The Federal Stimulus - Fueling the Economy or the Bureaucracy?

Updated March 25, 2009

How Many Jobs?
During his campaign, Senator Obama promised $60 billion in infrastructure spending to create two million jobs. That plan morphed into a $210 billion program combining infrastructure and green energy, with a promise to create 7 million jobs.  But immediately after the election, Obama lowered his job creation projection to 2.5 million. Then, the stimulus package turned into a $775 billion bill that would create or save 3.7 million jobs.

It was the beginning of the new administration's effort to lower the expectations - and increase government spending - by desperate American taxpayers.

The estimates of how many jobs are produced by a given amount of government spending depend on the multiplier selected. For example, Mark Zandi of Moodys, who is sometimes cited by both Republican John McCain and Democrat Nancy Pelosi, says that a dollar of one-time tax rebates like those in the 2008 Bush stimulus yields $1.26 of increased Gross Domestic Product. In reality, it had a negligible effect.

President Obama’s top economist, Christine Romer, claims a multiplier in excess of 1.5, leading to her prediction of millions of new jobs. However, a newer model by a joint American /German team concludes the stimulus plan will have only one-sixth of the kick.

Of course, the connection between government spending and job creation begs the question - how many jobs are lost when government taxes or borrows money away from the private sector? Perhaps that’s why the Congressional Budget Office said the stimulus will actually hurt the economy over ten years as government debt crowds out private investment.

Interestingly, an earlier paper Romer authored during her academic career found permanent tax cuts, not higher spending, has a multiplier of 2.2. Congressional Republicans used her research to craft their alternative economic recovery proposal. They said Romer’s own methodology showed it would create 6 million jobs at a much lower cost.

While economists debate how many jobs the government stimulus might create, Washington’s de-stimulus plan, the cap and trade energy tax, is already forcing manufacturers to consider locating in Brazil instead of America. But we digress.

North Carolina’s Share
The following is a break-down of how some of the major spending in the stimulus package is allocated for North Carolina. More spending is anticipated in the coming months:

Category	Total Allocation	Per Capita
Transportation	$838,830,926	(per sq mile) $15,586
Education	$2,057,732,537	$223
Pell Grants	$187,629,105	$20
HUD	$208,766,433	$23
Health	$442,170,159	$48
Crime Fighting	$56,345,356	$6
Job Training	$90,918,532	$10
Water	$137,068,500	$15

 

Explanation of Categories

• Transportation – Public transit projects and repairs to highways.
• Education – Funds for state education budget and other critical services, as well as grants for 'Title I' programs for disadvantaged children, special education, technology for schools, services for disabled people and federal work-study programs in colleges.
• Pell Grants – Cash to meet the federal student loan program’s shortfall for 2008-9 and to increase the maximum award for 2009-10.
• Housing & Urban Development (HUD) – Grants for public housing, emergency housing and rental help, community development, lead paint reduction, Indian housing and tax credit help programs.
• Health – Relief for the state Medicaid program for the first two quarters of 2009.
• Crime-fighting – Funds for law enforcement grants to state and local governments.
• Job Training – Funds for career center programs and training for adult and dislocated workers and youth summer jobs.
• Water – Grants for community water quality, wastewater and drinking water projects.

According to the Tax Foundation, North Carolina pays 2.1-percent of the federal tax burden. In these early stimulus distributions, the state is receiving roughly 2.6-percent of the funding.

However, compared to our near-the-top unemployment rate, currently the sixth highest in America, we rank eleventh worst in transportation stimulus dollars.  According to Robert Puentes, a senior fellow at the Brookings Institute, there wasn't time to study funding formulas before the stimulus package was passed.  But "it's important we have that conversation" when the federal transportation law is re-authorized this summer, he said. In any event, while road contractors believe that the stimulus money may allow them to retain current workers, they don't anticipate that new workers will be hired.

Clash on Strategy
While Governor Perdue is emphasizing short term repaving projects that contractors say don’t lead to major new hiring, but which start quickly, urban mayors question priorities. Raleigh Mayor Charles Meeker, a Democrat, objects to the transportation plan, stating, "Those roads in the rural areas will have 500 cars a day on them, [while] our roads will have 50,000, 60,000 or 70,000."  Charlotte Mayor Pat McCrory, a Republican, agrees. "Too many short-term projects are being targeted," he said.  "There should be more long-term sustainable projects that will have an impact on the next generation, since that's who's going to have to pay for it. We're resurfacing roads as opposed to rebuilding our highways and transit."

But the state claims that the first $466 million in roadwork will create 14,000 jobs.

Bailing Out an Ex-Billionaire
While one might think a stimulus package would focus on new projects which are without funding, North Carolina’s supposedly new non-political Department of Transportation is using $3.7 million in stimulus money to reimburse Lowes Motor Speedway owner Bruton Smith for road work (one of Cabarrus County’s promises in an incentive deal worth millions). Though Smith recently fell off Forbes' billionaire list, he fortunately still had enough dough left to contribute $4,000 to Beverly Perdue’s gubernatorial campaign.

Oversight Reporting
Governor Perdue says that she wants complete transparency on how stimulus dollars are spent in North Carolina, appointing former DHHS Secretary Dempsey Benton as stimulus czar and posting an online resource for tracking the funds. "We want North Carolina to be a showcase rather than a showstopper," Perdue said, "and so it's really important that there be tremendous transparency and accountability in this money."

Apparently the federal government also wants to keep an eye on things, choosing North Carolina as one of 16 states over which they will place heightened scrutiny. A team of eight federal officials from the Government Accountability Office in Washington, DC has been assigned to the state. They are charged with investigating how the stimulus dollars are spent and reporting bi-monthly to Congress on whether the funds are generating measurable results.

Success, it would seem, might be measured in part by how many of the recently unemployed are put back to work.  So far, however, both state and federal officials are reporting on the success of the stimulus in terms of jobs "saved."  Counting jobs that haven't been lost yet seems a dubious exercise, for how can one guarantee that the jobs would have been lost, if not for the stimulus?

Saving Government
With all the wailing about budget cuts in state government, Governor Perdue’s 2009 shows an actual cut of only 1.3-percent - or $270 million compared to the 2008 authorized budget. In fact, the Governor's proposed budget reflects a $600 million increase over this year’s projected actual spending.  And while the private sector will suffer, government workers are safe.

Since the recession began in December 2007, 225,000 North Carolinians working for private businesses have lost their jobs. But Governor Perdue plans to use $1.7 billion in stimulus money to avoid significant restructuring in government.  Out of 275,000 state employees, only 268 are in danger of job loss.  Opponents of the plan whisper that much more streamlining is needed, but that state workers must be protected because the powerful State Employees Association (SEANC) and its parent Service Employees International Union (SEIU) paid for $181,000 in critical advertising that gave Perdue her margin of victory in the battleground region of Western North Carolina.

So far, the change we were supposed to believe in maintains the government we already had, as the private sector slowly sinks.