| The Democrats' Fumbled Response
The Huffington Post cites Orszag as follows:
The White House followed up with a letter from Peter Orszag, head of the Office of Management and Budget. The CBO "analysis, however, did not assess the overall package," wrote Orszag. "Our analysis indicates that at least 75 percent of the overall package (including its tax component and the other spending provisions that were not analyzed by the Congressional Budget Office) will be spent over the next year and a half."
This laid the foundation for the lamitude of the Democratic response, which is typified by this passage from the Post story:
"The new CBO report does not take into account the fastest spending provisions in the bill, leaving the false impression that the overall spend-out rates are slower than they actually are," said Brendan Daly, a spokesman for House Speaker Nancy Pelosi (D-Calif.). "These provisions will go out quickly to give the economy a jolt while others will represent down payments on crucial priorities for our economic future -- investments in clean energy, health care, education and repairing our nation's infrastructure."
The whole point of the stimulus is to be a stimulus, and failing to defend it as such--and counter-attack the GOP as well--is inherently lame, as can be seen by the very next paragraph of in the Post's story:
Still, the report from the CBO, the nonpartisan arbiter of congressional spending measures, offers a stark assessment of some of the Democrats' top priorities. For example, of $30 billion in highway spending, less than $4 billion would occur over the next two years. Of $18.5 billion proposed for renewable energy, less than $3 billion would be spent by 2011. And of $14 billion for school construction, less than $7 billion would be spent in the first two years.
No one looked closely at what the CBO had done, and the obviously questionable methodology that had to be in play.
Nor did anyone address the equally cogent point that we are not likely to be fully out of the woods by FY 2011. Indeed, with recession defined in terms of negative GDP growth, it did not take long for FDR to get the US out of "recession." But it took a good deal longer to get us out of the depression--defined in terms of massive unemployment and unused productive capacity. The same is virtually certain to be the case this time as well, as Paul Krugman and others have made abundantly clear.
Setting The Stage
The best reporting on this came from the Huffington Post, which reported:
Reports of a recent study by the Congressional Budget Office, showing that the vast majority of the money in the stimulus package won't be spent until after 2010, have Democrats on the defensive and the GOP calling for a pullback in wasteful spending.
Funny thing is, there is no such report.
"We did not issue any report, any analysis or any study," a CBO aide told the Huffington Post.
Rather, the nonpartisan CBO ran a small portion of an earlier version of the stimulus plan through a computer program that uses a standard formula to determine a score -- how quickly money will be spent. The score only dealt with the part of the stimulus headed for the Appropriations Committee and left out the parts bound for the Ways and Means or Energy and Commerce Committee.
Because it dealt with just a part of the stimulus, it estimated the spending rate for only about $300 billion of the $825 billion plan. Significant changes have been made to the part of the bill the CBO looked at.
However, even the Huffington Post didn't quite realize perhaps the most significant thing that it was reporting itself: the CBO's analysis was fundamentally flawed because it relied on "a standard formula to determine a score -- how quickly money will be spent", when the whole purpose of the stimulus package is not to spend money in a standard way, but in an accelerated fashion.
The Non-Existent Infrastructure Spending Problem
Presumably because the Republican leakers were focused on infrastructure spending, that's where the reporters focused attention as well, thus making it plausible that the problem with spending quickly stemmed from a lack of spending capacity, a shortage of "shovel-ready" projects to spend money on. And, indeed, when I first read the story, this is what stood out for me, and it is what I immediately questioned.
My first thoughts went to the massive infrastructure deficit that was widely reported after the Minnesota bridge collapse, $1.6 trillion over five years, according to the American Society of Civil Engineers' 2005 Report Card for America's Infrastructure. As one result, former GOP Senator Chuck Hagel had proposed a national infrastructure bank intended to help finance the following:
• An estimated $21.8 billion annual need over 20 years to improve operational capacity of transit systems (Federal Transit Administration.)
