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).
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.
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.
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.