What Happened to the Stimulus?

Fueled by coke zero and a double-chocolate protein bar, Vice President Joe Biden is roiling, ranting, being his usual self. Five mayors and county executives listen in silence on the other end of a White House speakerphone as the Delaware ear bender tries to ride herd on the stampede for dollars known as the American Recovery and Reinvestment Act, the $787 billion monster that is the largest domestic-spending effort in U.S. history. “My rear end is on the line just like yours,” Biden barks, surrounded by a flock of aides in his West Wing office. “I’m the guy in charge of this deal. So if this doesn’t work, it’s me.”

When Congress passed the stimulus bill in February, it came as both good news and bad news to the Obama White House. The good: never before had an Administration had so much money to spend on voters in need–to rebuild public buildings, save jobs, weatherize homes and fund community health centers. The bad: rarely has the passage of a measure been accompanied by such skepticism about the government’s ability to spend the money wisely or well.

And ever since, public doubts about the stimulus have, if anything, deepened. The economy deteriorated faster than economists expected, with unemployment now predicted to exceed 10% next year, higher than the White House had projected in January. While that might under normal circumstances make any stimulus more popular, voters have been spooked by the enormous deficits Washington is running up as it tries to right the economy. In 2009 alone, the U.S. government will take on debt equal to about 13% of its economic output, and by 2016 the U.S. debt is projected to top 70% of GDP, twice the 2000 level. Poll after poll has shown a steady erosion of confidence in the stimulus measure; one survey found that 45% of voters believe it should be abandoned midstream.

Killing Frisbee Golf

Biden saw this day coming. In February, the Vice President and Ron Klain, his chief of staff, penned Barack Obama a memo predicting that spending $787 billion on tens of thousands of projects through hundreds of agencies would create opportunities for waste and corruption on an unprecedented scale. Biden suggested that someone with heft needed to be put in charge. During one of their weekly lunches, the President read over the memo, nodded and then handed it back to Biden. Do it, he said. Months later, Biden still laughs about how it happened. “Last memo I’ve written him,” he says. “No more memos.”

After decades in the Senate (where he was no slouch at snagging funds for his home state of Delaware), Biden knew his way around a rotten pork barrel. So he set up an in-house watchdog group, with a team that would grow to eight and a charge to keep the spending clean, quick and defensible. Economists will tell you that the most important part of a stimulus is getting the money into the economy fast, where it can replace lost consumer and business spending and keep people employed. But Biden’s team knew that it’s just as important to maintain public confidence in the enterprise, especially in an age of $500 million helicopters and Bridges to Nowhere. At the White House, this worry translated into a simple if fuzzy standard for deciding which projects pass muster: prudence. “It’s like pornography,” says Edward DeSeve, the senior adviser to the President for recovery and reinvestment. “You know prudence when you see it.”

Biden’s team informed states and localities months ago to scrub their wish lists of anything that might be seen as unnecessary or wasteful. White House officials were happy to sign off on bridge repairs and roadwork on busy intersections and new runway signals for strapped airports. But they have spent a lot of time trying to kill projects that sound like red alerts on Fox News: a plan for military-cemetery headstone-straightening was scrapped, as was a request for a $10,000 refrigerator to house fish sperm in South Dakota. Gone too was $7 million for Interior Department aircraft to study bird migration. Transportation Secretary Ray LaHood persuaded the governor of Ohio to redirect $57 million for future road-project planning to immediate construction. Cities and states were told to stay away from swimming-pool construction and anything with the word golf in it–Frisbee golf, clock golf, minigolf. “The Frisbee people are going to be unhappy with me forever,” says DeSeve.

But the sheer complexity of the stimulus measure makes it difficult to bird-dog. Though the Recovery Act was a single piece of legislation, it included thousands of funding streams for tens of thousands of projects. About $144 billion is allocated directly into state coffers for continuing existing programs that have been heavily burdened by the recession, like Medicaid. Hundreds of billions more have been set aside for tax cuts and continuing benefits to the poor and unemployed. The most visible part of the program, and the most politically explosive, is the roughly $152 billion for infrastructure investment, for which no one had a road map. In some cases, states and localities could spend those funds pretty much any way they liked. And that’s where Biden’s bloodhounds have been sniffing around.

