Beantown Economics: The State of the Commonwealth – Part 4: Where Will the Stimulus Funds Go?

Dillon Zhou

On February 17, 2009, President Obama signed into law the thoroughly debated $787 billion economic stimulus bill, otherwise known as the American Recovery and Reinvestment Act of 2009, that has been making the headlines since his electoral victory in November 2008. Although this version of the bill has been substantially pared down from initial sum of $820 billion during course of its passage through the House of Representatives, this controversial “bailout” will carry a far reaching effect for many ordinary Americans. This includes the citizens of the Commonwealth, who stand to receive $12 billion in emergency state aid that includes substantial tax breaks and specific programs.

According to the latest reports from Washington D.C., 64 percent of the stimulus bill is aimed at ejecting immediate tax dollars to the American economy. The rest of the sum will be allocated toward giving a host of tax breaks for those who were hit hardest by the current economic recession alongside incentives for those who have been rattled, including new and existing homeowners, parents, the unemployed, and troubled businesses. The intended result of this arrangement is to shore up the confidence of the American people and the mind-boggling financial woes faced by state governments like the one on Beacon Hill.

Implications for the Commonwealth

Since the stimulus bill was introduced, Governor Patrick and his administration have place high hopes in the funding Massachusetts would receive a substantial portion of the spending for state relief. The communities of the Bay State have also placed a great deal of their optimism in the potential relief from the Obama Government. In fact, thirty days before President Obama signed the stimulus bill into law, government officials throughout the state submitted their wish lists consisting of 67 projects totaling more than $103 million, from renovating sewers to draining the swamp around City Hall. As of February 20, 2009, none of these projects has been classified as “shovel ready” by state lawmakers.

Governor Patrick named developer Jeffrey Simon to be the state’s “stimulus czar” during the days following the passage of the stimulus bill in the House. He has made it clear that it shall be Simon’s duty to whittle down the “shovel-ready” list to match the actual federal dollars Massachusetts is expected to get. Mr. Simon doesn’t sound optimistic.

“For every one [project] you can implement, there will be 20 that you can’t,” Simon said moments after Patrick announced his appointment last week. In a February 17 press release, a spokesperson for Mr. Patrick stated that the administration has been working with cities and towns since December to come up with a preliminary list of projects based “on how quickly shovels can go in the ground, infrastructure needs, regional equity issues and other important criteria.”

The stimulus money, aimed at preserving jobs, will likely arrive too late for hard-hit communities that have already laid off substantial numbers of employees, and the way it will be distributed means it may not prevent extensive layoffs in ’09.

“The stimulus bill is the galloping ghost; I’ve yet to see anything truly beneficial for ordinary citizens in my city,” Mayor Edward J. Clancy of Lynn said during a recent press conference, as he prepared for a school committee meeting that centered around 125 immediate layoffs and a possible unpaid leave to save jobs. Most towns share a common story and expect further layoffs over the summer.

The only bright side is that most experts believe that the federal legislation could forestall a limited number of local layoffs, particularly in schools, but will not close the budget gaps or address structural problems at the local level caused by constrained revenues and rapidly rising costs. Mr. Patrick estimated that the bill would provide $6 billion to $9 billion in direct assistance to Massachusetts. That does not include tax relief or grant programs that combined could be worth a few billion dollars, a spokeswoman for the governor said. That includes roughly $1 billion for infrastructure projects that the state will distribute, a portion of which will help fix roads, bridges, and schools. Most money will not be accessible for operating budgets, where the payroll costs are already tallied. “We need a bigger infusion of aid to really end the job loss and other woes in the state,” said a Patrick spokesman.

Bay State Benjamins

At the present, $125 million has been allocated for the City of Boston, including $69 million for schools, $30 million for housing, and $5 million for police. The details of how this relief package will be spent remains to be seen. The same could be said about its effect on the state economy and the jobs at risk. Like the Patrick Administration on Beacon Hill, Boston city officials, like Mayor Menino, have firmly said that this will not prevent the loss of government jobs in the wake of last fall’s devastating budget shortfall.

Most of these Bay State Benjamins are federally targeted for explicit programs, such as $30 million for capital, maintenance, and energy efficiency upgrades to public housing and $2 million for summer jobs for students. This money will provide some real benefits to Boston, but it will not settle the estimated $140 million gap in the city’s budget for FY ’09 that starts July 1. Therefore, the fee hikes that most UMB students fear may still come in spite of the aid from the federal government.

Closing Thoughts

Many citizens of Massachusetts, like Edson Bueno, an economics major in CLA and editor at the Mass Media, believe that “having this aid is better than not having any at all, since it will inject some cash into the Bay State economy.” Although this stimulus bill will not prevent further job cuts and marginalizing of pay for state employees, it will be cash that could have come out of the pockets of average citizens. How it all really turns out depends on how the “Stimulus Czar” and Governor Patrick work out the details of the spending and management of the programs.