ARRA: A Year Later

(from Maine Townsman, January 2010)
By Douglas Rooks

The American Recovery and Reinvestment Act (ARRA) was signed into law on February 17, 2009, less than a month after President Obama took office. It was perhaps the quickest, and probably the most ambitious federal attempt ever to head off or at least mitigate a deepening recession. It allocated $787 billion for a wide variety of programs.

Now, almost a year later, how has ARRA performed? As usual, it depends on who you ask.

From the point of view of spending, ARRA has done about what was expected. The Congressional Budget Office estimated that $106 billion would be spent by the end of the 2009 federal fiscal year on September 30, and $108 billion was actually committed – though the individual department totals vary. Labor and Education exceeded their targets while Health and Human Services spent less than expected.

Various economists have claimed that ARRA, also known as the federal stimulus bill, has not had a measurable effect on unemployment. But that doesn’t take into account the actual composition of spending, which was devoted far more to income support and revenue sharing with states than it was to New Deal-style infrastructure projects that could be expected to lead to new hiring.

Since states are required to balance their budgets and most, like Maine, saw their revenues fall precipitously, they were also slashing spending, a trend that ARRA tried to counteract.

State spending on General Purpose Aid to Education – direct aid to local school budgets -- peaked in FY 08 at $956 million; dropped to $956 in FY 09; and further declined to $909 in FY 10. With recently announced state budget cuts, GPA will fall to $852 million by FY 11, which begins July 1. Fortunately, federal ARRA money added $54 million to the FY 10 total, and $59 million for FY 11, keeping school aid cuts fairly modest to date.

The state has been slower about implementing other aspects of ARRA funding for education, including grants for special education programs, which are a joint federal-state responsibility. Overall, as of October 30, Maine had been allocated $270 million for education, but obligated only $84 million. A new reporting period closed December 30, with new figures available sometime in late January.

Another hefty chunk of ARRA money went to direct income support – extended unemployment benefits, health insurance for laid-off workers and expanded Medicaid funding, for instance. And many grants went not only to government infrastructure projects but to the private sector as well. The second phase of the Stetson industrial wind power project in Washington was jump-started with ARRA funds.

Design flaws?

Overall, ARRA’s emphasis on income support rather than job-creating projects reflected the consensus thinking at the time it was passed. Observed economist Charles Colgan, “Few people foresaw either the length or the depth of the current recession back when the stimulus was designed in the fall of 2008.”

Although Maine’s unemployment rate of 8% is about two points below the national rate, which appears to have peaked at just over 10%, “the emphasis might have been different if we’d known just how greatly employment would be affected,” said Colgan.

So far, Maine has seen a net loss of 30,000 jobs, comparable to the 1990-91 recession but with a longer and slower recovery forecast. Even though the recession dates, statistically, from late 2007, Colgan says that there won’t likely be any net jobs gain until the third quarter of this year.

From the state and municipal government perspective, though, ARRA seems to have done what it was supposed to. The latest reporting from the state, which covers the third quarter of 2009, says that it created 2,200 jobs.

Many of those did come from high-visibility highway and bridge projects, such as the reconstruction of the southbound lanes of Interstate 295 between Gardiner and Topsham. That particular project, which was large but short-term, lasting just a few months, produced 127 full-time equivalent jobs per year, with a budget of $35 million.

But there were a lot of smaller local projects that were also funded with ARRA money. The Second Street bridge replacement in Hallowell, for instance, created 10 jobs and cost $1.2 million, and reconstruction of Route 117 in Turner created 14 jobs and cost $2.7 million.

In all, Maine DOT has obligated $128 million for 72 projects, of which 41 projects costing $59 million have been completed. In terms of actual spending, those totals may be typical for most ARRA programs. There may be as much or more money spent in the second year of the stimulus effort as there was in the first.

Enthusiastic participant

Maine has been a particularly enthusiastic participant in the ARRA process in areas of keen interest to municipalities: wastewater treatment plants and safe drinking water projects. The state and federal agencies involved, chiefly the Department of Environmental Protection (wastewater), Department of Health and Human Services (drinking water) and the Rural Development program of the U.S. Department of Agriculture (both) has a long history of working together, and they mobilized quickly to take advantage of ARRA.

Roger Crouse, manager of the Drinking Water State Revolving Fund for HHS, said Maine was the first state in the nation to obligate all of its $19.5 million for new pipes and water treatment facilities. “All of the projects are under contract, and 80% of the money has already been spent,” he said.

In all, there were 38 projects for municipal and private water suppliers, with all but 10 substantially complete.

One reason for the quick response is that HHS provided an incentive: a zero interest loan if projects met an early deadline. The state also provides a 30% outright grant, and a bit more for a few systems that have a preponderance of low-income users.

“We put a lot of people to work,” Crouse said, and the figures bear him out. Thus far, the $128 million MDOT highway program has created 433 jobs, while the $19 million ARRA drinking water funding through HHS – which covers only part of the cost of projects – has produced 180 jobs.

The reason why water system work produces jobs is that it is a labor-intensive process, Crouse said. Private contractors do most of the work, and they use seasonal construction crews of significant size.

Back in March, Crouse said he had some doubts about the capacity of the existing construction workforce to handle all the projects made possible by ARRA funding, but, he said, “It worked out great. A lot of contractors were hungry for work, and we also got great prices – well below our estimates, in many cases. So the taxpayers also got a good deal.”

Spokesmen at DEP and HHS have said the various water programs had seen reduced federal support for the past decade, so there was plenty of work on the drawing board that could be quickly pushed through. “We always have a stand-by list, so when there’s money, we’re ready to go.” Crouse said.

