Stimulus package could affect schools, unemployment rate

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Federal dollars might soon funnel into communities across the nation if the Senate passes the $789 billion American Recovery and Reinvestment Act of 2009 and many people are already speculating about how the bill might affect their communities. This week, State Senator Kevin Dahle (D-Northfield), Christopher Richardson, superintendent of Northfield’s public schools, and Michael Hemesath, chairman of Carleton College’s Economics Department, talked about their understanding of the bill and what Northfield citizens might expect if it becomes law, which could happen as early as Friday night (update 2/14/09 8:15 a.m. the Senate did pass the bill).

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Michael Hemesath Courtesy of Carleton.edu

Nationwide news reports indicated the members of Congress who are skeptical about the bill believe it has been rushed and that the price tag could be too high. The House of Representatives passed the bill on Friday with a 246-183 vote, but no Republicans voted in its favor.

In the Senate, the bill will have to get at least three Republican votes to pass. A CNN report said the bill would bring a $400 tax credit to most individual taxpayers and an $800 credit to most couples. Many students would get a $2,500 tuition tax credit, according to the report. First-time home buyers may qualify for a tax credit of up to $8,000 and people who receive Social Security will get a one-time payment of $250.

Richardson said school administrators have been watching the development of the recovery and reinvestment act “really closely.”

“Our hopes are not high that money for new construction, repair and remodeling that was in a previous version of the bill will still be around,” Richardson said on Thursday afternoon.

At one point, he said, the bill indicated the school district could receive about $265,000 for new buildings and/or improvements. Now it seems the bill would only help support the district’s Title I and special education programs, he said, granting $90,000 for Title I and $420,000 for special ed. According to statewide news reports, some school districts are fearful the federal funding could cause state funding to decrease.

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Christopher Richardson Courtesy of www.nfld.k12.mn.us

Richardson said he is hoping the bill will allow the school district to use the money to pay for existing programming instead of using it to create more programs, especially since the additional funding would last only for two years.

“There’s been a rule with federal funding that says new money must supplement what you’re currently doing by adding programs and hiring staff,” Richardson said. “That funding may not pay for things that you’ve had to pay for previously with money from the general fund. We’re hoping there would be the language in the bill that would allow us to simply ‘fill the hole.'”

Sen. Dahle agreed about the importance of flexible spending. He emphasized the federal dollars as temporary help.

“If it’s only one-time money, it doesn’t fix our structural imbalance,” Dahle said. “Two years from now, we will have a real crisis here with our deficit if we don’t fix that, no matter what federal funding we receive.”

The state deficit is expected to be about $6 billion to $7 billion by March, according to a report this week in the Minneapolis Star Tribune. As for the state’s unemployment rates, employers cut 11,800 jobs in December, according to figures released in January by the Minnesota Department of Employment and Economic Development.

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Sen. Kevin Dahle

The unemployment rate reached a seasonally adjusted 6.9 percent for the month. Nationally, U.S. employers eliminated 524,000 jobs in December and the unemployment rate grew to 7.2 percent.

Congressman Jim Oberstar, who represents Minnesota’s eighth district, wrote in favor of the act on Tuesday in the Duluth News Tribune, saying, “In Minnesota, the department of transportation has a backlog of 200 shovel-ready road and bridge projects. This legislation will speed $477 million to the state to start work on those projects, creating nearly 17,000 jobs.”

Oberstar added, “A recent economic analysis by Moody’s concluded that the recovery bill could put a total of 91,000 Minnesotans to work by 2010, holding the state’s unemployment rate down by nearly 2 percent.”

Hemesath put the stimulus plan into a greater historical context, saying, “It is not uncommon for the government to use a Keynesian fiscal policy (either tax cuts or government spending or both) to try to increase economic activity. It is also possible to use monetary policy (control of money supply and interest rates) to affect economic activity. In fact, there has been a slight shift away from fiscal policy toward monetary policy over the last few decades, but using fiscal policy is still commonly used.”

He added that this recession is somewhat different from others in the past.

“What is different about this recession is that monetary policy has been used actively, as the government has pushed certain government controlled interest rates down to near zero (.25%), but this has not stimulated economic activity,” he said. “So the consensus among economists is that some kind of fiscal policy would be a good idea. The consensus view among economists is that any fiscal stimulus should be ‘targeted’ (narrowly aimed at specific kinds of activity that will definitely increase economic activity in the short run), ‘timely’ (capable of being spent and affecting output with in a short time—say a year) and ‘temporary’ (capable of being removed or stopped when the economy turns around.”

Hemesath said based on those three criteria, most economists would not favor the current package.

“Much of the money is being spent on things that will not increase economic activity in the short run (like improving the electric power grid–which might be a good long run investment, but it is not a short run stimulus),” he said. “A Congressional Budget Office study has estimated that only 20% of spending will take place in 2009 and only 50% through 2010, so fully half of the fiscal stimulus will not be spent until well after most economists think the recession will be over. Finally, there is a concern that much of the spending in the stimulus bill will become built into the Federal budget and thus raise the average level of the deficit well after the recession is over. So in short, there is likely to be some stimulative effect of the act, but it will also raise long-term deficits.

Note 12/14/09 8:30 a.m.: This story was mis-formatted when first published last night.

For more information about how this Representative Journalism Project feature unfolded, visit http://repjbonnie.wordpress.com

10 thoughts on “Stimulus package could affect schools, unemployment rate”

  1. Unfortunately Oberstar’s “shovel ready” projects are mostly projects to expand a miss managed public transportation system. Which already is heavily subsidized by tax dollars. The logic of expanding it even more, which just increases the size of the yearly subsidy escapes me.
    This money would be better spend by local municipalities to improve local infrastructure i.e. schools, roads and safety center.

