Authored by Senior Advisor Mark Ritacco and Senior Managing Directors Eve Maldonado O’Toole and Leslie Pollner, Manatt
Congress has increasingly shown a willingness to do something that cities, towns and villages can’t. Last fall’s 43-day federal government shutdown — the longest shutdown in American history — and the recent Department of Homeland Security shutdown have caused service disruptions across the country. Local governments simply do not have that option. Even when the federal government curtails operations, local laws still need to be enforced, the trash still needs to be collected, the buses still need to run and the 911 calls still need to be answered.
America’s local governments are partners in ensuring the health, safety and prosperity of their residents. They run hospitals, keep water clean, plow roads and respond to emergencies and disasters. With all that responsibility, local governments are looking to the federal government for partnership but are increasingly contending with uncertainty in federal mandates, declining federal funding support and policy decisions that are making life more expensive for the families and businesses they serve.
Doing More With Less
In response to the more than six-week federal government shutdown last fall, local governments filled the gap by directing resources to food banks to feed their residents when Supplemental Nutrition Assistance Program (SNAP) benefits lapsed for the first time in the program’s 60-year history. Across the country, airports operated by local governments set up food pantries and donation drives for Transportation Security Administration officers, air traffic controllers and customs agents who were keeping travelers safe without getting paid.
When the federal government pulls back from these commitments, the new costs show up in higher local taxes, deferred maintenance, longer commutes and more expensive housing for residents who are already stretched thin.
The shift started at the beginning of last year. The 119th Congress’ first major policy, H.R. 1, fundamentally changed the fiscal relationship between the federal government, the states and local governments. The National Association of Counties estimates that H.R. 1 provisions will result in $1 trillion in cuts to intergovernmental partners over the next decade; a majority of these cuts will come in Medicaid, as the Congressional Budget Office projects 10.3 million fewer Medicaid (PDF) enrollees by 2034 due to changes in this program.
All while the last released numbers from the Department of Housing and Urban Development show the highest homelessness count since data collection began in 2007. According to the Pew Charitable Trusts, more than 20 of the nation’s 25 largest cities reported budget gaps for FY2026. There is also a $3.7 trillion infrastructure investment gap if current funding levels continue through 2033, according to the American Society of Civil Engineers’ 2025 Report Card for America’s Infrastructure (PDF). This signals that the need for federal investment is increasing, not shrinking.
The Rules Are Changing
As H.R. 1 was being crafted on Capitol Hill, the Trump Administration issued more than 100 executive orders in its first two months, many directly affecting local governments. These actions ranged from freezing infrastructure grants to conditioning disaster aid on policy compliance, with some still being litigated in federal court. Each new development in ongoing legal disputes over federal funding and grant conditions can affect local operations on a massive scale.
This new operating model means that federal responsibilities are being transferred to local governments without corresponding resources or authority. In some cases, both resources and authority are shrinking through federal preemption policies.
Opportunities for Local Governments
There are opportunities for local governments to innovate in this new paradigm, however. Congress and the Administration’s desire to streamline permitting and reform National Environmental Policy Act (NEPA) would allow local governments to deliver infrastructure for their residents faster. There is bipartisan momentum on housing, with the passage of the Housing for the 21st Century ROAD to Housing Act. The Low-Income Housing Tax Credit expansion in H.R. 1 will generate an estimated 1.2 million additional affordable rental units over ten years.
Despite the pessimism of many observers, Congress mostly completed the FY2026 appropriations process, sending billions of dollars directly to communities through Congressionally Directed Spending and Community Project Funding. These earmarks represent one of the most tangible ways local governments can secure federal investment for local priorities and demand for them is only growing.
Positioning Local Governments for Success in this Environment
How should local governments navigate this new era?
1. Seek Federal Funding for Important Projects
Congress has shown a willingness to invest directly in local government projects through Congressionally Directed Spending and Community Project Funding. This earmarked spending allows local leaders to secure federal dollars for critical infrastructure, public safety and community development projects that local budgets alone cannot support.
2. Understand Today’s Rules
As grant terms and conditions are continuously litigated and Washington’s priorities are in flux, local governments need up-to-the-minute information about when and how federal policy will affect next year’s budgets. The recently proposed OMB rule that would substantially change the Uniform Guidance is an example of how Washington is attempting to remake the relationship between local governments and the federal government. This fast-changing environment may require cities, towns and villages to quickly get up to speed on emerging policy issues, such as the surge of data center development. It could also mean modeling the budget impact of Medicaid redeterminations, getting ahead of SNAP cost-sharing obligations before they take effect or even knowing which grant agreements carry compliance conditions that may be impossible to meet.
3. Build Strength in Numbers
Local leaders need to understand what their peers are doing, both through formal coalitions and informal networks. While every local government is different, collective knowledge sharing rooted in D.C. intelligence can give local governments a tested roadmap that they couldn’t develop on their own.
4. Dare to Innovate
With Washington gridlocked, innovation happens at the local level. Local leaders need to know how to stand out and raise their profile with national policymakers. Knowing what to elevate and what to protect is key to unlocking resources from Washington and support at home.
Above all, cities, towns and villages need to be connected to what is happening in Washington, D.C., to understand the motivations driving policy and to see what is coming next before it arrives at their doorsteps.
Visit the NLC Strategic Partnerships page to learn more about organizations like Manatt dedicated to making NLC the premier resource for local governments.
Reach Out
To discuss any of these recommendations in more detail, or for personalized insights into what’s happening in Washington, please reach out to Manatt’s public-private partnerships and state and local government advocacy team.
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