The Need for a Stimulus Speed Bump

The rush to spend stimulus money as quickly as possible is fraught with management risks.
by | April 15, 2009
 

I wonder who was the first to say, "This is too important to be rushed."

I'm not going to wade into the debate over the intrinsic merits or demerits of the federal stimulus spending package, but it seems entirely appropriate to consider some of the challenges for state and local managers presented with big gushes of money, particularly when the money must be spent within a relatively short period of time.

Successful managers of stimulus funds will be those who approach new funding with a well managed administrative infrastructure in hand, or have the strength of leadership to insist that one be developed first.

The "what were they thinking?" and "I told you so" stories will arise from headlong "get it done" attitudes that short-circuit essential minimum standards of planning, procurement, quality control and monitoring.

If you're not worried about this, the last eight years of court-mandated New Jersey school construction might serve as a worthy object lesson. Let's call it the 1 percent lesson -- it only involved $8 billion.

In 2001, with $8.6 billion in capital for school upgrades mandated by the New Jersey Supreme Court, the legislature assigned responsibility for constructing new schools in 31 low-income urban districts to the New Jersey Economic Development Authority. The EDA had responsibility from day one, and the districts were shut out of funding for projects they wanted to implement on their own. It was believed, with some justification, that the urban districts -- which had not had any capital programs in decades -- were unprepared to spend the money "efficiently and effectively."

EDA, a state agency with a commendable record within the state but without the immediate capacity to handle a major construction initiative, said it needed time to ramp up: to find suitable sites with school districts, to develop good RFPs and contracts, and to establish strong internal controls and procedures. When wealthier suburban districts moved ahead immediately on capital plans, and the urban districts had to wait on EDA, the press pounced. Urban districts were being left behind, and the pressure mounted.

In response, the School Construction Corporation was created in 2002. As promised, it circumvented the year that EDA wanted. A private-sector leader was appointed to get the job done fast. Starting construction took priority over any thoughtful needs determination. Design began before sites were under site control. Construction began before design was completed. Environmental site remediation cost considerations, approvals from building code officials, and firm project budgets were marginalized as bureaucratic obstacles to speed.

The $8.6 billion was obligated and disbursed, and hundreds of school construction projects began, but the SCC was an unqualified disaster. A 2005 inspector general's report outlined excesses in staffing costs, an absence of internal controls that invited self-dealing, overcompensation of employees, and hundreds of millions in uncontrolled change orders and cost overruns. Speculators and local governments holding land benefited from inflated acquisition costs. In the end, the SCC was unable to project how many projects it could fund and left dozens of school projects on the drawing boards.

When the SCC virtually collapsed of its own weight, newly elected Governor Jon S. Corzine started fresh in 2008 with a School Development Authority that seems to have gotten it right. Educational needs drive funding and design priorities, and the Department of Education is at the table with the local school districts in those discussions. Every project has an SDA-approved budget, and works to that budget.

The SDA's Web site lists reforms that have been put in place:

o Fiscal oversight through comprehensive budgets and project schedules.

o Prioritization of projects by the Department of Education, based on need.

o Recouping costs of prior mistakes, such as recovery of environmental remediation, errors by architects and engineers that caused avoidable cost overruns and project delays.

o Transparency of all actions of the SDA.

o Special acquisition procedures for land assembly to avoid speculative cost spikes.

o Increased collaboration with stakeholders throughout construction projects.

This tale does not pre-judge how well stimulus funding will be spent, but it does suggest that elected officials and public managers should look very carefully at both the projects and the grantees they choose to fund. When speed and volume are the priorities, the well-developed projects and the high-capacity institutions are the ones more likely to produce effectively and efficiently. Ill-considered short circuits, as every do-it-yourself homeowner knows, can backfire with shocks and sparks or even put the entire wiring system off-line indefinitely.

A rush to the shovels may well be the truest instance in which long-range planning works best in the short term. When speed is the order of the day, it is critical that the spenders heed cautionary tales from the fast lane of rushed government spending.

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