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On stimulus, still some questions

WASHINGTON — Before the opponents of health care reform turned congressional town meetings into shouting matches, they had picked another target. The naysayers announced to the world that the economic stimulus bill signed by President Obama in February was a dismal failure, too.

That judgment seemed premature at the time, and it looks even shakier now that the Federal Reserve Board has concluded the economy, which was in free-fall last winter, has stabilized and “is leveling out.” To probe the question further, I spent the other morning at the Brookings Institution, a Washington think tank, which scheduled a panel discussion on the topic. Three Brookings scholars and a suburban Washington mayor agreed on one thing: No one can realistically pronounce the massive $787 billion stimulus bill either a flop or a triumph at this point.

As one of the panelists said, the bill that was quickly assembled and hastily passed by a Congress frightened that the economy might collapse at any moment, “was a hodgepodge package and we are getting hodgepodge results.” Economist Barry Bosworth launched the discussion on a skeptical note, saying that the recession might be ending, but “the government stimulus did not have a lot to do with the recovery.”

Bosworth complained that in the autumn of 2008, when the election was uppermost on politicians’ minds, Congress was tardy in responding to the warning signs of what became the worst slump since the Great Depression. As a result, funds have been delayed in reaching hard-hit communities.

But Bosworth later conceded that when consumers’ disposable income was dropping early this year at an annual rate of half a trillion dollars, the government stepped in with tax cuts, direct payments and extended unemployment benefits that “completely offset” the hemorrhaging of the private economy.

“That’s a pretty amazing accomplishment,” he said.

Other panelists pointed to more familiar accomplishments—the stimulus money to states and local governments that will postpone or avoid layoffs of teachers and police officers. Most of those benefits have not registered yet with the public because, as school finance specialist Grover J. “Russ” Whitehurst pointed out, of the $115 billion in stimulus funds allocated to the Department of Education, checks have been written for only $13 billion. A mere $25 million has been contracted for specific projects.

Obviously, this strengthens the critics’ argument that much of the stimulus money—all of it borrowed from our overseas creditors—won’t be spent until the economy is already on the mend.

But the most important thing I learned from the session was not what was right and wrong about the stimulus bill. After all, it is not likely to be rescinded or significantly altered by the Congress that passed it.

Rather, what emerged in much clearer focus is what we are likely to face when 2010, the year when stimulus spending will peak, is over, and we have to figure out what to do next. At that point, Obama will be under great pressure to slow down the frantic pace of federal spending and to address the unprecedented deficits of this year and next.

But, as Amy Liu, the panel’s expert on state and local finances, pointed out, the vast differences in local economies will clearly leave some cities and metropolitan areas in need of help. As of March, unemployment rates ranged from a low of 5.1 percent in Provo, Utah, to a high of 17.5 percent in Modesto, Calif.

Long after Provo can dispense with federal aid, Modesto and other cities such as Toledo and Detroit are likely to require assistance. Congress will not be eager to pass another big national stimulus bill, but some way will have to be found to funnel funds to the places where they are most needed.

Meantime, there’s no quick fix for many communities. Chris Zimmerman, a county board member in the Washington suburb of Arlington, Va., pointed out that property taxes—the mainstay of local budgets—typically take two years to recover after the bottom of a recession. This means that at best, mayors and council members will be looking for help even when 2011 rolls around.

David Broder is a columnist for The Washington Post. Readers may write to him via e-mail at davidbroder@washpost.com.