When Will the Economic Stimulus Dollars Flow?

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Now the game moves to the Senate, where the Senate version of the stimulus, S.1, differs from the House version and, if passed with differences, will require a conference committee to hash them out.  The different operating style of the Senate,  both in contrast to the House in general and in the relationship of Democrats and Republicans at the Senate Finance Committee, makes it difficult to imagine that the bill will sail through without some differences with the House package.

Let’s assume that Congress doesn’t let legislative lassitude win the day.  The economy is in disastrous shape, getting worse by the minute, and without strong action, there is nothing to look forward to but a continuing downward spiral.  Without debating the merits of tax cuts versus direct spending, much less the specific cuts and spending provisions in the legislation, we all know that something has to happen to jump start the worst economy since perhaps the Great Depression.  So, let’s assume that a bill passes the Senate and reaches President Obama’s desk in mid-February? Late February?  Then what?

The Congressional Budget Office (CBO) issued a very sobering report hinting at the realities of how moneys will flow.  On one hand, in almost all instances of new spending, the moneys are attached to existing programs administered by HUD, Labor, Commerce, Agriculture, and other agencies, so in theory there should be little need for the typical hurdle of promulgating regulations, submitting them for review and comment, and enacting final regs.  But the CBO suggests the following problems:

“[The] CBO estimates slower rates of spending than historical full-year spending rates in 2009 for a number of reasons:

  • The bill’s enactment would likely occur nearly half way through the fiscal year.
  • Previous experience suggests that agencies have difficulty rapidly expanding existing programs while maintaining current services; the funding in H.R. 1 for some programs is substantially greater than the usual annual funding for those activities.
  • Spending can be delayed by necessary lags for planning, soliciting bids, entering contracts, and conducting regulatory or environmental reviews.
  • Agencies face additional challenges in spending funds for new programs quickly because of the time necessary to develop procedures and criteria, issue regulations, and review plans and proposals before money can be distributed.”

Here’s what the CBO is saying:  For direct payments to individuals (for example, extended unemployment benefits, supplemental food stamps, etc.) and tax cuts, they’ll be taken or used relatively quickly, for direct payments as early as FY2009-2010, for tax cuts FY2009-2011.

But for appropriations and spending?  Had the bill been enacted at the beginning of Fiscal Year 2009 (under President Bush), money would have been flowing for a full fiscal year.  But prorated with the time lag for simply getting the bill passed, FY2009 outlays will be limited.  Overall, with spending programs, the CBO notes the following:

  • Much of the proposed spending involves construction and investment projects, even if “shovel-ready”, take many years to complete; the moneys don’t all get spent at the front end of these projects.
  • According to the CBO, past experience with other programs that have received large new infusions of capital on top of existing appropriations suggests that there are often major delays as agencies figure out how “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 CBO suggests that seasonal factors for spending and construction activities, not to mention bids for new work, environmental reviews, etc., will lead to spending delays
  • For the elements of the stimulus that are “new” programs, those items will encounter all the regulatory and procedural challenges involved in making new programs operational (the CBO cited as an example the lack of any disbursements to automakers from last summer’s program authorizing investments in energy-efficient cars).  As the CBO summarized, “(t)hroughout the federal government, spending for new programs has frequently been slower than expected and rarely been faster.”

For example, consider the over $5 billion in H.R.1 that would go to and through HUD for housing development  and community development activities, including the Neighborhood Stabilization Program (NSP) funds, targeting foreclosed homes, and the expansion of the HOME Program.  The CBO cautiously says that one can expect these funds to be deployed similar to past levels of spending in the Community Development Block Grant program (see addendum for why CDBG is such an important indicator).   In the case of NSP, it is a new program that emerged from last summer’s housing bill, with states and localities only now submitting their NSP plans to HUD for approval.  The CBO’s sober estimate is that the largest portion of that $5.2 billion would be spent in FY2011 ($1.98 billion), notwithstanding the fact that this year and next, there will be hundreds of thousands of homes added to the vacant/foreclosed inventory.

Many cities sit with unexpended CDBG allocations, which critics have long used to argue that the CDBG program should be cut or terminated.  For example, more than a decade after the implementation of the Enterprise Community/Empowerment Zone (EC/EZ) program by HUD and Agriculture, as of 2006 according to the GAO, 15% of the funds were still unspent.  Opponents of the HOPE VI program for redeveloping public housing projects were always quick to point out over $3 billion in unspent HOPE VI funding nearly two decades after the program’s creation.  While HUD has been trying to reduce the number of entitlement communities suffering from chronic untimely expenditures of CDBG funds (defined as having undrawn funds 1.5 times or more than the community’s most recent grant amount), down from a high of 309 entitlement communities in 1999 down to 79 as of November 2007 and reportedly around 40 in 2008, much of those unspent CDBG dollars are concentrated in cities where community development needs are greatest.  And how many CDBG recipient communities sit there withundrawn funds between 1 and 1.49 times as their current year’s allotment?

As disastrous as it is in “normal” times to allow CDBG, EC/EZ, and public housing funding sit unspent, with the economic disaster of what might be a looming depression, with unemployment inching up to double digits, government and nonprofits have to put the economic stimulus appropriations and outlays to work–and fast.

The experience of capital infusions into the Gulf Coast should be instructive.  Last November, auditors revealed that some $5 billion of $13.4 billion in Community Development Block Grant funds dedicated to Louisiana’s hurricane relief–and remember, these CDBG funds were made much more flexible and less constrained by regulations than typical CDBG appropriations–were still unspent 3 years after the devastation of Hurricane Katrina.   The thousands of Gulf Coast residents still without effective support, the neighborhoods that still lie devastated constitute examples of inefficient deployment of resources that cannot be countenanced in the stimulus package.

So what should nonprofits do to move money faster?  The NSP program offers an obvious object lesson.  Nonprofits eager to take on and reverse the deterioration caused by vacant, foreclosed properties in their neighborhoods have hardly been passive.  In city after city, you can find nonprofits at the table with city and state officials working on the design and implementation of mechanisms to deploy the dollars as fast as possible as soon as HUD okays NSP plan submissions.

Assuming nonprofits don’t succumb to funding desperation and decide to give up their advocacy voices, there is a place for nonprofits at the table with state and municipal agencies receiving economic stimulus moneys to design compacts that will help the funds flow.  They can also meet with local and regional nonprofit intermediaries, such as the community action agency recipients of Community Services Block Grant funds, to find ways of helping get funds deployed to the benefit of people in need.

Nonprofits should not devolve into contract arms of government.  They have to maintain their watchdog, advocacy, and organizing functions, else they give up their status as being part of a sector that is different than government.  In conjunction with their advocacy functions, they can join government and intermediaries in finding ways of making programs work.  At stake is not simply nonprofit budgetary survival.  This is essential for helping this nation out of its economic freefall.  That’s the reason for an economic stimulus bill, that’s what the nonprofit sector should be focusing on, deploying resources to put this nation to work.