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July 9th, 2009

States Misusing Stimulus Money, Is It Their Fault?

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Whether you have read it here or have heard it elsewhere, criticisms of the president’s stimulus package most notably include: the money hasn’t come out fast enough, its impact will be overshadowed by the economy’s own natural recovery, and that some of the supposed “shovel-ready” projects haven’t even begun. Regardless of those criticisms, a Congressional report suggests that the money that is flowing out to individual states isn’t being spent properly — but is it their fault?

The Government Accountability Office (GAO), the agency responsible for monitoring and reporting to Congress on the stimulus, will release its bi-monthly report on Tuesday at a House oversight hearing:

Under pressure to spend stimulus money quickly, many states are using the federal funds for short-term projects and to fill budget gaps rather than spending on long-term improvements, according to a report by congressional investigators.

Some states, for example, are not sending transportation funding to the most economically distressed areas, and they are using education funds to prevent layoffs rather than fund innovative new programs, the report says.

The report says that as of mid-June, states had received about $29 billion of the estimated $49 billion in stimulus funding they are scheduled to get before the federal budget year ends Sept. 30. More than 90% of the money given to the states so far is for Medicaid and a fund meant to prop up states’ budgets for schools and other basic services such as public safety.

According to USA Today, nearly half of the $15.9 billion dedicated for transportation projects are underway. But in states like New Jersey, township administrators are complaining that those funds aren’t making their way to the local level, a problem that could wind up costing taxpayers:

At issue are roads wholly contained within a town or borough — about 75 percent of all road miles in New Jersey and many of the main corridors in downtown business districts. So far, though, less than 25 percent of federal stimulus dollars have been dedicated to local projects, according to allocation records. Because all federal stimulus road money is allocated by the state, many municipal officials say the lion’s share has not gone to local projects.

If the money doesn’t come soon, [Plainfield administrator Marc Dashield] said, the repairs could end up being “a heavy burden on the taxpayer.”

On one hand critics say the money isn’t flowing out fast enough. On the other, states are arguing that the cash has come too quickly to be spent as the administration desires. As the days pass, the notion that the stimulus package is a defunct system grows more prevalent. So who’s to blame? Can Washington wrangle in the program’s problems before it’s too late?

From day one, www.Recovery.gov has explained that the bulk of 2009’s funding will be dedicated to Medicare, and by 2012 the funds will be spread out more evenly to include “transportation spending, along with investments in community development, energy, and environmental areas that are geared more toward creating long-run economic growth opportunities…” If one of the stimulus’s main goals was to create jobs, then why are all those opportunities three years away?

Keep your eye on the year 2012. What purpose would it serve to delay the creation of “long-run economic growth opportunities”? Dare we say to help the lawmakers who wrote the bill gain reelection?

What do you say? What makes this program so ineefective?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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