• $131.7 billion and $9.4 billion annually for 20 years to fix "deficient" roads and bridges, respectively (Federal Highway Administration.)
• $151 billion and $390 billion annually for 20 years to repair obsolete drinking water and wastewater systems (Environmental Protection Agency.)
All that is a whole lot more than the amount of infrastructure spending in the stimulus bill. So the notion that the stimulus money couldn't be spent within 1 1/2+ fiscal years just didn't ring true at all for me. So I made a few phone calls, and I came up with a quick hit on Friday:
CBO Estimate of Practical Limits On Infrastructure Spending Questioned By State Highway/ Transportation Officials
(Paul Rosenberg)
From a press release by the American Association of State Highway and Transportation Officials:
CBO Should Consider States Have Projects "Ready-to-Go"
A recent analysis of the speed of spending transportation dollars as part of the economic recovery bill is based on "business as usual" and clearly underestimates the ability of the states to deliver ready-to-go projects.
"State DOTs right now are moving to advance thousands of projects, so that contracts can be let in 120 days, as the House bill has proposed," said John Horsley, Executive Director of the American Association of State Highway and Transportation Officials (AASHTO). "Those projects will enable the transportation industry to keep people at work, and bring construction workers back on the job very quickly. As late as last Friday we asked the state DOTs if they are prepared to have 50 percent of the $30 billion under contract within 120 days, as the House bill stipulates. They responded, "Yes, we can!"
"CBO is basing its analysis on past practices for six-year bills, and then projecting more delay that it imagines will take place. This is a new day, a new challenge, and states will deliver on the promise they have made to Congress and to President Obama. We are ready to move. All we need is the green light to proceed."
....
I didn't just write the quick hit, however. I dug deeper, and was prepared to write a whole diary about the state-level infrastructure projects, based on projects linked to from AASHTO's webpage, "State Examples of Economic Recovery Projects Ready to Go".
For example, from Tennessee's 'Ready To Go" webpage we read:
Ready to Go! projects are those which potentially could be funded under a federal infrastructure stimulus package. The lists, containing 246 transportation projects, totaling $1.69 billion, are based on the assumed criterion that the projects will be ready for contract within 180 days of passage of legislation. The lists are subject to change since criteria associated with any ultimate legislation passed by Congress have not been established.
A PDF document linked from that page has a breakdown, showing that $850 million is slated for 113 "Highway and Bridge Construction Projects", with another $100 million for resurfacing projects. Transit and rail would add $192.5 million and $441.4 million respectively.
Turning to the National Conference of State Legislatures' "Estimated State Allocations for the House Stimulus Proposal" (pdf), we find that Tennessee is slated to get $613.2 million for highways. Transit and rail are not itemized--presumably because they've been cut to make room for tax cuts. But last I checked, $850 million was considerably larger than $613.2 million. Add in the $100 million in resurfacing projects and $950 million is larger still. So the problem is not the lack of shovel-ready projects.
The problem, if any, is that construction projects take time, and they may not be completed within the October 2010 time-frame. One way to deal with that would be to start more projects, so the money could be spent in the desired time-frame, and then allocate the money to complete the projects later. And just to make sure there are enough projects to start, we could put rail and transit projects back into the mix in a major way.
Figuring this out is not rocket science. Any beat reporter who has covered transportation issues knows these things. But political reporters often know little or nothing about the underlying substance of the issues they cover. They know the arguments (or some of them anyway), but they don't know the subject matter that the arguments are about.
Anyway, that was what I was going to write about. That was before I realized how bogus the entire story was.
The Other Phantom Spending Problems
When the Washington Post, AP and other outlets wrote about the non-existent report, none of them published the actual CBO document. Huffington Post, those DFHs, did. But they didn't really look at it. I took the PDF, and converted it to HTML, with a little tweaking, and I've reproduced it below. I'm not going to go over it with a fine-tooth comb, but I will hit a few highlights that any decent reporter should have noticed and asked some questions about.
