Obama’s first plan

The House Appropriations Committee introduced its version of the Obama administration’s American Recovery and Reinvestment Plan of 2009 yesterday. The New York Times reports that this is expected to be in the final stimulus bill. See the Committee Chairman, Wisconsin Representative David Obey’s memo here. 

The executive summary of the memo below, with my comments in red. An expanded version of the memo can be seen at the above link.  

Overall, my assessment is that the suggestion that this is a WPA-style return to infrastructure is mistaken. On the contrary, what we are seeing is a funding bill aimed at dealing with many important but neglected programs. As far as infrastructure, however, do not expect to see any great changes. As the memo points out, the funding is minor compared to what the government estimates to be needed in a series of key areas.        

The lessons of the Infrastructural City continue: we’ve hit the top of the S-curve for growth in virtually all forms of hard infrastructure. Spending more is going to do little more than keep us afloat. The Obama administration understands that, but can they propose anything in its stead?    

The economy is in a crisis not seen since the Great Depression.

Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and we are expected to lose another 3 to 5 million in the next year.  

Conservative economist Mark Zandi was blunt: "the economy is shutting down."

In the next two weeks, the Congress will be considering the American Recovery and Reinvestment Bill of 2009. This package is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart our economy, and begin the process of transforming it for the 21st century with $275 billion in economic recovery tax cuts and $550 billion in thoughtful and carefully targeted priority investments with unprecedented accountability measures built in. 

The package contains targeted efforts in:

· Clean, Efficient, American Energy

· Transforming our Economy with Science and Technology

· Modernizing Roads, Bridges, Transit and Waterways

· Education for the 21st Century

· Tax Cuts to Make Work Pay and Create Jobs

· Lowering Healthcare Costs

· Helping Workers Hurt by the Economy

· Saving Public Sector Jobs and Protect Vital Services

> Note how infrastructure is downplayed.
Our first clue that infrastructure is playing a back-seat role in this.

The economy is in such trouble that, even with passage of this package, unemployment rates are expected to rise to between eight and nine percent this year. Without this package, we are warned that unemployment could explode to near twelve percent. With passage of this package, we will face a large deficit for years to come. Without it, those deficits will be devastating and we face the risk of economic chaos. Tough choices have been made in this legislation and fiscal discipline will demand more tough choices in years to come. 

Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefitting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing… and borrowing… and borrowing, and when they couldn’t borrow anymore, the bottom fell out. This plan will strengthen the middle class, not just Wall Street CEOs and special interests in Washington.  

Our short term task is to try to prevent the loss of millions of jobs and get our economy moving. The long term task is to make the needed investments that restore the ability of average middle income families to increase their income and build a decent future for their children.

EXECUTIVE SUMMARY

 Unprecedented Accountability: A historic level of transparency, oversight and accountability will help guarantee taxpayer dollars are spent wisely and Americans can see results for their investment.

· In many instances funds are distributed through existing formulas to programs with proven track records and accountability measures already in place.

· How funds are spent, all announcements of contract and grant competitions and awards, and formula grant allocations must be posted on a special website created by the President. Program managers will also be listed so the public knows who to hold accountable.

· Public notification of funding must include a description of the investment funded, the purpose, the total cost and why the activity should be funded with recovery dollars. Governors, mayors or others making funding decisions must personally certify that the investment has been fully vetted and is an appropriate use of taxpayer dollars. This will also be placed on the recovery website.

· A Recovery Act Accountability and Transparency Board will be created to review management of recovery dollars and provide early warning of problems. The seven member board includes Inspectors General and Deputy Cabinet secretaries.

· The Government Accountability Office and the Inspectors General are provided additional funding and access for special review of recovery funding.

· Federal and state whistleblowers who report fraud and abuse are protected.

· There are no earmarks in this package.

 This plan targets investments to key areas that will create and preserve good jobs at the same time as it is strengthening the ability of this economy to become more efficient and produce more opportunities for employment.

