also warn that Boston needs to be wary of creating a “fiscal cliff” — that important programs, funded with one-time money, could risk termination in a few years once the federal relief is spent.

“If the city uses that one-time money to start up a new program. . . . they should be thinking about if they want the projects to continue, where’s the money gonna come from?” Kocher said.

Wu has argued that despite the flood of federal dollars now, the city needs to find new revenue streams for ongoing priorities, which is why she continues to push for the transfer fee. Funding initiatives now will make the case for keeping them funded into the future, she contends.

“The biggest barrier in this city is believing that we can’t do more,” Wu said. “And so being able to show and have people see with their own eyes and live the impacts is going to be transformational for making the case for larger investments down the line.”