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Administration officials insist that it takes time to dole out money properly, which explains why so little has been spent so far
Call it the $787 billion question: Where is all that government stimulus money, and why hasn't it stemmed the heart-stopping slide in U.S. employment?
The stimulus plan was all about jobs, after all. Key Obama Administration officials pledged to save or create between 3 million and 4 million jobs with the measure. But the federal government's employment figures on July 2 clocked in worse that expected, with job losses lurching to 467,000 in June and the unemployment rate reaching its worst showing since 1983, at 9.5%; many expect it to rise further still. Public confidence in the stimulus plan is slipping and over the weekend, Vice-President Joe Biden suggested another stimulus plan is possible, something of a shift from Obama's position just two weeks ago that more spending isn't yet called for.
Yet analysts and federal contracting experts say that, in many ways, stimulus spending is going about as quickly as expected. Dispensing billions of dollars, it turns out, simply takes time, particularly given government contracting rules and the fact that much of federal spending is funneled through the states. Moreover, some spending was intentionally spread out over several years, and other projects are fundamentally more long-term in nature. "There are real constraints—physical, legal, and then just the process of how fast you can commit funds," says George Guess, co-director of the Center for Public Finance Research at American University's School of Public Affairs. "It's the way it works in a decentralized democracy, and that's what we're stuck with."
Certainly, based on key numbers, it looks as if the five-month-old spending legislation has been slow to unfold. Onvia (ONVI), a Seattle company that tracks federal spending, estimates that some $65 billion of the $420 billion that was in the stimulus package for contract and infrastructure spending has gone out the door. Federal officials offer similar numbers, saying $60 billion of the $499 billion in total stimulus spending has been disbursed. (The remaining $288 billion consisted of tax cuts.)
"Right on Target"
But those numbers mask a lot of activity, analysts and government officials say. Onvia has identified some 18,500 specific projects covered under the legislation, and while just under 1,800 of them have had contracts awarded, another 5,000 or so have been put out to bid. For the remainder, funds have been allocated but not spent, says Michael Balsam, the company's chief solutions officer.
Ed DeSeve, senior adviser to the President for recovery and reinvestment, tells BusinessWeek that $157.7 billion has been "obligated" for projects of various kinds, roughly a third of total stimulus spending, and $43.3 billion has been distributed in tax breaks. "We think we're right on target," DeSeve says.
He also argues that it makes more sense to count funds allocated to specific projects than dollars actually spent. "When do you buy something—when you use your American Express, or when you pay your bill?" DeSeve says. "You buy it when you use your American Express." Critics of the stimulus rollout argue that what matters most is when the dollars reach the economy—the equivalent of when American Express pays the merchant.
States Slow the Process
The U.S. Transportation Dept. recently stressed that it routinely reimburses states for payments to contractors on federal infrastructure jobs, meaning work can be under way for some time before states pay contractors and seek reimbursement from the feds. Doing otherwise risks wasting federal funds by overpaying up front, the agency said on an Administration blog.
Still, some basic facts of federal contracting slow the process, analysts say. Funneling federal funds through state agencies can prove slower than awarding contracts directly. Seeking competitive bids—a process that's designed to ensure the government doesn't overpay or favor select contractors—also takes time. "It's really not going all that slowly when you take into consideration just the process to spend federal money," says Clint Currie, a transportation analyst for Concept Capital's Washington Research Group.
Similarly, funds allocated to help states with Medicaid and school costs began flowing pretty quickly, says Nick Johnson, director of the Center on Budget and Policy Priorities' state fiscal project. But there, some of the spending was explicitly earmarked for 2010 and even 2011. The Administration has said it hopes to meet Congressional Budget Office estimates that 70% of stimulus funds will be spent by fall 2010. "Everyone knew the recession wasn't going to end in a blink," Johnson says.
Bids Lower Than Expected
Other projects will take time by their very nature—as is the case with funds intended to foster what the Administration calls long-term, sustainable growth in industries supporting public transit or renewable energy. Transit funds that go toward replacing light-rail or subway cars could take years to spend, and building a new light-rail system could take a decade or more, as did Charlotte's 18-month-old light-rail system, says Guess, the American University researcher. Plus, state and local agencies must determine which projects actually qualify for federal funds under rules set by Congress.
One bright spot: Bids for many projects are coming in under expectations, sometimes by as much as 20% to 30% in the case of some transportation contracts, analysts and government officials say. Depressed demand for materials has lowered prices, while contractors are willing to work more cheaply than when construction was booming, notes Currie, the transportation analyst.
There are other, less obvious impediments as well. In a few cases, lawmakers have sought to reject federal funds, as in South Carolina Governor Mark Sanford's failed effort. Other programs that would have qualified for federal matching dollars under the stimulus plan have been cut as states face their own budget woes. As the unemployment rate rises across the country, some states are forgoing stimulus dollars specifically designated to help the unemployed. As of July 2, little more than half of the money had been claimed, and four states rejected it altogether, according to ProPublica, a nonprofit news organization. In some cases, states worried that accepting the money would require them to sweeten the benefits they offered laid-off workers at a prohibitive cost to the state.
More Reporting Ahead
If simply tracking stimulus spending has proven complex, determining how many jobs have actually been created or saved is even more daunting. Most Administration estimates come down to a fairly straightforward but indirect calculation: Each $1 million of government spending creates 10.9 jobs, or about $92,000 a year for each job, including benefits, administrative costs, and other overhead. Using that ratio, for example, a $1.6 billion contract to demolish and remediate a Washington state nuclear facility could generate 17,740 jobs, but whether it ultimately does, only time will tell.
Starting Oct. 10, stimulus-fund recipients must begin reporting more concrete details on jobs and spending at www.federalreporting.gov, and federal budget officials have made it clear that they plan to refine reporting requirements as time goes on, says Craig Jennings, a senior policy analyst with OMB Watch, a nonprofit group that focuses on budget issues. "It's not hopeless," Jennings says. The federal Office of Management and Budget "has been very clear on the fact that their approach is iterative. They're not going to get it right the first time."
But even then, it won't be easy to square whatever job gains are claimed with rising unemployment. Few economists expect the jobs picture to improve this year, and many predict the national unemployment rate will rise to 10% or beyond. Ultimately, stimulus supporters argue that, without it, job losses would be even worse.