 Clean, Efficient, American Energy: To put people back to work today and reduce our dependence on foreign oil tomorrow, we will strengthen efforts directed at doubling renewable energy production and renovate public buildings to make them more energy efficient.

· $32 billion to transform the nation’s energy transmission, distribution, and production systems by allowing for a smarter and better grid and focusing investment in renewable technology.

· $16 billion to repair public housing and make key energy efficiency retrofits.

· $6 billion to weatherize modest-income homes.

> This seems reasonable although bailing out homeowners is questionable in my mind. Older private housing is not sexy, the way, say, public housing, condos, or homes are, but is critical for lower and middle income urban (and even suburban) residents. "All utilities included" or at least "heat included" are magic words for renters, allowing them to have a reasonable idea that they will only pay rent during the year. Unfortunately as gas prices have skyrocketed, profit margins for this sort of housing have evaporated. A focus on private apartment buildings would have been helpful here, especially as the myth of the ownership economy is, in part, at root of our problems. 

Note that this "includes $350 million for research into using renewable energy to power weapons systems and military bases."

Transform our Economy with Science and Technology: We need to put scientists to work looking for the next great discovery, creating jobs in cutting-edge-technologies, and making smart investments that will help businesses in every community succeed in a global economy. For every dollar invested in broadband the economy sees a ten-fold return on that investment.

· $10 billion for science facilities, research, and instrumentation.

· $6 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy.

> So much for a major push to expand broadband. Fiber-to-the-home/office is having as many problems in cities as in rural regions due to the difficulties in clearing easements. But beyond those questions, how will this money be used fairly. Is this a bailout for telecommunications carriers? 

Something got left out of the executive summary. What could that be? How about a mini-bailout for businesses? The DTV conversion coupons do seem important. The FCC has apparently run out of money and the off switch on analog TV is coming next month. 

Creating Small Business Opportunity

· Small Business Credit: $430 million for new direct lending and loan guarantee authorities to make loans more attractive to lenders and free up capital. The number of loans guaranteed under the SBA’s 7(a) business loan program was down 57% in the first quarter of this year compared to last.

· Rural Business-Cooperative Service: $100 million for rural business grants and loans to guarantee $2 billion in loans for rural businesses at a time of unprecedented demand due to the credit crunch. Private sector lenders are increasingly turning to this program to help businesses get access to capital.

· Industrial Technology Services: $100 million, including $70 million for the Technology Innovation Program to accelerate research in potentially revolutionary technologies with high job growth potential, and $30 million for the Manufacturing Extension Partnerships to help small and mid-size manufacturers compete globally by providing them with access to technology.

· Economic Development Assistance: $250 million to address long-term economic distress in urban industrial cores and rural areas distributed based on need and ability to create jobs and attract private investment. EDA leverages $10 in private investments for $1 in federal funds.

DTV Conversion Coupons: $650 million to continue the coupon program to enable American households to convert from analog television transmission to digital transmission. 

 Modernize Roads, Bridges, Transit and Waterways: To build a 21st century economy, we must engage contractors across the nation to create jobs rebuilding our crumbling roads, and bridges, modernize public buildings, and put people to work cleaning our air, water and land.

· $30 billion for highway construction;

· $31 billion to modernize federal and other public infrastructure with investments that lead to long term energy cost savings;

· $19 billion for clean water, flood control, and environmental restoration investments;

· $10 billion for transit and rail to reduce traffic congestion and gas consumption.

> Here is the meat of the proposals for infrastructure…and it’s pretty lean. $30 billion is less than one year’s expenditure on highways. $10 billion for transit and rail isn’t that much when just one crucial project, the Trans-Hudson Tunnel, is slated to cost $9 billion.

Reading the expanded version of the memo, things start to look positively grim.  

· Upgrades and Repair: $2 billion to modernize existing transit systems, including renovations to stations, security systems, computers, equipment, structures, signals, and communications. Funds will be distributed through the existing formula. The repair backlog is nearly $50 billion. 

