THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009
The economy is in a crisis not seen since the Great Depression. Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and we are expected to lose another 3 to 5 million in the next year. Conservative economist Mark Zandi was blunt: "the economy is shutting down."
This bill is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart our economy, and begin the process of transforming it for the 21st century with $275 billion in economic recovery tax cuts and $550 billion in thoughtful and carefully targeted priority investments with unprecedented accountability measures built in.
The economy is in such trouble that, even with passage of this bill, unemployment rates are expected to rise to between eight and nine percent this year. Without this bill, we are warned that unemployment could explode to near twelve percent. With passage of this bill, we will face a large deficit for years to come. Without it, those deficits will be devastating and we face the risk of economic chaos. Tough choices have been made in this legislation and fiscal discipline will demand more tough choices in years to come.
Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefitting from record high worker productivity, the remaining 90% of American's were struggling to sustain their standard of living. They sustained it by borrowing ... and borrowing ... and borrowing, and when they couldn't borrow anymore, the bottom fell out. This plan will strengthen the middle class, not just Wall Street CEOs and special interests in Washington.
The short term task is to try to prevent the loss of millions of jobs and get our economy moving. The long term task is to make the needed investments that restore the ability of average middle income families to increase their income and build a decent future for their children.
Unprecedented Accountability: The bill contains a historic level of transparency, oversight and accountability that will help guarantee taxpayer dollars are spent wisely and Americans can see results for their investment.
In many instances funds are distributed through existing formulas to programs with proven track records and accountability measures already in place.
How funds are spent, all announcements of contract and grant competitions and awards, and formula grant allocations must be posted on a special website created by the President. Program managers will also be listed so the public knows who to hold accountable.
Public notification of funding must include a description of the investment funded, the purpose, the total cost and why the activity should be funded with recovery dollars. Governors, mayors or others making funding decisions must personally certify that the investment has been fully vetted and is an appropriate use of taxpayer dollars. This will also be placed on the recovery website.
A Recovery Act Accountability and Transparency Board will be created to review management of recovery dollars and provide early warning of problems. The seven member board includes Inspectors General and Deputy Cabinet secretaries.
The Government Accountability Office and the Inspectors General are provided additional funding and access for special review of recovery funding.
Federal and state whistleblowers who report fraud and abuse are protected.
There are no earmarks in this bill. This bill targets investments to key areas that will create and preserve good jobs at the same time as it is strengthening the ability of this economy to become more efficient and produce more opportunities for employment.
Clean, Efficient, American Energy: To put people back to work today and reduce our dependence on foreign oil tomorrow, the bill strengthens efforts directed at doubling renewable energy production and renovates public buildings to make them more energy efficient.
$32 billion to transform the nation's energy transmission, distribution, and production systems by allowing for a smarter and better grid and focusing investment in renewable technology.
$16 billion to repair public housing and make key energy efficiency retrofits.
$6 billion to weatherize modest-income homes.
Transform our Economy with Science and Technology: Our nation needs to put scientists to work looking for the next great discovery, creating jobs in cutting and make smart investments that will help businesses in every community succeed in a global economy. For every dollar invested in broadband the economy sees a ten-fold return on that investment.
$10 billion for science facilities, research, and instrumentation.
$6 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy. Modernize Roads, Bridges, Transit and Waterways: To build a 21st century economy, contractors must be engaged across the nation to create jobs rebuilding our crumbling roads, and bridges, modernize public buildings, and put people to work cleaning our air, water and land.
$30 billion in transportation, of which $30 billion is for highway construction;
$31 billion to modernize federal and other public infrastructure with investments that lead to long term energy cost savings;
$19 billion for clean water, flood control, and environmental restoration investments;
$10 billion for transit and rail to reduce traffic congestion and gas consumption.
Education for the 21st Century: To enable more children to learn in 21st century classrooms, labs, and libraries to help our kids compete with any worker in the world, this bill provides:
$41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).
$79 billion in state fiscal relief to prevent cutbacks to key services, including $39 billion to local school districts and public colleges and universities distributed through existing state and federal formulas, $15 billion to states as bonus grants as a reward for meeting key performance measures, and $25 billion to states for other high priority needs such as public safety and other critical services, which may include education.
$15.6 billion to increase the PELL grant by $500.
$6 billion for higher education modernization. Lower Healthcare Costs: To save not only jobs, but money and lives, we will update and computerize our health care system to cut red tape, prevent medical mistakes, and help reduce health care costs by billions of dollars each year.
