Finance

What Did the Stimulus Do for States?

Governing interviewed Time correspondent Michael Grunwald, who argues in his new book that the stimulus has had more influence on domestic policy than any other piece of legislation in decades.
by | December 2012
 

Remember the stimulus? President Obama barely mentioned the word in his reelection bid. But Michael Grunwald, a correspondent for Time, argues that its vast array of changes in areas including energy, education, health care and transportation, has had more influence on domestic policy than any other piece of legislation for decades. He lays out his case in his recent book, The New New Deal.

If nothing else, the 2009 stimulus had a profound effect on state and local budgets. We spoke with Grunwald about how the law was implemented.

After the stimulus was passed, many local officials talked about conflicting pressures to spend money quickly but not waste any of it.

Michael Grunwald: There was definitely this incredible pressure to spend quickly because there was real concern about creating jobs and faster growth. And there were political worries that they had set all these targets that Republicans in Congress said they would never make.

It led to all these federal requirements that created headaches for state and local governments, all this paperwork about how many jobs they’d created every week, red tape about prevailing wage laws. There were plenty of obstacles to getting projects going.

They did hit every spending deadline. Experts said 5 to 7 percent of it would be lost to fraud and so far it’s been .0001 percent lost to fraud.

You make the case that the Obama administration tried to spend in ways that were good for the country and for the economy, without much regard for which Republicans they could punish and which Democrats they could reward.

MG: There were political considerations in the room, but the economics seemed to run the discussion.

The best example of that is aid to states. Essentially, you’re asking Congress to write these huge checks to governors, including Republican governors who had been cutting taxes and giving their constituents dessert for the last few years.

Now that they were finally facing these gigantic budget holes, they were either going to have to raise taxes or make serious cuts. And the federal government came along with $200 billion to bail them out.

It allowed the Rick Perrys and Haley Barbours and Bobby Jindals to take the money, and on the other hand rag on Congress for failing to balance its own budget.

But the feeling was that the economy was in freefall, we were losing 800,000 jobs a month. The projections for states were getting scarier and scarier by the week. The state aid was the first money to go out and the follow-up studies that have happened so far showed that it really did help with jobs at a time when jobs were hemorrhaging.

One dynamic state and local officials couldn’t miss was the law’s emphasis on transparency. Did the reporting requirements set a template for federal-state relations going forward?

MG: I think it should. Certainly [Vice President Joe] Biden and the Obama administration have tried to make it [a template], to have the transparency as well as the accountability.

The idea was that this was going to be the most scrutinized spending in the history of federal spending. It was going to be online and there were going to be federal inspectors general involved.

It led to a lot of gotcha stories. But that said, it certainly set out a template, a way that this could be done in the future.

You note that the stimulus has been a political loser and there aren’t likely to be more bills like it anytime soon. Is the spigot of money from Washington to states and localities just about turned off at this point?

MG: I’m probably not the best person to predict what’s going to happen. What we can see is that the notion of general aid to states during the downturn was very good economics and very bad politics.

There’s a lot of evidence from empirical studies of the stimulus that the aid to states had a really big impact. At the same time, there was no political benefit for any of the members of Congress or the administration that pushed it. Bobby Jindal’s still [the one] holding the press conference to announce the grant, even though he fought tooth and nail against the program.

One thing that was interesting about the stimulus money is that all governors took it. After all the hype, everybody likes money.

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