 · Amtrak and Intercity Passenger Rail Construction Grants: $1.1 billion to improve the speed and capacity of intercity passenger rail service. The Department of Transportation’s Inspector General estimates the North East Corridor alone has a backlog of over $10 billion.

 · Airport Improvement Grants: $3 billion for airport improvement projects that will improve safety and reduce congestion. An estimated $41 billion in eligible airport infrastructure projects are needed between 2007-2011.

There’s also a bit of money under this heading in the expanded version for Defense although since it’s largely for medical construction which is horribly underfunded, I won’t complain. The last President did what he could NOT to support the troops, or at least the ones who were injured…

Also, I won’t complain about $50 million for the NEA or needed work at the National Park Service. Other numbers again point to the difference between this bill and what is really needed: 

 · Clean Water State Revolving Fund: $6 billion for loans to help communities upgrade wastewater treatment systems. EPA estimates a $388 billion funding gap. The Association of State and Interstate Water Pollution Control Administrators found that 26 states have $10 billion in approved water projects.

· Drinking Water State Revolving Fund: $2 billion for loans for drinking water infrastructure. EPA estimates there is a $274 billion funding gap. The National Governors Association reported that there are $6 billion in ready-to-go projects, which could quickly be obligated.

· $41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).

· $79 billion in state fiscal relief to prevent cutbacks to key services, including $39 billion to local school districts and public colleges and universities distributed through existing state and federal formulas, $15 billion to states as bonus grants as a reward for meeting key performance measures, and $25 billion to states for other high priority needs such as public safety and other critical services, which may include education.

· $15.6 billion to increase the Pell grant by $500.

· $6 billion for higher education modernization.

> I can’t argue here. Education is in dire straits. My only question is how we could rethink education today. It’s not teacher’s salaries that have gone sky high, it’s administrative expenditures. How can we cut those?

 Tax Cuts to Make Work Pay and Create Jobs: We will provide direct tax relief to 95 percent of American workers, and spur investment and job growth for American Businesses. [marked up by the Ways and Means Committee]

> Throwing bread to Republicans. Didn’t I say something about knowing that Obama was in trouble if he gave kickbacks to taxpayers? That didn’t take long.  

Lower Healthcare Costs: To save not only jobs, but money and lives, we will update and computerize our healthcare system to cut red tape, prevent medical mistakes, and help reduce healthcare costs by billions of dollars each year.

· $20 billion for health information technology to prevent medical mistakes, provide better care to patients and introduce cost-saving efficiencies.

· $4.1 billion to provide for preventative care and to evaluate the most effective healthcare treatments.

> I suppose this is necessary, but the numbers seem outrageous. Didn’t Google propose to do this for free? This sounds more like a busy work project than anything else.

Help Workers Hurt by the Economy: High unemployment and rising costs have outpaced Americans’ paychecks. We will help workers train and find jobs, and help struggling families make ends meet.

· $43 billion for increased unemployment benefits and job training.

· $39 billion to support those who lose their jobs by helping them to pay the cost of keeping their employer provided healthcare under COBRA and providing short-term options to be covered by Medicaid.

· $20 billion to increase the food stamp benefit by over 13% in order to help defray rising food costs.

> Ok, this is reasonable. But maybe we should think about the definition of unemployment? Under Reagan the government re-jigged the unemployment rate to make it look better. We really have something like 16% unemployment, or more. To be fair, under Clinton the government re-jigged the inflation rate. We really have a 6-9% rate of inflation, not 2.79%. See here.   

Save Public Sector Jobs and Protect Vital Services: We will provide relief to states, so they can continue to employ teachers, firefighters and police officers and provide vital services without having to unnecessarily raise middle class taxes.

· $87 billion for a temporary increase in the Medicaid matching rate.

· $4 billion for state and local law enforcement funding.