As a rule of thumb as a reporter, when faced with a mass of data like this, there are two things to look at first: (1) the big number items and (2) anything you have special knowledge of. Since (2) will vary from reporter to reporter (if they have any special knowledge, that is), I'll limit myself to (1).
That takes me directly to Title 13, the "State Fiscal Stabilization Fund", which accounts for more than 1/3 of the spending for Fiscal year 2011--the first year after the stimulus target period.
As the Center on Budget and Policy Priorities explains on it's "HOUSE ECONOMIC RECOVERY PACKAGE: State-by-State Estimates of Key Provisions Affecting Low- and Moderate-Income Individuals", the State Fiscal Stabilization Fund is intended "to help state and local governments fund education and other key services."
It goes on to explain:
When states cut spending, they lay off employees, cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals. All of these steps remove demand from the economy, which only worsens a downturn. Federal assistance can lessen the extent to which states take these harmful, "pro-cyclical" actions and the extent to which vulnerable populations are hurt by state budget cuts.
About $64 billion of the state fiscal stabilization fund would be distributed through two block grants allocated by population formulas....
Both block grants would be provided in two equal installments, the first beginning in July 2009 and the second beginning in July 2010. In order to receive either block grant, states would be required to fund education at no less than the FY06 level in both FY09 and FY10.
While they are not included in the table, the House package would also provide $15 billion for "State Incentive Grants" and small amounts for territories and administration. States would have to apply for the incentive grants and show they have made progress on initiatives such as improving the distribution of teachers between high poverty and low-poverty schools or establishing longitudinal data systems; half of any incentive grant would have to be passed through to local governments.
The key thing here is that these block grants will be disbursed in July of 2009 and 2010. States budget these services on a yearly basis. Because they are being received in the middle of a fiscal year, it seems reasonable that only 50% of yearly funds would be spent in FY 2009, 100% in FY 2010, and 50% would carry over to FY 2011. Because education spending is less in summertime, these figures would have to be adjusted, but they give a good general feel. (Changing the disbursement to April would change this 75% in FY 2009 and 25% in FY 2011. This may not be possible for reasons unknown to me at this time, but with states facing imminent service cuts, it looks like a smart idea to me.) However, the table below has only 5.8% of yearly spending in FY 2009, 73.9% in FY 2010, 91.2% in FY 2011, 26.1% in FY 2012, and 3.0% in FY 2013-2019. Spending shifts because of lowered education spending in summer cannot account for differences of this magnitude. Not even close.
The extraordinary discrepancies here just scream out for explanation. On their face, they make no sense whatsoever. They are not just red flags, they are pinwheel flares telling you that there is something very questionable in the underlying methodology behind these numbers.
The next biggest item for FY 2011 is Title 9, with $28 billion. The largest item contributing to this is "Other Education" with $15.5 billion, and a similar line of reasoning would apply to this as applies above. The fact that there would be roughly nine times more spending in FY 2012 than in FY 2009 is particularly difficult to fathom, and, once again, calls into question the entire underlying methodology.
Title 12, Transportation, is actually the third biggest item in FY 2011 outlays, after the two just mentioned. While a larger percentage of transportation funding comes after FY 2010, it constitutes a smaller amount of money.
Summing Up
To summarize all the above, (1) For reasons unknown the CBO did an analysis using an inappropriate computer model, with built-in assumptions not geared toward a stimulus package. (2) GOP senators or staff leaked it with their spin, naturally. (3) Reporters ran with the story as defined by the GOP. (4) Peter Orszag defined, and other Democrats ran with a lame response that did not push back at the key weaknesses of the story--the flawed CBO methodology and the need for a stimulus well beyond the scope of a normal recessionary period.