$2 billion in this bill, and $20 billion overall, for health information technology to prevent medical mistakes, provide better care to patients and introduce cost-saving efficiencies.
$4.1 billion to provide for preventative care and to evaluate the most effective health care treatments. Help Workers Hurt by the Economy: High unemployment and rising costs have outpaced Americans' paychecks. The bill helps struggling families make ends meet by providing $20 billion to increase the food stamp benefit by over 13%, in order to help defray rising food costs.
Save Public Sector Jobs and Protect Vital Services: Fiscal relief is provided to states, so that they can continue to employ teachers, firefighters and police officers and provide vital services without having to unnecessarily raise middle class taxes. The bill provides $4 billion for state and local law enforcement.
ECONOMIC ANALYSIS
This proposed well-targeted spending package makes sense today because the economy and jobs are sinking fast and need a big boost; we have a large backlog of worthwhile infrastructure projects that have been studied and approved; states are on the verge of sharply reducing investments in education, health, and public safety; investments in technology and skills will pay dividends for many years; and as millions of additional families face severe economic hardship, we should take forceful action to support employment and to provide income support for those who lose their jobs and income.
This bill should have the effect of staving off the worst prospects of the current economy now in the process of "shutting down" in the words of a recent congressional economic witness. But there remains a significant likelihood that further action will be needed. There is a very real risk that, because of unanticipated economic bad news, this legislation may undershoot its target. Congress must be alert to counter additional economic weakness because the strength of the country and security of American families are at stake.
Lack of demand creates extraordinary slack
The federal government should step in to increase demand for American goods and services because all other sources of demand are declining.
Households are spending less because they're losing jobs and their homes and investments are losing value. In the second half of 2008, real consumer spending on goods plunged at the fastest rate in six decades of data.
Businesses are scaling back investment because they have more and more excess capacity and they lack confidence that demand for their goods and services will recover soon enough to justify adding more capacity.
State and local governments are retrenching because of falling revenues and balanced budget requirements. The Center on Budget and Policy Priorities estimates that the states' fiscal gap will reach 17 percent of their general budget in the next fiscal year and that they face a combined $350 billion shortfall for the remaining six months of this fiscal year and the next two fiscal years.
Recessions abroad are shrinking demand for our exports. The consensus of economic forecasters calls for GDP to shrink this year in Europe and Japan by the same 1 - 1.2 percent as in the United States.
The recession has already created considerable economic slack and forecasters expect that slack to increase. Improving technology and rising population together raise the economy's potential output by at least 3 percent a year. Actual output today is lower than it was five quarters ago. That 3 percent shortfall means that we are already producing about $500 billion below our potential. Although they are factoring in positive effects from stimulus legislation, economic forecasters expect that shortfall to double over the next year and to remain large for an extended period after that.
The nation will need a strong fiscal boost to continue even after the economy hits bottom and starts to grow again, possibly later this year or early next year. The usual drivers of strong recoveries -- housing and autos -- seem unlikely to provide the typical boost this time around. Even after output hits bottom, employers seem likely to hold off hiring, just as they did in the years just after the last two recessions. Unemployment rose another 1.5 million in the 15 months after the 1990 - 91 recession and by 1.3 million in the 19 months after the 2001 recession. Because of the continued overhang of vacant housing, economic forecasters expect to see subpar growth throughout 2010 and thus unemployment to exceed 8 percent -- higher than at any time in the last quarter century.
Unfortunately, the current trajectory of the economy allows ample capacity to absorb the 3.7 million jobs that the Obama economic team projects will be created or saved by the recovery bill. That's less than the 4.3 million rise in unemployment that has occurred from 6.8 million in mid 2007 to 11.1 million in December 2008. The consensus of economic forecasters expects unemployment to reach 13 million people in 2010, even after they factor in sizable economic stimulus. Forecaster Zandi projects that, without stimulus, we would see unemployment reach 16 million people in 2010.
The rate of deterioration in the job market has been accelerating. The January 9 labor report came in worse than had been expected at the time of the projections made in the last paragraph, not only for December but for prior months. Over the last three months of 2008, both job loss and unemployment increases have been running about 500,000 a month, for an annual rate of 6 million.
The current downturn has also seen an unprecedented level and increase in the number of people who have been involuntarily cut back from full-time to part-time work by their employer. That number has doubled from less than 2.9 million in the summer of 2007 to 5.9 million in December 2008.