THE IMPACT: Stimulus bill helped some far more than others

On August 8, 2010, in Impact, by Graydon Gordian

By Graydon Gordian, Kelsey Snell
and Michael Beller
| for McClatchy Newspapers

WASHINGTON — In February 2009, the United States had fallen into what many economists called the deepest economic slowdown since the Great Depression. The housing bubble had burst, unemployment was nearing its highest level in almost three decades and the once-freewheeling banking sector had turned tightfisted.

At the urging of President Barack Obama, Congress passed a $787 billion economic stimulus bill on Feb. 10, 2009, to get federal dollars flowing into the U.S. economy.

Eighteen months later, the administration estimates that about 85 percent of the jobs it expected to create or save in the first two years have indeed been created or saved. The economy is rebounding slowly, and the worst effects of the recession have softened. Unemployment, while still high, is better than it otherwise would have been.

For the most part, mainstream economists such as those at the Congressional Budget Office agree with those conclusions, but an examination by McClatchy and the Medill News Service has found that some parts of the country have benefited far more from the American Recovery and Reinvestment Act than others have, that some sectors of the economy are benefiting far more than others are and that it’s difficult to detail exactly where all the money has gone.

Among the findings:

  • The jobless rates in the states had little to do with where major portions of the stimulus package were distributed. Some states with the lowest unemployment rates received some of the highest per-capita spending for stimulus projects. (Graphic: The disconnect between stimulus funds and unemployment by state.)
  • Job creation on the local level has been uneven. By the White House’s numbers, for example, Nebraska created 74 percent of the expected jobs, while North Dakota and Massachusetts created 100 percent.
  • The Obama administration won’t be able to fulfill its vow to track every stimulus dollar. The mechanism that’s used to account for the expenditures is complicated, flawed and at times inaccurate. “I know it’s political rhetoric to say we have to know where every penny is spent,” said Raymond Yee, a lecturer at the University of California Berkeley’s School of Information. “But it’s difficult to even understand where every billion dollars is spent.”
  • Much of the stimulus money has yet to go out the door. As of July, $127 billion in contracts, grants and loans had been awarded, but that’s less than half the $275 billion allocated for those projects.

That’s partly by design and partly because it was difficult to get systems in place to spend money quickly for the array of new programs that the stimulus bill funded.

As it sought to sell the nation on the necessity of a major stimulus package, the White House released 50 information sheets in February 2009 that described how the stimulus would be a boon to every state.

The first selling point in each sheet? Jobs. Whether it was the projected 396,000 jobs created or saved in California or the 8,000 in Vermont, job creation and retention got top billing.

The White House projected creating or saving about 3.5 million jobs in the first two years after the stimulus bill passed. In a July report, the administration estimated that it’s created or saved approximately 3 million of them, about 85 percent of the expected total.
(Using different economic models, the administration calculates the added-jobs tally at either 2.5 million or 3.6 million and averages them out to 3.1 million.)

While they agree that the stimulus package has created jobs, other economists are less optimistic than the White House is. The CBO says the job boost could be as low as 1.4 million or as high as 3.4 million. Three other economic organizations _ all of which the White House cited in its July report _ put the jobs tally at 1.8 million, 2.1 million or 2.2 million.

UNEQUAL BENEFITS

It’s clear from the McClatchy-Medill analysis of stimulus spending and unemployment, however, that some states have fared much better than others have.

North Dakota has had one of the nation’s lowest unemployment rates for the last year. In June, it hit 3.6 percent. Yet the analysis found that it’s scheduled to receive more stimulus spending, per capita, than is Nevada, where the unemployment rate climbed to 14.2 percent in June.

Part of the disparity is because much of the stimulus spending was doled out based on formulas that were already in place.

Transportation dollars, for example, were distributed to the states based on existing formulas that take into account population, existing roads and other factors. Officials then were directed to consider which parts of their states were “economically distressed,” but that criterion didn’t come into play until after the money had gone to the state capitals.

That means transportation dollars were distributed to states regardless of their economic fortunes. North Dakota and South Dakota, whose unemployment rates are among the lowest in the nation, have more than $250 per capita to spend on recovery act transportation projects. Michigan and Nevada, which have the nation’s highest unemployment rates, will get about $100 per capita for such projects.

Economists who’ve studied the stimulus package say there’s little connection between which states have the worst unemployment and where the stimulus dollars have been spent. Edward Glaeser, a Harvard University economist, wrote in March that, “Stimulus aid was not particularly well matched with need.”

Veronique de Rugy of George Mason University testified before the House of Representatives Committee on Transportation and Infrastructure in March that she and other researchers were unable to find any relationship between unemployment in a given area and the amount of stimulus dollars spent there.

“No matter how we measure unemployment, we find no correlation,” she said.

Though other economists recognize de Rugy’s findings, some disagree with Glaeser and her that funding stimulus programs without regard for local unemployment or economic conditions is a problem.

