Almost Half the Spending in Stimulus Bill Would Not Happen for at Least Two Years, Says CBO Analysis

January 29, 2009 - 11:39 AM
Almost half of the new spending—as opposed to tax cuts—being proposed in the stimulus bill would not be spent until at least two years from now, according to an analysis published by the Congressional Budget Office.  

House Appropriations Committee Chairman David Obey (D-Wis.), who drafted the $825 billion economic stimulus proposal. (Photo courtesy of Rep. Obey Web site)

(CNSNews.com) – Although the argument for quickly passing the $800-billion-plus stimulus bill now before Congress is that pumping money into the economy immediately will spur economic growth and create jobs, almost half of the new spending—as opposed to tax cuts—being proposed in the bill would not be spent until at least two years from now, according to an analysis published by the Congressional Budget Office.
 
The tax cut provisions in the bill would take effect more quickly, according to the report, which was initially published Monday and has been updated during the week.
 
According to the CBO analysis, timely spending of the money will be hampered by bureaucratic delays and the inability of state and federal agencies to efficiently and effectively spend the massive inflows of new money.
In a statement commenting on the CBO’s report, House Speaker Nancy Pelosi (D-Calif.) highlighted the speed with which the money would be spent.
 
“The Congressional Budget Office’s first analysis of the entire House recovery bill makes clear that what experts have been saying all along: the American Recovery and Reinvestment Act provides immediate stimulus to help create jobs and makes long-term, targeted, and responsible investments to keep our nation’s economy growing for years to come.”
 
In fact, CBO found that the types of spending favored by Congressional Democrats, such as road construction, IT, and unemployment spending, wouldn’t be spent as quickly because the money would be tied up in the state and federal bureaucracies.
 
“CBO expects that federal agencies, along with states and other recipients of that funding, would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to expend the added funds as quickly as they expend the resources provided for their ongoing programs,” the report finds.
 
CBO attributed this delay to the need of both federal and state governments to draft plans, negotiate contracts, and navigate red tape as they prepare to spend the money. 
 
“Lags in spending stem in part from the need to draft plans, solicit bids, enter into contracts, and conduct regulatory or environmental reviews,” said the analysis.
 
Mother Nature will also frustrate Congress’ plans to quickly spend the money because infrastructure projects are often weather-dependent.
 
“Spending can be further delayed because some activities are by their nature seasonal,” the report says. “For example, major school repairs are generally scheduled during the summer to avoid disrupting classes, and construction and highway work are difficult to carry out during the winter months in many parts of the country.”
 
The CBO also found that Democrats’ highest priorities, such as new programs for IT, green technology and healthcare modernization are likely to encounter the highest hurdles.
 
“Brand new programs pose additional challenges,” the report says. “Developing procedures and criteria, issuing the necessary regulations, and reviewing plans and proposals would make distributing money quickly even more difficult.”
 
To make its point, the report points to the fact that the green-technology loans Congress approved for US automakers over the summer haven’t even been tapped yet, despite the auto companies’ urgent need for cash and Congress’ deep desire to give them federal help.
 
“Throughout the federal government, spending for new programs has frequently been slower than expected and rarely been faster,” the report concludes.
 
CBO found that the tax cut and unemployment assistance programs would hit the economy much faster than the big spending programs, estimating that they would be at full tilt within two years.
 
CBO found that the tax cut provisions would add “$76 billion in fiscal year 2009” and “$131 billion in fiscal year 2010.”
 
The CBO did not include in these tax cut numbers the refundable tax credits favored by Democrats and the Obama administration because the CBO counts such proposals as direct spending.
 
CBO, meanwhile, found that only 52 percent of the money in the stimulus bill devoted to new government spending will actually be spent by 2010. According to the analysis, it will take up to a decade to fully distribute some of the spending envisioned by the bill.