 

The House Appropriations Committee introduced its version of the Obama administration’s American Recovery and Reinvestment Plan of 2009 yesterday. The New York Times reports that this is expected to be in the final stimulus bill. See the Committee Chairman, Wisconsin Representative David Obey’s memo here. 

The executive summary of the memo below, with my comments in red. An expanded version of the memo can be seen at the above link.  

Overall, my assessment is that the suggestion that this is a WPA-style return to infrastructure is mistaken. On the contrary, what we are seeing is a funding bill aimed at dealing with many important but neglected programs. As far as infrastructure, however, do not expect to see any great changes. As the memo points out, the funding is minor compared to what the government estimates to be needed in a series of key areas.        

The lessons of the Infrastructural City continue: we’ve hit the top of the S-curve for growth in virtually all forms of hard infrastructure. Spending more is going to do little more than keep us afloat. The Obama administration understands that, but can they propose anything in its stead?    

The economy is in a crisis not seen since the Great Depression.

Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and we are expected to lose another 3 to 5 million in the next year.  

Conservative economist Mark Zandi was blunt: "the economy is shutting down."

In the next two weeks, the Congress will be considering the American Recovery and Reinvestment Bill of 2009. This package is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart our economy, and begin the process of transforming it for the 21st century with $275 billion in economic recovery tax cuts and $550 billion in thoughtful and carefully targeted priority investments with unprecedented accountability measures built in. 

The package contains targeted efforts in:

· Clean, Efficient, American Energy

· Transforming our Economy with Science and Technology

· Modernizing Roads, Bridges, Transit and Waterways

· Education for the 21st Century

· Tax Cuts to Make Work Pay and Create Jobs

· Lowering Healthcare Costs

· Helping Workers Hurt by the Economy

· Saving Public Sector Jobs and Protect Vital Services

> Note how infrastructure is downplayed.
Our first clue that infrastructure is playing a back-seat role in this.

The economy is in such trouble that, even with passage of this package, unemployment rates are expected to rise to between eight and nine percent this year. Without this package, we are warned that unemployment could explode to near twelve percent. With passage of this package, we will face a large deficit for years to come. Without it, those deficits will be devastating and we face the risk of economic chaos. Tough choices have been made in this legislation and fiscal discipline will demand more tough choices in years to come. 

Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefitting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing… and borrowing… and borrowing, and when they couldn’t borrow anymore, the bottom fell out. This plan will strengthen the middle class, not just Wall Street CEOs and special interests in Washington.  

Our short term task is to try to prevent the loss of millions of jobs and get our economy moving. The long term task is to make the needed investments that restore the ability of average middle income families to increase their income and build a decent future for their children.

EXECUTIVE SUMMARY

 Unprecedented Accountability: A historic level of transparency, oversight and accountability will help guarantee taxpayer dollars are spent wisely and Americans can see results for their investment.

· In many instances funds are distributed through existing formulas to programs with proven track records and accountability measures already in place.

· How funds are spent, all announcements of contract and grant competitions and awards, and formula grant allocations must be posted on a special website created by the President. Program managers will also be listed so the public knows who to hold accountable.

· Public notification of funding must include a description of the investment funded, the purpose, the total cost and why the activity should be funded with recovery dollars. Governors, mayors or others making funding decisions must personally certify that the investment has been fully vetted and is an appropriate use of taxpayer dollars. This will also be placed on the recovery website.

· A Recovery Act Accountability and Transparency Board will be created to review management of recovery dollars and provide early warning of problems. The seven member board includes Inspectors General and Deputy Cabinet secretaries.

· The Government Accountability Office and the Inspectors General are provided additional funding and access for special review of recovery funding.

· Federal and state whistleblowers who report fraud and abuse are protected.

· There are no earmarks in this package.

 This plan targets investments to key areas that will create and preserve good jobs at the same time as it is strengthening the ability of this economy to become more efficient and produce more opportunities for employment.