“If you say, ‘Let’s target states that are doing worse, places that saw the property crash in the worst way,’ ” said Timothy Taylor, the managing editor of the Journal of Economic Perspectives, “is that really the right goal here? This wasn’t just inflicted on them like a lightning bolt. Rewarding failure is never the best plan.”

According to Taylor, the stimulus was intended to be “timely, targeted and temporary,” and state-level funding was meant to prevent state budget shortfalls from contributing to the already slumping economy. Though the system of disbursing money may have been less than ideal, he argues, it was better than creating a complicated distribution system that would have slowed the recovery.

“I think giving (money) to the state governments was probably about as targeted as one could reasonably do,” he said. “It was no more unfair than other possibilities could have been. To have the federal government try to fix things county by county seems insane, especially if you take timely as an important task.”

Administration officials also disagree that targeting communities with high jobless rates would have been a better approach.

“Economic need isn’t bound by county or state lines and, fortunately, neither are the economic benefit of recovery act programs and projects,” said Elizabeth Oxhorn, the recovery act spokeswoman for Vice President Joe Biden. “And when it comes to supporting the hardest-hit among us, assistance like unemployment benefits, tax relief and health care are directly targeted to those who need it most, regardless of where they live.”

“Bottom line: It’s working,” Oxhorn said. “Before the recovery act, our economy was losing an average of 750,000 jobs each month. In the first five months of this year, the economy has created nearly half a million new private-sector jobs.”

FOLLOWING THE MONEY

Obama also pushed the stimulus bill with a promise that the American people would be able to account for “every penny” that was spent.

A year and a half later, however, and despite spending $18 million to launch an unprecedented system for tracking stimulus bill spending, much of the reported funding information doesn’t match the dollars the federal government says it’s paid.

Although the administration reports how much each government agency has spent, that’s only half the story.

When stimulus dollars are spent, they’re funneled through states, agencies and contractors to the “sub-recipients” that build roads, do research or retrain unemployed workers. After they receive the money, states and recipients are supposed to record how they spend it and report those totals to the federal government.

That’s where things get confusing.

The $280 billion set aside for the states came fast and without clear accounting procedures. Moreover, the federal government didn’t include any money for states to hire the people necessary to track the deluge of money.

“I joke that the (stimulus) money came in the nick of time and the worst time,” said Kinney Poynter, the executive director of the National Association of State Auditors, Comptrollers and Treasurers. “Many states were already short staffed. And really there were no policies and procedures that happened this quick and of this magnitude before.”

States had seven months from the day the stimulus bill was signed to the first time they were expected to report on how they’d spent the money. Small state-level staffs were flooded with new terminology, coding numbers, data keys and reporting websites. Many were confused.

The McClatchy-Medill review of state audits found that money sometimes went to poorly organized programs; other times, reporting demands conflicted with other federal guidelines.

Ultimately, beyond the costs of transparency mandates in time and money, states and contractors were confused and oversight was scattered, according to the state audits.

One agency that generated concern among auditors was the Department of Education, which so far has paid out more than $50 billion in stimulus money.

According to Charles Willson of the Government Accountability Office, it was difficult to account for education spending even before the stimulus. Giving educators more money didn’t improve accounting; it just meant there was more to account for.

“Maybe no one knows where this money has gone,” said Yee, the University of California Berkeley lecturer. “Whenever you have thousands of people fill out a form to submit to the government, it’s going to be messy, but there is no clear accounting here. The stimulus wasn’t meant to be a national jigsaw puzzle.”

Barry Bosworth of The Brookings Institution, a center-left Washington policy-research organization, pointed to another problem with the stimulus program: the lagging speed of spending. The stimulus “was originally meant to stop the collapse,” Bosworth said. “The problem with it: It was too slow.”

With the national unemployment rate still well above 9 percent, many Americans are wondering whether the stimulus measure has been a success.

In a February Pew Research Center poll, 49 percent of Americans said they disapproved of the stimulus plan, an increase from June 2009, when 39 percent disapproved. A June 2010 poll that involved the same organization found that 60 percent of respondents said the stimulus hadn’t helped the nation’s job situation.

Mainstream economists, however, say the measure generally has been successful.

John Schmitt of the Center for Economic and Policy Research said that America would have been worse off without the stimulus package; he estimates that unemployment could have been as high as 13 percent.

“The economics of it is not controversial,” Schmitt said. “It has been masked by politics.”

Added Diane Lim Rogers, the chief economist at the Concord Coalition, a nonprofit budget watchdog group: “In terms of boosting the level of economic activity beyond what would’ve occurred with the stimulus, I’m sure it worked,” she said. “The question of how great a piece of legislation it is, you have to be more measured in that response. Did it work enough to justify its cost?”

McClatchy’s Chris Adams and Northwestern University Medill School of Journalism’s Alice Truong, Lauren Drell, Mari Fagel, Jessica Binsch, Eleanor Goldberg and Christina Lee contributed to this article; the students graduated in June.

More from McClatchy

 

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