Counting Stimulus Returns Is Difficult
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The effects of the billion dollar stimulus program is hard to gauge.
The Wichita, Kan., government is slated to get more than $26 million from the U.S. economic-stimulus program. By early October, eight months after the stimulus program was signed into law, it had received only about 2% of those funds.
And much of that money went toward cats and dogs.
The city recently launched a $55,000 project to spay and neuter pets owned by low-income residents. Unwanted pets ultimately cost $240 apiece to collect, board and euthanize, the city estimates, so the program covering 800 animals should save taxpayers money in the long run.
The stimulative effect? That is harder to gauge. With the $380,000 overall Wichita has received from its share of the stimulus, the city estimates that it is directly funding 32 jobs so far. The bigger job producers, such as construction and transit projects, are due to start in the coming months.
"We're expecting a lot more of them to be happening by the end of the year or the start of next year," said Mark Elder, a Wichita city staffer tracking the stimulus funding.
As the government implements the $787 billion stimulus program, the effect of the spending and tax cuts are proving difficult to measure.
Part of the challenge is that assessments of the impact often rely on imagining how the economy would have fared if the stimulus money were spent differently, or not at all. Debates continue today about the effects of the 2001 stimulus program that sent rebate checks to taxpayers.
Complicating matters further: Many spending projects might end up being short-term jolts that fizzle out, raising questions about their effectiveness. The $3 billion cash for clunkers program, funded partially by stimulus money, pulled consumers into auto dealerships nationwide. Auto sales soared in August, then slumped in September. Similar concerns surround the $8,000 tax credit for first-time home buyers that ends next month.
"These are very difficult policies to design, implement and then retroactively assess," said Joseph Brusuelas of Moody's Economy.com.
When the stimulus program became law in February, officials planned for much of the money to kick in during 2010. Some parts of the stimulus were quick injections to aid struggling states and the unemployed. But large pieces, such as bridge and park projects, are just getting started.
As stimulus money slowly is disbursed, the continued troubles in the job market are renewing the fierce political battle about the giant program's performance. If the program is stimulating the economy, why is unemployment rising?
Though the economy has returned to growth, it has still lost millions of jobs since February, despite the stimulus. Compounding the problem is criticism over the White House's assessment of economic conditions. White House officials said in January that the unemployment rate would climb from 7.2% at the end of 2008 to well above 8% without the stimulus. As the crisis dragged on, the White House eventually warned that unemployment could top 10%. As of September, it was 9.8%.
The Obama administration maintains the program is on track to fulfill its broader goals. By their estimates, through August it had created or preserved one million of the 3.5 million jobs that were promised.
Just over a quarter of the stimulus money -- $195 billion -- had gone out the door in its first eight months. So its effects on the economy could become more visible over the coming months when job-producing infrastructure projects get under way.
Compared with what has already been spent, "We do think that the direct government investment has a bigger bang for the buck in terms of employment and GDP growth," said Christina Romer, chairman of the White House's Council of Economic Advisers.
The economy and job market worsened after the stimulus bill passed, but Ms. Romer said that doesn't prove anything about its effectiveness. If you have strep throat and go to the doctor for pills, and then your fever spikes the next day, "You don't say, 'Ah, see, the medicine didn't work,'" she said. Instead, she added, it becomes clear that the sickness was worse than previously thought. In light of that, she said, "it's very good that we got to the doctor and started taking the medicine."
But many conservative economists and lawmakers think the stimulus was the wrong medicine. Some preferred to leave the economy to recover on its own. Most wanted broad-based, permanent tax cuts instead so consumers and businesses would get the money directly.
"What the government needs to do and what Congress needs to do is get its act together and cut back these spending programs," said Diana Furchtgott-Roth, an economist at the conservative Hudson Institute who served in the Bush administration. By raising worries about deficits and taxes, she says, "the large amounts of spending on the stimulus have had a discouraging effect on investment overall and on both consumer and business confidence."
One-third of the stimulus goes toward states and individuals struggling under the weight of the recession. Much of that money has had the clearest, and quickest, effect on supporting the economy.
Jobless benefits have been extended to as long as 79 weeks for many of the 15 million officially unemployed Americans. The money yields direct results: People who are unemployed are likely to use all of their aid, stimulating consumer spending while keeping a vital social safety net intact.
The stimulus directed more than $40 billion to state education budgets. The biggest effect so far: School districts would likely have cut more jobs if not for the federal funding.
But the money coming from stimulus isn't enough everywhere. In Hawaii, 170,000 students across the state stayed home last week for the first of 17 "furlough Fridays" due to budget cuts.
The difficulty in assessing the success of stimulus funds is evident in Hesperia, Calif. The $6.9 million injection into the Hesperia Unified School District has been successful in the short run, but could end up as a disappointment a year from now.
The school district, which serves 20,000 students, laid off 184 of its 1,000 teachers -- on top of furloughs for management and staff -- in the spring after the state instituted budget cuts. The stimulus money kept on 69 of the teachers for the current school year.
But the state budget cuts are continuing, and Mark McKinney, the school district's superintendent, knows he has tough decisions to make. "In essence the stimulus dollars were simply a one-time gift," he said. "It was a short-term fix for us."
About a third of the stimulus was directed at a variety of tax cuts. That is what directly hits the most Americans -- and what has the fewest discernible results.
Individuals making no more than $95,000 a year are receiving up to $8 a week in their paychecks through 2010 from the stimulus. The $400 a year is designed to support consumers at a continuing pace, offering the feel of a permanent income boost that encourages spending. But gauging how much spending it prompts is difficult.
"I didn't notice it," said Cameron Tully-Smith, who works in information technology near Sacramento.
Mr. Tully-Smith, 32, lost his prior job in August 2008. With his wife and two children, he was left with $50 a month to spare after trimming their expenses and moving to basic meals -- "the cheapest food we could get, refried beans and quesadillas."
He found work in January and now qualifies for the tax cut, which doesn't seem like much. "Eight dollars a week is like one trip to the McDonald's," Mr. Tully-Smith said.
The other third of the stimulus, government infrastructure spending, has been the most controversial from the start. Some proposals have been criticized as wasteful, such as a $6 million snowmaking facility in Duluth, Minn. or a $3.4 million "ecopassage" to help turtles cross a highway in Tallahassee, Fla.
Yet most of the infrastructure projects are tied to public works such as roads. They are intended to support communities' long-term needs while providing desperately needed jobs. But they are just now getting off the ground, and any impact on the economy won't become apparent for months or even years.
The largest federal contract so far: $1.4 billion in Richland, Wash., to clean up the Hanford nuclear-weapons site. The stimulus program's effect on the Hanford project is ambiguous. The government says 2,183 jobs are being created from the contract, as the stimulus funding allowed the work on the site to be accelerated. But many of those jobs would have been created in the long run because the cleanup was already under way.
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