The Office of Management and Budget is tweaking what makes a city a city in the eyes of the federal government, and it could cost Wausau, Wis., and 143 other communities billions of dollars in housing assistance and other federal programs.

Katie Rosenberg, Wausau’s mayor, said the change may kick the city out of eligibility for $650,000 in Community Development Block Grant funds and other programs used to support the city of 39,000 people. If Wausau loses the funding, it will likely pull support for local charities, homeless shelters and a Hmong American Center, she said.

“It’s either we grow or we die, and we can’t have the federal government help us shrink,” Rosenberg said.

Although the OMB tinkers with the definitions of a “metropolitan statistical area” each decade, this is the first time the White House budget agency has touched the population threshold since establishing it following the 1950 census.

Earlier this year, OMB proposed doubling the threshold for metropolitan statistical areas from 50,000 to 100,000 people in the urban core, opening the door to future shifts in the definition. An MSA includes the city as well as surrounding communities — the Wausau-Weston MSA in Wisconsin, for example, has more than 100,000 people, but less than that in its urban areas alone.

A federal interagency Metropolitan and Micropolitan Statistical Area Standards Review Committee, which recommended OMB make the change, argued that the country’s population has more than doubled since the government first established the standard in 1950, making it due for a change.

However, demographic experts, national groups and local advocates worry the agency’s tweaks could upend how billions of dollars in federal funds get distributed nationwide.

Although OMB originally did not mean for the definition to be used in funding decisions, hundreds of federal programs now utilize the MSA designation for that purpose. Teryn Zmuda, chief economist for the National Association of Counties, said the changes put communities around the country in a “waiting game” with those federal agencies, which will have to decide how to handle the new standards.

For instance, 70 percent of the current fiscal year’s $3.4 billion in CDBG funds administered by the Department of Housing and Urban Development goes to large cities, counties and MSAs. Rural areas compete for the remaining 30 percent from state allocations, potentially straining the program if more communities are pushed into that category, Zmuda said.

“Any shift that increases the number of rural-classified communities will increase the demands for those rural programs,” she said.

Zmuda noted the demand for funding in rural communities has only increased in recent years, and cities may find themselves campaigning for rule changes at federal agencies just to keep the money they already receive.

The proposed OMB rule change received more than 800 comments since it was posted in January, ranging from national groups like NAC and others raising objections, to local mayors, chambers of commerce and individual clinics pushing back on the changes. A bipartisan group of 22 senators also raised objections in a March letter, urging OMB to set the changes aside for now.

“Because of the reliance on this designation by various federal agencies and programs, this change could result in the loss of federal programming for many small- and mid-sized counties, cities and towns across the country,” the lawmakers said.

The senators also noted that more than 16 million people have moved amid the pandemic, potentially throwing off funding for communities throughout the country.

Unknown impacts

While many of the Federal Register comments focused on the potential changes in CDBG funding, Michael Gleeson, National League of Cities legislative manager, said the potential impacts extend far beyond that.

Gleeson said neither the OMB nor the Census Bureau, which is part of the interagency working group that recommended the change, has done enough research into how a definition change could ripple across the hundreds of federal programs that use the data. Those changes could disrupt Department of Transportation grants, Medicare reimbursements, rent calculations and more, he said.

“It just runs the gamut of possible ways that federal programs could get caught up in this mess of not knowing the impact,” Gleeson said.

It’s not just federal programs, either. Losing an MSA designation can have a domino effect on economic growth and real estate. Companies looking to relocate or grow can take it as an indicator of government support for infrastructure and economic potential generally, Gleeson said.

MSAs “just have more prestige, they have transit, they have other aspects that would draw talent and younger people and a workforce necessary to grow a company to an area,” he said.

A Brookings Institution report in March found significant differences between existing non-MSA communities and those that would be downgraded by the change. On average, those at risk were almost three times more populous, were more prosperous and had higher levels of education.

The report’s authors argued the changes weren’t fully justified and could leave OMB’s statistical work open to political manipulation down the line.

“With the government focusing on COVID-19 relief, economic recovery, and potential new investments in infrastructure and jobs, the implications of the proposal, especially for rural and lagging areas, demand further analysis,” the report said.

Rosenberg, the Wausau mayor, notes even if OMB changes the definition so her city no longer qualifies as one, her community’s needs will remain the same. 

“We’re dealing with poverty just like every other city. We’re dealing with homelessness. We’re dealing with all of these things that other big cities are dealing with. We’re the big city [in the area] — we attract people,” Rosenberg said. “We are the place that provides all the services, so we just want to make sure we can continue doing that.”