Ohio Illustrates The Issues With The Stimulus Bill

Last Updated Jan 5, 2010 6:04 AM EST

The American Recovery and Rehabilitation Act (ARRA) was passed in March by Congress with a goal of stimulating the U.S. economy and minimizing unemployment. Unfortunately despite the value of the bill being almost $800 billion it seemed to have little effect as the unemployment rate crept up to ten percent by the end of 2009. The major criticism of the bill is that the funds are taking too long to get out of the government contracting process or were used to balance state budgets which kept civil servants unemployed but did not spur new investment.

Ohio received about $8.2 billion from the bill in 2009. The majority of this spending went to balance the state's budget through 2011 preventing cuts in government services and possible lay offs of staff. $2 billion has gone for various infrastructure projects many of which won't start until 2010. The current estimate is that this spending has so far created about 17,000 jobs in a state of over 11 million. Total non-farm private employment was almost 5 million so that represents about 3.5 percent of the jobs in the state created by "stimulus" funding.

The state though is angling for a serious amount of money from the ARRA to pay for new high-speed rail service. They are one of twenty-four states asking for $8 billion to invest in this new transportation system. Ohio would use it to link Columbus, Cincinnati and Cleveland which right now are not served with rail transportation. The major issue with this plan, though, remains the fact that the state would somehow have to pay for the service once it was established. This means either charge enough for fares to cover the operating costs or provide government subsidies. Republican law makers who currently control the Senate are not necessarily in favor of this concept as they are unwilling to set aside the necessary funds to support the rail operations.

This illustrates another issue often associated with Federal funding. They may provide early money to start a program or project but the long term support for it must come from local spending. This means that while the idea may be good there may not be the funding available to keep it going. This is what happened in the Nineties with the Clinton 100,000 policeman initiative. The Federal government paid for two years or so of salary for the new police but after that it had to come from local budgets. Not everywhere that added police officers with the Federal money could keep them when it ended.

Ohio is also planning to start their major infrastructure investments in 2010. These include local water projects and a new interstate bridge in Cleveland. While these will certainly create jobs in the construction industry the majority won't be until this year or later, not in 2009 like the original goal of the ARRA. The spending also may not make up for the jobs lost this last eighteen months no matter how worthy the projects or spending is.

The states may all see major shortfalls in the future that cannot be made up without further Federal funds. This was raised earlier this year when the ARRA money began to be distributed. California for example is now hoping that the Federal Government will aid it in closing a $20.7 billion deficit in their budget. Other states such as New York which are running deficits may expect the same. That is money that would have to be borrowed or moved from other parts of the Federal budget to help state budgets.

There is already a plan in Congress to spend another $150 billion or more on jobs despite the original goal of the ARRA was just that. The fact a second bill would be consider seems to highlight that the first law did not achieve what was hoped. The Senate has yet to act on this idea as many of that body are leery of increasing the deficit even further.

The idea of using government funding to stimulate an economy to prevent a recession or Depression has certainly been tested. Due to the slow spending it has had little effect so far on the U.S. economy although in 2010 it might be able to help with some growth. That will have to be seen, just like if Ohio gets its railroad.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, DefenseProcurementNews.com.