Some silly projects are sure to be built. In Long Beach, Calif., local and state officials bucked the orders from Washington. The city council unanimously approved a $620,000 skateboard-park renovation in a rough neighborhood, half-pipe and all. “It’s an incredible opportunity,” says local councilman Robert Garcia. “This is near and dear to my heart,” noted California Senator Barbara Boxer on the Senate floor. Biden’s staff has battled to kill the project behind the scenes, and the outcome is still unclear. Meanwhile, on other requests, Republicans quibbled with Biden’s definition of prudent. Some $3.4 million will be spent on a Florida wildlife crossing at a highway with one of the highest rates of turtle mortality in the world. “Why did the turtle cross the road?” Oklahoma Senator Tom Coburn, a leading Republican critic of the stimulus, teased in his report on the spending. “To get to the other side of a stimulus project.”

What really haunts the White House is the fear that much of the money might be spent less efficiently than it could have been. For example, studies have shown that more jobs are created when cities and states repair existing roads than when they build new ones. Highway-maintenance projects not only put more people to work more quickly than building new roads does but also keep costs down in the future. But according to one recent study by a nonprofit smart-growth advocacy group, roughly 31% of the state-certified first-round transportation funding in one $27 billion highway fund will go not to maintaining existing roads but to building new highways or adding lanes to old ones. Kentucky, where 38% of roads are in poor condition, is spending 88% of its stimulus money on new additions. Then there is the sheer scale of the challenge. In many of these same states, the biggest concern is not the type of stimulus spending but the amount of it. “Of course it’s not creating enough jobs,” Senator Sherrod Brown, an Ohio Democrat, says of the stimulus. “We’re not going to have enough [jobs] because we lost so many.”

Hanging over all these concerns is the prospect that a second stimulus bill may be needed to bail out states in late 2010 or 2011. State budgets have been drowning in red ink as jobless claims and Medicaid bills have skyrocketed; few expect those trends to ease soon. In June, White House counselor David Axelrod left open the possibility that a second stimulus may be needed. The White House is confronted with the prospect of having to ask for more money early next year–even as a group of voters is ready to dump the first stimulus right now.

That helps explain why managing the stimulus story has become a full-time White House preoccupation. On a typical day recently, Treasury Secretary Timothy Geithner appeared in the Bronx to announce $90 million in inner-city financing; Michelle Obama revealed $851 million in new health-center grants; and the President, in the Grand Foyer, hailed stimulus jobs “building wind turbines and solar panels.” Biden announced plans to fly to Pennsylvania, where he will “highlight Recovery Act broadband investments,” while other agencies rolled out press releases regarding new dump-truck engines in Montana, North Dakota school grants and diesel tractors in Utah.

Meanwhile, behind the scenes, Biden has ordered his staff to return any call or e-mail from states and localities seeking guidance within 24 hours. “It’s so important you make sure–don’t get mad at me–that there are no water parks, golf courses or anything that doesn’t pass not only the test of the law but the smell test,” Biden tells the mayors during the conference call. “Because we’ve got to do this thing really well.”

STIMULUS SPENDING IS SET TO ACCELERATE…

Over the next two years, more federal dollars will flow to “hard hat” construction projects and fewer to tax cuts

[The following text appears within a chart. Please see hardcopy or PDF for actual chart.]

• Spending • State government • Tax cuts

… WITH $152 BILLION GOING TO INFRASTRUCTURE

About 19% of the Recovery Act funds will go to shoring up the U.S.’s backbone

[This article contains a table. Please see hardcopy of magazine or PDF.]

Billions Transportation $54.4 Water 13.2 Energy grid 17.0 IT 10.5 Research 12.0 Natural 9.1 Other 36.4

Sources: Bureau of Labor Statistics; Brookings Institution; Moody’s Economy.com