 Clean, Efficient, American Energy: To put people back to work today and reduce our dependence on foreign oil tomorrow, we will strengthen efforts directed at doubling renewable energy production and renovate public buildings to make them more energy efficient.

· $32 billion to transform the nation’s energy transmission, distribution, and production systems by allowing for a smarter and better grid and focusing investment in renewable technology.

· $16 billion to repair public housing and make key energy efficiency retrofits.

· $6 billion to weatherize modest-income homes.

> This seems reasonable although bailing out homeowners is questionable in my mind. Older private housing is not sexy, the way, say, public housing, condos, or homes are, but is critical for lower and middle income urban (and even suburban) residents. "All utilities included" or at least "heat included" are magic words for renters, allowing them to have a reasonable idea that they will only pay rent during the year. Unfortunately as gas prices have skyrocketed, profit margins for this sort of housing have evaporated. A focus on private apartment buildings would have been helpful here, especially as the myth of the ownership economy is, in part, at root of our problems. 

Note that this "includes $350 million for research into using renewable energy to power weapons systems and military bases."

Transform our Economy with Science and Technology: We need to put scientists to work looking for the next great discovery, creating jobs in cutting-edge-technologies, and making smart investments that will help businesses in every community succeed in a global economy. For every dollar invested in broadband the economy sees a ten-fold return on that investment.

· $10 billion for science facilities, research, and instrumentation.

· $6 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy.

> So much for a major push to expand broadband. Fiber-to-the-home/office is having as many problems in cities as in rural regions due to the difficulties in clearing easements. But beyond those questions, how will this money be used fairly. Is this a bailout for telecommunications carriers? 

Something got left out of the executive summary. What could that be? How about a mini-bailout for businesses? The DTV conversion coupons do seem important. The FCC has apparently run out of money and the off switch on analog TV is coming next month. 

Creating Small Business Opportunity

· Small Business Credit: $430 million for new direct lending and loan guarantee authorities to make loans more attractive to lenders and free up capital. The number of loans guaranteed under the SBA’s 7(a) business loan program was down 57% in the first quarter of this year compared to last.

· Rural Business-Cooperative Service: $100 million for rural business grants and loans to guarantee $2 billion in loans for rural businesses at a time of unprecedented demand due to the credit crunch. Private sector lenders are increasingly turning to this program to help businesses get access to capital.

· Industrial Technology Services: $100 million, including $70 million for the Technology Innovation Program to accelerate research in potentially revolutionary technologies with high job growth potential, and $30 million for the Manufacturing Extension Partnerships to help small and mid-size manufacturers compete globally by providing them with access to technology.

· Economic Development Assistance: $250 million to address long-term economic distress in urban industrial cores and rural areas distributed based on need and ability to create jobs and attract private investment. EDA leverages $10 in private investments for $1 in federal funds.

DTV Conversion Coupons: $650 million to continue the coupon program to enable American households to convert from analog television transmission to digital transmission. 

 Modernize Roads, Bridges, Transit and Waterways: To build a 21st century economy, we must engage contractors across the nation to create jobs rebuilding our crumbling roads, and bridges, modernize public buildings, and put people to work cleaning our air, water and land.

· $30 billion for highway construction;

· $31 billion to modernize federal and other public infrastructure with investments that lead to long term energy cost savings;

· $19 billion for clean water, flood control, and environmental restoration investments;

· $10 billion for transit and rail to reduce traffic congestion and gas consumption.

> Here is the meat of the proposals for infrastructure…and it’s pretty lean. $30 billion is less than one year’s expenditure on highways. $10 billion for transit and rail isn’t that much when just one crucial project, the Trans-Hudson Tunnel, is slated to cost $9 billion.

Reading the expanded version of the memo, things start to look positively grim.  

· Upgrades and Repair: $2 billion to modernize existing transit systems, including renovations to stations, security systems, computers, equipment, structures, signals, and communications. Funds will be distributed through the existing formula. The repair backlog is nearly $50 billion. 

