Analysis: Can Uncle Sam spend cash fast enough?

[January 05, 2009]  WASHINGTON (AP) -- Washington bureaucrats have a reputation for being able to spend taxpayer money real fast. But, believe it or not, spending it fast enough is one of the biggest tasks President-elect Barack Obama's economic team faces in putting together an economic recovery measure.

Obama's economic recovery plan depends on swiftly pumping hundreds of billions of federal dollars into the economy to create jobs. The focus is on tax cuts and government spending that can provide an immediate lift to the economy.

However, the $675 billion-$775 billion plan emerging in talks between Obama's team and Democratic allies in Congress also appears to contain lots of money that won't be spent for years -- like for water projects, rebuilding the electric grid and buying billions of dollars of computers and software for the health care sector. Much of that money won't get spent until the economy starts growing again.

Some GOP critics say Democrats are simply using the current economic crisis to put money into long-term projects now, rather than in a few years when concerns about record budget deficits might threaten the spending.

"We must ... make distinctions between what is 'stimulus' ... and what is merely more government spending on favored projects we don't need with money we don't have," said Senate Minority Leader Mitch McConnell of Kentucky.

One example is a plan to spend billions of dollars on a new health care information technology system that would make the delivery of health care safer, more effective and more efficient.

During the campaign, Obama promised $50 billion over five years for the initiative. The upcoming economic recovery bill will provide less.

Even so, little of the program can get underway quickly and building the system is years away. Basic questions like privacy rights and a design that would allow computers for doctors, hospitals and insurance companies interact have yet to be resolved.

Even Obama's economic advisers have warned privately that as the stimulus bill increases in size, its quality inevitably declines. The economy can absorb only so much public investment over the next two years. Republicans are even more skeptical.

"It's incredibly difficult to identify things that are valuable in the long run, can be financed in the short run and get the money out the door quickly," said former Congressional Budget Office Director Douglas Holtz-Eakin, who advised Sen. John McCain's presidential campaign. "It would be preferable to take any stimulus you feel is necessary and target it on a few things -- don't spread it as seed money for a thousand programs that'll never stop growing."

"Right now, we have an emergency on our hands," counters House Appropriations Committee Chairman David Obey, D-Wis. "If the House is burning, you're not going to worry about which hose you grab, so long as you get water on the fire."

Obama officials promise a "use it or lose it" rule to force states and localities to spend new federal money quickly to stimulate jobs. Such an approach could prompt officials to choose more wasteful projects that can be built soon over better ideas that might take a while.

"There's a tension here between wanting to do the most meritorious projects for the long term and wanting to do stuff that boosts the economy quickly," said budget expert Bob Greenstein of the liberal Center on Budget and Policy Priorities.

Many parts of Obama's plan would infuse money quickly into the economy, according to budget experts. These include $200 billion for recession-hit state governments to avoid layoffs, cutbacks in services and raising their own taxes. Federal tax cuts delivered by withholding less from paychecks can take effect almost immediately. Expanded food stamp and unemployment benefits would arrive mostly in 2009.

All of those ideas are poised to get funding -- lots of it. But many economists say even more must be pumped into the economy to jolt it out of its doldrums.

That means massive spending on infrastructure projects such as road and bridge repairs, flood control and sewer systems, upgrading schools and public housing, and new runways and other airport improvements. Those projects typically take years. Depending on the length of the recession, much of the spending may not occur until after the economy is expanding. That could result in inflation, economists warn.

A Congressional Budget Office analysis of a $61 billion economic stimulus measure that passed the House in September -- only to fail in the Senate -- shows that just 27 percent of the plan's $37 billion in infrastructure spending would have occurred as the economy struggles through 2009. Another third would have been spent in 2010 and the final third wouldn't have been spent until 2011 and after.

And those were projects that lawmakers say are ready to go right now. House Transportation and Infrastructure Committee Chairman James Oberstar recently unveiled a $45 billion spending plan for highways, mass transit, water projects and airport improvements. More than that wouldn't create many jobs right away, he cautioned.

"If we're going to have a quick hit -- get in, create jobs within 90 days, people working -- then there is a finite list of projects that fall into the category," Oberstar, D-Minn., said recently. "So we have to be very careful about how much we grow the list."

Obama and allies like House Speaker Nancy Pelosi, D-Calif., stress that much of the economic recovery plan will have a longer-term focus. Such elements include delivering broadband communications to underserved areas, developing and improving energy efficiency technologies, updating the nation's electrical grid and modernizing schools.

"This is not a 1930s public works project," Pelosi says.

Nonetheless, there's a lot of focus on pushing money out on dams and highway projects already underway and, up until now, financed in bits and pieces.

"There's a huge backlog of demands out there on a number of different fronts," an Obama transition official said. The "real challenge is to make sure money isn't spent willy-nilly," the official said, speaking on condition of anonymity because he was not authorized to speak with the reporters.

[Associated Press; By ANDREW TAYLOR]

Andrew Taylor has covered Congress and government spending since 1990.

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