Fortunately, we have a Democratic President, and he has a bully pulpit. Even catastrophic, multi-dimensional failures like this can be substantially remedied if Obama chooses to focus on setting the record straight. But he needs to recognize the need to do so, and he can't be doing every time he turns around.
It's time for the Dems to stop being as incompetent as the GOP.
| ESTIMATED COST OF AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 |
| AS PROVIDED ON THE APPROPRIATION COMMITTEE WEBSITE ON JANUARY 15, 2009 |
| By Fiscal Year, Millions of Dollars |
| -- | 2009 | 2010 | 2011 | 2012 | Total
2013-
2019 |
| Title 1 - General Provisions |
| Budget Authority | 248 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 116 | 118 | 13 | 1 | 0 |
| Title 2 - Agriculture, Nutrition, and Rural Development |
| Distance Learning, Telemedicine, and Broadband Program |
| Budget Authority | 2,825 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 71 | 396 | 664 | 650 | 1,044 |
| Supplemental Nutrition Assistance Program | 4,859 | 6,056 | 4,317 | 3,115 | 1,644 |
| Budget Authority | 4,809 | 6,056 | 4,367 | 3,115 | 1,644 |
| Estimated Outlays | -- | -- | -- | -- | -- |
| Other |
| Budget Authority | 3,313 | 38 | 55 | 60 | 558 |
| Estimated Outlays | 645 | 1,085 | 760 | 549 | 967 |
| Subtotal, Title 2 |
| Budget Authority | 10,997 | 6,094 | 4,372 | 3,175 | 2,202 |
| Estimated Outlays | 5,525 | 7,537 | 5,791 | 4,314 | 3,655 |
| Title 3 - Commerce, Justice, and Science |
| Wireless and Broadband Deployment Grants |
| Budget Authority | 2,825 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 10 | 240 | 570 | 850 | 1,155 |
| State and Local Law Enforcement Assistance |
| Budget Authority | 3,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 450 | 900 | 600 | 450 | 600 |
| National Science Foundation |
| Budget Authority | 3,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 342 | 1,265 | 793 | 349 | 237 |
| Other |
| Budget Authority | 5,350 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 1,432 | 2,073 | 767 | 524 | 316 |
| Subtotal, Title 3 |
| Budget Authority | 14,175 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 2,234 | 4,478 | 2,730 | 2,173 | 2,308 |
| Title 4 - Defense |
| Budget Authority | 4,850 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 1,782 | 2,264 | 596 | 135 | 52 |
| Title 5 - Energy and Water |
| Energy Efficiency and Renewable Energy |
| Budget Authority | 18,500 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 450 | 2,185 | 3,530 | 4,065 | 8,270 |
| Innovative Technology Loan Guarantee Program |
| Budget Authority | 8,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 80 | 1,600 | 2,000 | 2,000 | 2,320 |
| Other Energy Programs |
| Budget Authority | 10,910 | 175 | 275 | 475 | 5,565 |
| Estimated Outlays | 840 | 2,548 | 3,181 | 3,077 | 7,704 |
| Corps of Engineers |
| Budget Authority | 4,500 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 1,128 | 1,664 | 975 | 365 | 368 |
| Other, Title 5 |
| Budget Authority | 500 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 100 | 250 | 100 | 50 | 0 |
| Subtotal, Title 5 |
| Budget Authority | 42,410 | 175 | 275 | 475 | 5,565 |
| Estimated Outlays | 2,598 | 8,247 | 9,786 | 9,557 | 18,662 |
| Title 6 - Financial Services and General Government |
| Federal Buildings Fund |
| Budget Authority | 7,700 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 400 | 900 | 1,400 | 1,600 | 3,200 |
| Other |
| Budget Authority | 1,030 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 112 | 821 | 90 | 6 | 0 |
| Subtotal, Title 6 |
