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Could Unspent Stimulus Money Be Mobilized to Fend Off a New Recession?

Michael Grabell
Pro Publica / News Analysis
Published: Tuesday 9 August 2011
"The federal government still has $100 billion to $150 billion in stimulus money left to spend."
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The nation's top economists are already giving odds on a double-dip recession. The Federal Reserve has only a few bullets left in its gun. And Congress seems politically paralyzed to come up with any new infrastructure or tax cut plan that would fire up the economy.

So it seems all the more surprising that the federal government still has $100 billion to $150 billion in stimulus money left to spend. That's about as much as the Making Work Pay tax credit that gave $800 to middle-class families in 2009 and 2010. And it's twice as much as Congress gave to states to stabilize budgets and save education jobs.

So could the money be better used to counteract the fallout from the European debt crisis and Standard & Poor's downgrade of the U.S. credit rating?

Taking back money from slow-moving infrastructure projects like high-speed rail and spending it on quicker-starting projects or on short-term stimulus like food stamps is easier said than done and might create more problems than it fixes, according to economists and current and former White House budget officials.

"It's meaningful, but it's not a game-changer," said Mark Zandi, an economist at Moody's Analytics who has followed the stimulus. "From an economic and political perspective, I'm not sure that would make a lot of sense to do. A lot of this spending has generated a lot of planning, a lot of environmental designs. They're counting on the money. If you're going to divert it, you're going to create all kinds of problems for them."

More than half of the remaining money is tied up in tax credits for things, like renewable energy production or business equipment purchases, and in increases in safety net programs, such as Medicaid and food stamps, which are distributed to states every three months.

Minus that, federal agencies had about $56 billion in project spending remaining at of the end of July. But all but a few billion dollars is already committed to specific projects.

Although the vast majority of stimulus money is gone, dozens of solar, wind, high-speed rail and broadband Internet projects have yet to break ground. It wasn't until this year, for instance, that doctors could begin claiming billions of dollars in incentives to adopt electronic health records.

In addition, many highway projects -- such as the rehabilitation of Interstate 295 in southern New Jersey -- are reimbursed as they go. Work has begun and construction workers are receiving paychecks, but the money technically isn't "paid out" until a certain phase is complete.

"Rescinding the remaining funds which have already been obligated would mean halting projects before they are complete, putting workers out of jobs and leaving contractors without payments owed to them," said Moira Mack, a spokeswoman for the White House Office of Management and Budget.

Centuries of federal law dating back to the Constitution tie the president's hands when it comes to spending money even in an economic emergency. Congress has full authority to set the government's budget, and federal agencies are required to use it for a specific purpose. Many programs are further restricted with labyrinthine rules and formulas that dictate how much each state will get.

While federal and state officials do have some discretion to pick grand public works or minor repairs -- a new bridge versus a paved road, for example -- once they have signed a contract or a grant agreement, it would require an act of Congress to undo and could subject the federal government to liability.

"By and large, an obligation is a commitment that absent violation of the terms and conditions can't be pulled back and redone unless both parties agree," said Jonathan D. Breul, executive director of the IBM Center for the Business of Government.

Such an act has precedent though under the Recovery Act. The White House shifted funds when recipients didn't file progress reports and after newly elected Republican governors, concerned about additional costs, turned down high-speed rail projects.

Congress cut funding for food stamps, renewable energy loans and broadband to pay for the Cash for Clunkers car rebate program in 2009 and for a program to save teachers' jobs in 2010.

Linda Morrison Combs, who was OMB controller during the Bush administration, said a similar situation occurred when she was chief financial officer at the Environmental Protection Agency. Some toxic waste cleanups were facing long delays. So the agency worked with contractors and Congress to free up funds for other waste sites that had work ready to go.

Essentially, the administration could go to states and other recipients and say, "Are you going to spend your money or not?" But that option is complicated by some of the long deadlines set by Congress in the Recovery Act.

Although many programs had deadlines to spend or commit funds within the first two years, others such as energy-efficiency programs have until 2012 to spend their money. A California lawmaker recently tore into the state energy commission after an audit revealed it still had $183 million left to spend. Broadband expansion projects don't have to be completed until 2013, and California's high-speed rail funding doesn't have to be spent until 2017.

Still, if a project has multiple phases, the promise of future funding gives the federal government significant leverage to influence projects already under contract, Breul said.

So while the Obama administration might not have a bullwhip, it does have bully pulpit -- which Vice President Joe Biden was known to use during his weekly calls with mayors and governors before stepping down as "sheriff" of the Recovery Act.

For example, the administration has urged school districts that have held onto education money to spend it faster. Similarly, the Commerce Department earlier this year moved to streamline environmental reviews for broadband projects.

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