    Mr. Richardson is absolutely correct
    when he says: Richardson said he is
    hoping the bill will allow the school
    district to use the money to pay for
    existing programming instead of using
    it to create more programs, especially
    since the additional funding would
    last only for two years.

    I hope Mr. Oberstar takes a philosophical note on this.

    However in general the American Recovery and Reinvestment Act of 2009 is nothing more then a pork bill with lipstick. Even with lipstick a pig is still a pig.
    Don’t take my word for it here is what the CBO says.

    A Congressional Budget Office study
    has estimated that only 20% of
    spending will take place in 2009 and
    only 50% through 2010, so fully half
    of the fiscal stimulus will not be
    spent until well after most economists
    think the recession will be over.
    Finally, there is a concern that much
    of the spending in the stimulus bill
    will become built into the Federal
    budget and thus raise the average
    level of the deficit well after the
    recession is over.

    It is my sincere hope that this is not a preview of what is in store for us on the state level.
    Recent trial balloons by Mr. Bly don’t give me much hope.

    It is much easier to give away other peoples money to satisfy the populous, then it is to make the tough decisions to make us more fiscally responsible.
    The latter would be a matter of real leadership.
    Mr. Dahle and Mr. Bly how about it?

  2. Bonnie, Thanks for this post. The remarks from Prof. Hemasath were particularly intersesting. I’m sure there are other economists who would say things more strongly for or against the stimulus bill, which is clearly imperfect. I’m more in favor of the bill than he is, from what little I know. Some of the long-term investments need to get going now, not later.

    The NY Times has an article about the likely political struggles over the stimulus money: States and Cities Angle for Stimulus Cash.

    Here is language from the Bike League web site about the transportation funding:

    a $789 billion economic stimulus package that provides $27.5 billion to modernize roads and bridges, and includes a three percent set-aside of each state’s share of the $27.5 billion for the Transportation Enhancements program. At least half of funds must be obligated by states within 120 days, or the U.S. Secretary of Transportation can recall up to 50 percent of the un-obligated funds. Specific language for Federal Highway Administration infrastructure investment can be seen here.

    Also included is $8.4 billion to
    increase public transportation and
    improve transit facilities; $8 billion
    for investment in high-speed rail; and
    $1.5 billion for a discretionary
    surface transportation grant program
    to be awarded competitively by the
    Secretary of Transportation. The bill
    text and joint explanatory statement
    are now available here.

    The Federal Highway Administration
    (FHWA) and Federal Transit
    Administration have issued guidance to
    assist state and local agencies in
    preparing for implementation of the
    stimulus bill. The guidance includes
    Q&As and actions that can be taken to
    expedite economic recovery projects.

    I couldn’t disagree with Peter Millin more about the transportation funding. I see mass transit as moving us toward a more efficient and sustainable transportation future, but why don’t we save that argument for another thread.

  3. Bill,

    This is not a matter of the sustainable or efficient transportation system. It’s about money that we don’t have.

    It is a matter of sustaining a budget that is unsustainable.

    Public transportation in the US will be for some years to come a very regional matter.
    The dream of having a European style public transportation system is centuries away and might not be practical for the US to strive for.
    The vast difference of space and the rural lifestyle in the US, are not conducive to a European style public transportation system. It’s just not practical or affordable.

  4. Bill,
    I have posted this on another thread:

    http://www.fms.treas.gov/fr/08frusg/08guide.pdf

    I am still not convinced that a majority of Americans really know how bad it is.
    Most of us have a “gut feel” that something isn’t right, but few have bothered to look at the bigger picture.

    It sounds like a great sound bite in promising all the things we need to be doing. However the reality of the situation is more grave then our leaders are willing to admit.

    I think in this issue there is a need for bi-partisanship, but not between the Republicans and Democrats, more between “we the people” against the political leadership (or lack thereof).

    The “discourse” of late reminds me of the Titanic. While the ship is sinking we argue about the color of the lifeboat.

  5. Peter and others, Some of the spending will be on energy efficiency projects. This is like putting money in the bank: an investment up front yields a consistent return over time (possibly even a large return). It is only our shortsightedness and cultural blinders that have kept us from doing this before.

    Here is some more language from the source I quoted above:

    · $53.6 billion in state fiscal stabilization funding: States must use 18.2 percent of their funding – or $9.7 billion – for public safety and government services. An eligible activity under this section is to provide funding to K-12 schools and institutions of higher education to make repairs, modernize and make renovations to meet green building standards. LEED’s green standards for schools include bicycle and pedestrian facilities and access to the school.

    · $3.1 billion is provided for the
    Energy Efficiency and Block Grant
    Program. This provides formula funding
    to cities, counties and states to
    undertake a range of energy efficiency
    activities. One eligible use of
    funding is for bicycle and pedestrian
    infrastructure.

  6. Bill,

    I hope you are right because I don’t want imagine the consequences if we are wrong.

    We have decided to put all our chips “on red” and hope it will pay off.

    I am all for improving infrastructure, what I am opposing, is doing with money we don’t have.
    I have opposed this under Bush and I will oppose this under Obama.
    The consequent inflation we will be getting in to, will wipe out most peoples savings. It will make the last 30% drop in 401K’s look like a hick up.

  7. Griff, Mr. Richardson answered the question you posed in an email to me today:

    Bonnie, At this point we are moving
    forward with the design phase of the
    Sibley project and preparing
    construction drawings and bid
    documents. We will come back to the
    Board later this spring and ask them
    whether they wish to move forward in
    soliciting bids for construction or
    whether they wish to place the project
    on hold. We hope that by that time we
    will know the final details of the
    stimulus plan and whether any other
    sources of funding are available.
    This is the process we determined last
    December and we are simply moving
    forward with that plan right now.
    Thanks,

    Chris

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