| Budget Authority | 8,730 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 512 | 1,721 | 1,490 | 1,606 | 3,200 |
| Title 7 - Homeland Security |
| Budget Authority | 1,100 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 340 | 215 | 320 | 135 | 90 |
| Title 8 - Interior and Environment |
| Clean Water and Drinking Water State |
| Revolving Funds |
| Budget Authority | 8,400 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 283 | 2,050 | 2,460 | 1,670 | 1,653 |
| Other |
| Budget Authority | 6,575 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 992 | 2,432 | 1,402 | 987 | 571 |
| Subtotal, Title 8 |
| Budget Authority | 14,975 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 1,275 | 4,482 | 3,862 | 2,657 | 2,224 |
| Title 9 - Labor, Health and Human Services, and Education |
| Department of Health and Human Services |
| Budget Authority | 14,632 | 5,798 | 0 | 0 | 0 |
| Estimated Outlays | 3,080 | 9,006 | 4,492 | 2,076 | 1,542 |
| Employment and Training Administration |
| Budget Authority | 4,620 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 618 | 2,246 | 1,301 | 265 | 0 |
| Department of Education |
| School Construction |
| Budget Authority | 14,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 980 | 5,320 | 5,320 | 2,240 | 140 |
| Student Financial Assistance |
| Budget Authority | 16,524 | 1,076 | 0 | 0 | 0 |
| Estimated Outlays | 921 | 14,632 | 1,271 | 22 | 0 |
| Other Education |
| Budget Authority | 19,688 | 13,873 | -500 | -75 | 2,085 |
| Estimated Outlays | 731 | 9,792 | 15,469 | 6,594 | 2,615 |
| Other |
| Budget Authority | 600 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 87 | 228 | 163 | 97 | 15 |
| Subtotal, Title 9 |
| Budget Authority | 70,064 | 20,747 | -500 | -75 | 2,085 |
| Estimated Outlays | 6,417 | 41,224 | 28,016 | 11,294 | 4,312 |
| Title 10 - Military Construction and Veterans Affairs |
| Budget Authority | 7,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 426 | 2,119 | 2,288 | 1,290 | 837 |
| Title 11 - Department of State |
| Budget Authority | 500 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 52 | 142 | 150 | 108 | 48 |
| Title 12 - Transportation and Housing and Urban Development |
| Highway Construction |
| Budget Authority | 30,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 788 | 3,000 | 4,200 | 4,200 | 17,400 |
| Other Transportation |
| Budget Authority | 13,100 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 1,155 | 1,365 | 2,350 | 1,800 | 6,430 |
| Housing |
| Budget Authority | 8,000 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 335 | 2,350 | 2,320 | 1,560 | 1,435 |
| Community Development Fund |
| Budget Authority | 5,190 | 0 | 0 | 0 | 0 |
| Estimated Outlays | 250 | 1,250 | 1,980 | 1,170 | 540 |
| Other |
| Budget Authority | 3,147 | 13 | 0 | 0 | 0 |
| Estimated Outlays | 68 | 464 | 1,144 | 638 | 816 |
| Subtotal, Title 12 |
| Budget Authority | 59,437 | 13 | 0 | 0 | 0 |
| Estimated Outlays | 2,596 | 8,429 | 11,994 | 9,368 | 26,621 |
| Title 13- State Fiscal Stabilization Fund |
| Budget Authority | 39,500 | 39,500 | 0 | 0 | 0 |
| Estimated Outlays | 2,283 | 29,191 | 36,012 | 10,310 | 1,204 |
| Total |
| Budget Authority | 273,986 | 66,529 | 4,147 | 3,575 | 9,852 |
| Estimated Outlays | 26,156 | 110,167 | 103,048 | 52,948 | 63,213 |
|
| Source: Congressional Budget Office. |
| Notes: The estimates in this table reflect an assumed enactment date in mid February, 2009. |
| Outlays projected for 2009 would occur over a 7 1/2 month period. |
| Provisions of this legislation that are being developed by other committees are not included in this table. |
|