Among the big beneficiaries of the drinking water funds was the Portland Water District, which received a total of $4.5 million for 11 separate grants, with virtually all the money already spent. Other notable grants and loans through ARRA included $1.5 million for the Passamaquoddy Water District, and $553,000 for the Southwest Harbor Water District, both of which have been almost entirely spent.

Big projects for the Auburn and Lewiston water districts have taken a little longer to get going. The twin cities have together been awarded about $4 million for treatment plant upgrades costing about $7.8 million. To date, about $1.8 million has been spent.

Wastewater treatment

While sewage treatment projects are not quite as easy to jump-start, the DEP wastewater effort has also proceeded relatively quickly. ARRA provided $30 million for grants and loans to municipal systems, and of that amount, $13.3 million has been spent, or nearly 44%.

Of the 40 ARRA-funded projects, 16 have been completed, 15 are under construction, five have had contracts awarded, and the remaining four projects have been sent out to bid, according to John True, senior environmental engineer.

The Auburn Sewer District was the first to get an ARRA wastewater project obligated, on April 30, with $2.3 million in the form of a grant and no-interest loan.

Other notable projects were authorized in Ellsworth ($2.7 million; $2 million in ARRA funding); Limestone ($5.3 million; $2.3 million from ARRA) and Oakland ($7.5 million and $5 million)

There were others avenues for stimulus funding, too. The USDA Rural Development program also provided money for some of the same projects, in some cases entirely covering the cost.

For 2009, the Maine office garnered $18.4 million in grants and another $10.6 million in loans, for a total of $29 million – which was in addition to the regular allocations of about half that amount, according to state program director Ron Lambert.

For the next fiscal year, the Maine office is anticipating another $4.9 million in grants and $11.4 million in loans for sewer and water programs.

The Rural Development program, he said, “operates a little differently” than the DEP and HHS federally funded programs, where specific state allocations are made. Rather, qualifying applications for Rural Development projects are forwarded to the national office “and most of them are funded,” Lambert said.

Among the major beneficiaries of sewer and water funding through Rural Development’s ARRA allocations, in grants and loans, were: Limestone, $4.1 million; Brewer, $3.1 million; Calais, $3 million; Lincoln, $2.65 million; Machias, $2 million; and Newport; $1.75 million. As the name implies, Rural Development targets money specifically to Maine’s rural counties, particularly in areas of high unemployment.

The figures also show the value of discretionary applications beyond the normal state allocations: Fully two-thirds of the grants and loans made in Maine in fiscal 2009 were from national office funds.

The same goes for the Community Facilities program, which funds capital items for community centers, libraries, and ambulance services. The by-application-only program got a significant boost from ARRA, including $8.6 million in loans.

Lambert said there are still opportunities for communities to use ARRA to their advantage. One possibility for libraries is a grant program that will fund 100% of purchases up to $500,000. While there’s no specific deadline, Lambert notes, “All ARRA funding will end on October 1 (2010), unless Congress decides to extend it.”

Another ARRA round

Back at DEP and HHS, officials are gearing up for at least one more round of ARRA funding. Under the federal rules, states had exactly one year – up to February 17, 2010 – to obligate their ARRA funding. Those that didn’t use their entire allocation will see it recirculated back into a national pot, with another round of applications due in March or April. Crouse expects that Maine will get another significant infusion of cash from that process as well.

The reason Maine seems to do particularly well with these federal programs, according to Steve Levy, director of the Maine Rural Water Association, is that “our agencies have a long history of working together. That isn’t always true in other states.”

However much comes the way of Maine’s wastewater treatment and drinking water plants, the money will be well-spent, he said.

While Maine’s municipal and community water systems “are not a bottomless pit” in terms of funding needs, they have lots of 80-100 year old pipe that’s due or overdue for replacement. “And most of our sewage treatment plants are 40 years old, so they’re also in need of substantial upgrading,” he said.

A ‘second stimulus’?

If a municipality still didn’t get funding for a high priority in the first and, now, second rounds of ARRA, there may be more opportunities later in the year.

Congress is now discussing a “second stimulus” bill although this one would not be funded by federal borrowing, as was the first. The source is expected to be TARP (Troubled Asset Relief Program) that was authorized under the Bush administration after the financial crisis of September 2008 felled several major banks and threatened to topple many more. Not all of the funding has been used, some has been repaid, and while available amounts remain uncertain, there might be more than $300 billion available – less than half of ARRA, but still substantial by any measure.

If such a bill is passed this year, it will likely be heavier on the kind of infrastructure projects that were a relatively small part of ARRA. “The big question,” said Charles Colgan, “is whether there will be more fiscal relief for states as well.”

With the state-funded portion of Maine’s biennial budget a projected 13% lower than in fiscal 2008-09, the answers could have a major impact in Augusta and other state capitals. “There are 50 governors and legislatures that are hoping the answer will be yes,” Colgan said.

So while the exact impact of ARRA and its possible successor will be debated for some time, there does seem to be plenty of opportunities for municipalities to get their priority projects funded by sources other than property tax dollars.

Steve Levy compared Maine’s infrastructure needs to “an old house that’s always needing work.” ARRA is providing “a pretty big chunk” of what’s needed to catch up, but will certainly not do the whole job. “We have to look at this as a long-term proposition, and do what we can every time there’s an opportunity,” he said.

Douglas Rooks is a freelance writer from West Gardiner and regular contributor to the Townsman,