The document of the day is the Congressional Budget Office's Cost Estimate of HR-1, the American Recovery and Investment Act. It's the second CBO report on HR-1; this analysis covers all of the provisions introduced to date. Democrats are using the report to claim that most of their spending results in an immediate boost to the economy; Republicans look at the report and see something else. The CBO's director, Doug Elmendorf, told Congress that HR-1 would increase overall GDP by at least 1.3 percent over the next year, even as the report notes that the bulk of the spending will turn over in later years. Elmendorf also noted that direct transters from government to people -- like unemployment insurance and food stamps -- have the most immediate effects, as do tax cuts.
Here's an exegesis:
CBO anticipates that implementation of H.R. 1 would have a noticeable impact on
economic growth and employment in the next few years. Following longstanding
Congressional budget procedures, however, this estimate does not address the potential
budgetary effects of such changes in the economic outlook.
Translation: "noticeable" is the word. And the CBO does not score these proposals dynamically, which means that they don't include the multiplier effects that Obama's economic advisers use to tout it.
CBO notes that the stimulative effect comes from:
Direct payments to individuals (for example, unemployment compensation or
refundable tax credits), which would generally occur fairly rapidly during fiscal
years 2009, 2010, and 2011;
--Reductions in federal taxes, which would have most of their effects on revenues in
fiscal years 2009 and 2010; and
--Purchases of goods and services, either directly by the federal government or
indirectly in the form of grants to state and local governments. Many of those
involve construction or investment activity that would take several years to
The problem here, according to CBO, is that there may be too much spending early on for bureaucracies to cope with, and that might, in turn, slow the rate at which the spending turns over. Season factors also intervene: schools do their repairs in the summer, and construction programs don't generally begin in the winter.
CBO expects that federal agencies, along with states and other recipients of that funding, would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to expend the added funds as quickly as they expend the resources provided for their ongoing programs.
For new programs, CBO notes that the requirements of "developing procedures and criteria, issuing the necessary regulations, and reviewing plans and proposals would make distributing money quickly even more difficult." The loans given to automakers last summer to produce energy efficient vehicles haven't been tapped yet for precisely this reason.
QUICK: The $20 billion increase in food stamps would begin immediately; money for rural broadband would take five to seven years to circulate.
NOT QUICK: Virtually all of the $12.4 billIion allocated to commerce, justice programs and science would take the normal amount of time to circulate through the economy.
QUICK: 80% of the $4.5 billion allocated to DoD for energy efficiency programs would be spent by 2010.
NOT QUICK: The $48 billion for renewable energy and water resources would be spent over five to seven years; again, the CBO worries about the bureaucracy having to deal with more money than they are used to.
SORT OF QUICK: The CBO estimates that the $93 billion that HHS gets from the bill will be spent within two and a half years, although, here again, the amount of funding might make it difficult for the programs to ramp up quickly, so some of them, like more training for government employees, would take time to establish.
SORT OF QUICK: Transportation and highway funds. 85% would be spent between now and 2012, although CBO includes a long caveat-laden paragraph:
In fiscal year 2008 (and at an annualized rate under the continuing resolution for fiscal year 2009), state and local governments have been allocated $41.2 billion per year for 10 highway programs and $10.4 billion per year for transit programs. The $39 billion provided for those purposes in H.R. 1 would nearly double the recent funding levels. Grantees would be required to move quickly to obligate the new funds (that is, commit them for specific projects). After obligation of funds, grantees would need to muster significant staff and private-sector resources to undertake the projects. Simple projects typically take several months from the time the funds are obligated to the start of construction. Complicated projects can take significantly longer. Scheduling many projects during the warmer months (as would be necessary in some areas of the country) and ensuring that adequate traffic management measures are taken (such as nighttime work hours) can also affect the pace of spending. Many projects funded under these programs take several years to complete. Historically, money appropriated for highways and transit is spent at a slow rate in the first year and has an extremely long "tail," in that funds provided in a particular year are frequently spent over a six-to-eight-year period. As a result, when those programs have seen previous significant increases in budgetary resources, outlays have increased more slowly. For this estimate, CBO consulted with transportation officials in nearly half of the states, accounting for roughly two-thirds of annual highway spending. CBO found that many states are anxious to receive additional funding and can probably begin some projects quickly, but that many states are also concerned about how quickly local governments can undertake new projects. In addition, concerns exist about how quickly state and local governments can adjust their contracting procedures to accommodate the significant increase in the amount of funding. On balance, CBO concludes that many states would probably move as rapidly as possible to obligate new funds, but that much of the construction and procurement work associated with highway and transit projects would occur over an extended period of time, leading to federal outlays over several years.
QUICK: Aid to states; over the tens of billions of dollars, at least 61% has to be spent on education-related purposes; the rest can be spent on general government spending. CBO says that most of this funding will be lapped up within three years.
On the tax cuts; CBO predicts that "outlays" will increase modestly -- maybe $80 billion over ten years for Obama's refundable payroll tax credit. Expanding unemployment insurance will add (statically) $42 billion to the economy over two years; expanding COBRA would decrease the amount of taxes that businesses pay, so there would be a modest stimulative effect.