With our economy in recession, the Obama administration has decided that government should take a substantive role in attempting to aid in the recovery. This approach led to the successful passage of the American Reinvestment and Recovery Act (ARRA), a measure that supporters will describe as one of the most ‘sweeping’ pieces of appropriation legislation in the nation’s history.
Opponents of the ARRA simply decry it as a massive and misdirected feat of government spending. Whichever way you see it, the fact of the matter is that hundreds of billions of dollars are being distributed to the states with the goal of lifting us out of the recession. However, it is important that lawmakers understand how these dollars are going to be spent, and what effect it will have on promoting an economic recovery.
As you might expect, many of those dollars come with “strings attached,” meaning that it’s not just a gift from the federal government. One example of this is the several billion dollars that California will receive to increase unemployment insurance benefits. In this case, the money sent from Washington comes with a caveat. If we accept the money, California must also agree to make the extension of benefits permanent, which will cost us an estimated $70 to $100 million dollars each year, indefinitely.
Although the ARRA will provide California with enough funding to pay for this expanded benefit for the next few years, after that we are on our own. Unfortunately, the state’s Unemployment Insurance (U.I.) fund is already in debt, and will be even more so by the end of this year due to the large number of people unemployed. Shoring up the U.I. fund has led to proposals to increase employers’ payments into the fund, though this will make it even more expensive to provide jobs, reducing the new employment opportunities our state desperately needs.
In the area of transportation, California will do quite well under the economic stimulus. In fact, we will be receiving $2.6 billion to maintain our roads and highways. While this is just a drop in the bucket of the $500 billion our state needs to rebuild our transportation infrastructure, we’ll take whatever we can get. Fortunately, a good portion of that funding will be run through existing programs at CalTrans to be distributed to the most worthy projects. This will help us avoid the need to create new government programs that will require new and ongoing staffing, and creating an ongoing cost that we simply cannot afford.
Unfortunately, we’ve already seen examples of lack of foresight and misuse of transportation stimulus dollars. A couple of weeks ago the Los Angeles Metropolitan Transportation Authority (MTA), who is expected to receive some $800 million in funding, told its member cities—88 of which, who were set to receive around $500,000 apiece—that they could ‘swap’, amongst each other, their share of stimulus money. Within days, a number of the cities had ‘traded’ their $500,000 share for, in some cases, as little as $320,000 in other transportation funding from other cities, which some wanted to use to fill in their general fund deficits.
The MTA ended up retracting this allowance, but the incident raises the question of what stimulus funds should and shouldn’t be used for. Should a city pay down its general fund debt? Absolutely. Does it create jobs, right now, for unemployed Californians? Probably not.
Yet another example of our stimulus funds being spent in a not-so-stimulative way is with dollars allocated for water infrastructure improvements. While a worthy goal, one that has the potential to create jobs all throughout our state, government entities in Sacramento have set stringent requirements on how the dollars from Washington can be spent. In fact, the State Water Resources Control Board recently adopted guidelines governing eligibility for the approximately $280 million in wastewater treatment improvement funding included in the ARRA. Unfortunately, these guidelines preclude most urban and regional sanitation agencies in California from being eligible for most of this funding. This is unfortunate because many of these agencies have projects ready to go, and could put Californians to work within weeks.
Fortunately, as in the case with some of the transportation stimulus funding, much of the ARRA funds that come to California will be routed through existing programs—this will maximize efficiency and accountability in these expenditures. However, there are a number of other areas that will require legislative adjustments, and it will serve us all—and the state of California as a whole—well to remain vigilant about the right and wrong ways to ‘stimulate’ the economy.