 · Amtrak and Intercity Passenger Rail Construction Grants: $1.1 billion to improve the speed and capacity of intercity passenger rail service. The Department of Transportation’s Inspector General estimates the North East Corridor alone has a backlog of over $10 billion.

 · Airport Improvement Grants: $3 billion for airport improvement projects that will improve safety and reduce congestion. An estimated $41 billion in eligible airport infrastructure projects are needed between 2007-2011.

There’s also a bit of money under this heading in the expanded version for Defense although since it’s largely for medical construction which is horribly underfunded, I won’t complain. The last President did what he could NOT to support the troops, or at least the ones who were injured…

Also, I won’t complain about $50 million for the NEA or needed work at the National Park Service. Other numbers again point to the difference between this bill and what is really needed: 

 · Clean Water State Revolving Fund: $6 billion for loans to help communities upgrade wastewater treatment systems. EPA estimates a $388 billion funding gap. The Association of State and Interstate Water Pollution Control Administrators found that 26 states have $10 billion in approved water projects.

· Drinking Water State Revolving Fund: $2 billion for loans for drinking water infrastructure. EPA estimates there is a $274 billion funding gap. The National Governors Association reported that there are $6 billion in ready-to-go projects, which could quickly be obligated.

· $41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).

· $79 billion in state fiscal relief to prevent cutbacks to key services, including $39 billion to local school districts and public colleges and universities distributed through existing state and federal formulas, $15 billion to states as bonus grants as a reward for meeting key performance measures, and $25 billion to states for other high priority needs such as public safety and other critical services, which may include education.

· $15.6 billion to increase the Pell grant by $500.

· $6 billion for higher education modernization.

> I can’t argue here. Education is in dire straits. My only question is how we could rethink education today. It’s not teacher’s salaries that have gone sky high, it’s administrative expenditures. How can we cut those?

 Tax Cuts to Make Work Pay and Create Jobs: We will provide direct tax relief to 95 percent of American workers, and spur investment and job growth for American Businesses. [marked up by the Ways and Means Committee]

> Throwing bread to Republicans. Didn’t I say something about knowing that Obama was in trouble if he gave kickbacks to taxpayers? That didn’t take long.  

Lower Healthcare Costs: To save not only jobs, but money and lives, we will update and computerize our healthcare system to cut red tape, prevent medical mistakes, and help reduce healthcare costs by billions of dollars each year.

· $20 billion for health information technology to prevent medical mistakes, provide better care to patients and introduce cost-saving efficiencies.

· $4.1 billion to provide for preventative care and to evaluate the most effective healthcare treatments.

> I suppose this is necessary, but the numbers seem outrageous. Didn’t Google propose to do this for free? This sounds more like a busy work project than anything else.

Help Workers Hurt by the Economy: High unemployment and rising costs have outpaced Americans’ paychecks. We will help workers train and find jobs, and help struggling families make ends meet.

· $43 billion for increased unemployment benefits and job training.

· $39 billion to support those who lose their jobs by helping them to pay the cost of keeping their employer provided healthcare under COBRA and providing short-term options to be covered by Medicaid.

· $20 billion to increase the food stamp benefit by over 13% in order to help defray rising food costs.

> Ok, this is reasonable. But maybe we should think about the definition of unemployment? Under Reagan the government re-jigged the unemployment rate to make it look better. We really have something like 16% unemployment, or more. To be fair, under Clinton the government re-jigged the inflation rate. We really have a 6-9% rate of inflation, not 2.79%. See here.   

Save Public Sector Jobs and Protect Vital Services: We will provide relief to states, so they can continue to employ teachers, firefighters and police officers and provide vital services without having to unnecessarily raise middle class taxes.

· $87 billion for a temporary increase in the Medicaid matching rate.

· $4 billion for state and local law enforcement funding.