The Arizona Republic LINKIf people didn't like the federal stimulus, they may hate when it's gone.
As the year winds down, the $862 billion plan to rescue the economy from the depths of the recession enters a new phase in which tax cuts and credits expire and countless hard-to-replace construction projects will end. Thousands of workers in some states could lose their jobs.
The political power shift brought about by the midterm elections has likely settled any lingering doubts that the stimulus will largely run out, as scheduled, in the coming months. A smaller package of federal aid that passed in August, primarily for teachers, also will rapidly disappear. With the new Republican majority in the House next year, there will be little support for similar additional measures.
Worries about the national debt and a negative view of the stimulus augur a new period when more businesses must survive on their own and governments must tighten their belts. The austerity will be widely felt.Nearly every worker in the nation will see slightly slimmer paychecks as $400 individual tax cuts are slated to end this year.
Tax credits, such as those offering incentives for energy-efficiency improvements for homeowners, also are set to lapse at year's end. The earned-income tax credit, which rewards the working poor, will no longer include funding for those with a third child.
In Arizona, lawmakers face at least an $800 million "funding cliff" as stimulus aid for Medicaid begins declining in January and ends by July. The extra aid expires as states operate under new federal health-care mandates that block coverage cuts in Arizona. The combination effectively exacerbates the already-bleak budget outlook, said John Arnold, state budget director for Gov. Jan Brewer.
Arnold would not speculate on what the budget crunch means for state employees, but he left no doubt additional cuts are unavoidable.
"Will state expenditures decline? I think that's highly likely," he said. "Where that will be targeted - we'll get back to you in January."
Education, especially for universities and community colleges, may face deeper budget cuts than in recent years because provisions of receiving some stimulus aid that required states to maintain 2006 spending levels are expiring.
Mixed impressions
When President Barack Obama signed it into law in February 2009, supporters hoped the American Recovery and Reinvestment Act would serve almost as a second New Deal to pull the economy away from the abyss.
The stimulus did pump life into the economy.
The White House estimates that by the end of the year the stimulus will have saved or created 3.5 million jobs.
Social Security recipients got one-time $250 payments.
And workers got those $400 tax breaks, what Princeton University economist Alan Blinder called "possibly the worst advertised program in the history of the republic." He predicted that workers who didn't notice they were getting them will notice when they're not.
Arizona benefited in various ways. More than 90 percent of the $76 million in stimulus funding for Arizona wastewater and drinking-water system projects has been received. Thirteen of the 46 projects are completed. The projects have directly funded more than 800 jobs around the state, and because the projects got under way, hundreds more jobs are funded using the state and local dollars that also help pay for the work.
But the stimulus hasn't brought a windfall of jobs. And as goes the stimulus, so too will many of the jobs that came with it.
Mike Markham, chief operating officer for Markham Contracting in Phoenix, said his company has won a half-dozen stimulus contracts worth $35 million, some of which is shared with subcontractors. Even so, since 2008 his family-owned company has cut two-thirds of its workers, about 200 layoffs.
"Seventy percent of our work has been stimulus work this year," he said. "We would have had to reduce our company even more without the stimulus."
Markham's last stimulus project, widening Grand Avenue, currently funds 18 of his workers and about the same number of subcontractors, too. It is expected to end in March.
Earlier this month, a South Carolina company that manages a former nuclear-weapons complex told its workers that 1,400 of them will soon lose their jobs. Of those, 800 were funded by the stimulus.
One stimulus program divided $1 billion among the states to partner with the private sector to provide jobs to welfare recipients who wanted to work. The program helped create about 250,000 subsidized jobs nationwide, according to estimates by the nonpartisan Center on Budget and Policy Priorities, a Washington-based think tank that advocates for the poor and middle class. Funding for the program expired in October.
Since its inception, Obama's critics cast the stimulus as a colossal waste. That view now predominates in public-opinion polls.
In early October, an ABC News/Washington Post poll found that 68 percent of people surveyed viewed the stimulus as a waste compared with 29 percent who see it as money wisely spent.
One reason for that perception may be a belief that government spending was growing even more rapidly than it did.
Between January 2009 and July, federal government spending increased about 10 percent, according to data tracked by the Federal Reserve Bank of St. Louis. But cutbacks by state and local governments in the same period meant that overall federal, state and local spending climbed just 3 percent.
That's largely because, unlike Congress, state and local governments generally have to balance their budgets. As tax revenue plummeted, so did governments' ability to maintain services and employee levels.
Also undermining the popularity of the stimulus were delays in some programs, which dampened the intended economic jolt.
The $5 billion home-weatherization program, for example, stalled for months while state and local officials around the country waited for a ruling from Washington on fair wages for the projects.
Now, the projects are midway to a use-it-or-lose-it deadline, and states are working urgently to keep the funding. As of early November, more than $3 billion, or 64 percent, of all the money remained unspent, according to the U.S. Department of Energy. In Arizona, 68 percent of the $61 million awarded for weatherization remained unspent.
Obama himself has offered a measured defense of the legislation.
In October, he called the stimulus "the most serious investment in our infrastructure since President Eisenhower built the interstate highway system in the 1950s." A day later, the New York Times published an interview in which he said "there's no such thing as shovel-ready projects," a concession that the pace of the stimulus hasn't matched need.
Up to private sector
Going forward, the onus will be on the private sector to revive the economy.
The private sector has added jobs 10 straight months, a welcome change after seeing losses in 23 of the 24 preceding months.
Real gross domestic product, the broadest measure of economic output, has grown five straight quarters. Before that, it had declined four straight quarters.
Even so, economists say the growth is tepid and far too modest to bring down the unemployment rate, which has remained stuck between 9.5 percent and 10 percent nationally for the past 15 months.
Blinder, the Princeton economist, predicts the likely loss of stimulus measures, along with other social-safety-net items like extended unemployment insurance, will hurt the economy noticeably. The outcome will be far worse if the Bush-era tax cuts also expire at year's end, he said.
"If everything runs out and the stimulus expires, this is a potentially catastrophic outcome for the U.S.," said Blinder, who has served as vice chairman of the Federal Reserve System's board of governors.
In Arizona, the job numbers have improved in recent months, but there are still 50,000 fewer people working now than when the stimulus began.
That helps explain why the state's budget remains a problem.
The trouble only worsened after voters rejected referendums that would have allowed lawmakers to tap funds from the early-education program First Things First and from a land-conservation fund.
Without those dollars, the state is left with about $500 million less than what lawmakers had hoped by now.
And sales-tax revenue, the state's primary source of cash, is $74 million below forecasts.
Read more: http://www.azcentral.com/business/articles/2010/11/21/20101121stimulus-funds-near-end.html#ixzz15wnd5XTZ
The Huffington Post
Jack Mirkinson
First Posted: 12- 6-10 03:35 PM
Updated: 12- 6-10 04:56 PM