The Stimulus Turns Two: How Obama Quietly Changed Washington

President Obama is often mocked for failing to change Washington, and clearly, his lofty campaign vision of post-partisan cooperation hasn't come true. But behind the scenes of the Beltway perpetual-conflict machine, Obama has made quiet progress toward reforming Washington — not politically, but bureaucratically. The most important reform, launched two years ago on Thursday, was tucked inside his unpopular stimulus package, and inside his new budget, he's trying to expand it.

The reform is a simple concept that certainly ought to be post-partisan: harnessing the power of competition in the spending of taxpayer dollars. Most federal programs spread cash around the country like peanut butter through rote check-the-boxes, everybody-wins formulas. Obama has tried to divert funds into competition-based, peer-reviewed, results-oriented grant programs that reward only the worthiest applications. The best known is the Race to the Top education program, but the stimulus hatched similar competitions in energy, transportation, housing, health care and broadband. And Obama's 2012 budget proposes new races to the top in everything from juvenile justice to workforce development to agricultural research.

At a Cabinet meeting on Thursday to commemorate the second anniversary of the stimulus, Vice President Joe Biden will release a lessons-learned report that includes a section titled "Competition Brings Results." (His aides gave me an exclusive copy of the report, titled "A New Way of Doing Business: How the Recovery Act Is Leading the Way to 21st Century Government," because I was already writing about the topic. And perhaps because I'm the only journalist in America who keeps writing nice things about the stimulus.) At the meeting, Education Secretary Arne Duncan, Energy Secretary Steven Chu and Transportation Secretary Ray LaHood are all expected to talk about the power of competition to promote good government, encourage innovation and get better returns on taxpayer investments. Biden is sure to gush about the stimulus' successes and the various ways the budget aims to build on them.

But their self-congratulation probably won't get much attention, because bureaucratic progress is a lot less dramatic than political warfare. And it's quite possible that the progress will end with the stimulus; in not-yet-post-partisan Washington, the only thing House Republicans consider more dead on arrival than an Obama budget initiative is an Obama budget initiative inspired by the stimulus.

Still, the $4.35 billion Race to the Top program does have some bipartisan support — Jeb Bush, George Will and Arnold Schwarzenegger love it — and it does show how competition can create laboratories for change. By setting clear goals and guidelines — the cash was reserved for states that carefully measured student and teacher performance, promoted charter schools and adopted other accountability-oriented reforms — the program encouraged 41 states to change laws or policies before the feds even spent a nickel. The application process also put a premium on cooperation among school leaders, teachers' unions, parent groups and elected officials. So the impact of a program that amounts to less than 1% of the education budget will extend well beyond the 12 states that won grants. The stimulus also financed a separate $650 million competition to identify innovative evidence-based school programs; it received more than 1,000 applications for 49 grants, a vivid illustration of pent-up demand for something different.

Now Obama wants to pour another $1.4 billion into education competitions, including an Early Learning Challenge Fund to encourage reforms in early-childhood education, a First in the World program to improve outcomes in higher education and an additional Race to the Top targeting school districts instead of states. "By introducing competition, you get a much better bang for your buck," says Jared Bernstein, Biden's top economic adviser. "You can't do it with every federal program, but it's one way to reinvent government for the 21st century."

There were grant competitions scattered all over the stimulus, and almost all of them were dramatically oversubscribed. A $2 billion program seeking innovative approaches to stabilizing foreclosure-ravaged neighborhoods received $15 billion worth of applications. Obama's $8 billion high-speed rail initiative received $55 billion worth of applications. The Department of Energy received an astonishing 3,700 responses to its solicitation for radical blue-sky ideas that would transform the clean-energy landscape if they worked; only 37 received first-round funding. But the department's seal of approval apparently meant something to private funders; a half-dozen of those projects have already attracted additional venture capital.

Meanwhile, with $35 billion in stimulus cash to distribute through a slew of competitive programs — for everything from energy-efficiency programs to battery factories to advanced biorefineries — the Energy Department itself became the world's largest venture fund. To help evaluate the applications, Chu recruited more than 3,000 independent experts, who devoted about 50 person-years to the task. That kind of scrutiny isn't required for formula programs that distribute cash to all qualified applicants, much less earmarks that simply dump the money into congressional pet projects.

Obama's budget includes $100 million for a Race to Green competition for innovative state and local building codes, and $200 million for a similar race for communities that invest in electric vehicles and charging stations. There's $380 million for a Workforce Innovation Fund to reward successful approaches to job training, and $120 million for "a new performance-based, Race to the Top–style Juvenile Justice System Incentive Grant Program." And there's $32 billion for competitive transportation grants designed to promote safety, livability and innovative approaches to reducing congestion, along with a $30 billion national infrastructure bank that would provide merit-based loans and grants.

It's hard to overstate how radical this approach is, especially in the world of transportation. Aside from earmarks, almost all transportation funding is formula-based, where every state is entitled to a slice, and any project is acceptable as long as it fits into a neat silo (highway, airport, etc.) and provides all the necessary paperwork (traffic studies, minority hiring plans, etc.). It's nobody's job to ask whether the project actually makes any sense or serves any national purpose. But the stimulus included $1.5 billion in competitive grants for major projects that wouldn't necessarily fit into a neat stovepipe but would provide significant economic and environmental benefits, from public-private partnerships to expand freight-rail capacity in seven states to new streetcars in Tucson, Ariz., Dallas and New Orleans to a green-themed revitalization of a tough Kansas City neighborhood.

The Department of Transportation was inundated with nearly 1,400 applications for its first 51 grants. And DOT officials say the program galvanized their bureaucracy; it turns out that civil servants work a lot harder when they're assigned to help evaluate whether projects would be good for America rather than whether projects have submitted all their paperwork. "Republicans ought to love this stuff," said one senior Administration official who requested anonymity. "It's evidence-based, it's merit-based, it's results-based. It's not government telling you what to do; it's setting the goals and letting the applicants figure out how to get there."

There could be legitimate nonpartisan concerns about the Race-to-the-Top-ification of federal spending. Rigid formulas provide certainty and a measure of equality; competition introduces subjectivity and opportunities for political shenanigans. Rigid formulas are determined by Congress; competition introduces flexibility and additional power for the Executive Branch. And some programs don't lend themselves to competition; formulas work just fine for Social Security benefits and food stamps.

But legitimate nonpartisan concerns won't drive the debate over Obama's budget, especially where stimulus-related initiatives are concerned. At his Cabinet meeting on Thursday, Biden will present the good news of the Recovery Act, which helped avoid a depression; reduced the unemployment rate by 2%; cut taxes for 95% of Americans; bailed out the states to prevent mass layoffs; funded more than 75,000 projects to upgrade roads, parks, sewers and just about everything else; and made unprecedented investments in renewable energy, health-information technology, broadband, the smart grid and much, much more — with no earmarks and virtually no fraud. But to Washington Republicans, it's the "failed stimulus." That was their story in 2009, when they opposed it en masse, and after their sweeping victories in November, it's hard to see why they would want to change it. Anyway, most Americans believe it.

Obama wasn't the first presidential candidate to promise a new era of bipartisanship; his polarizing predecessor, after all, was supposed to be a uniter, not a divider. But it's a silly promise to make, because your opponents can break it for you by refusing to cooperate. Washington is remarkably resistant to this kind of cultural change. On the other hand, bureaucratic change ought to be genuinely achievable, if only because the 24-hour cable yappers don't really care about bureaucracy and because the sillier aspects of government are obvious across party lines. Obama's stimulus did begin to usher in a new era of rationality through competition, in which you had to do more than just check the right boxes and extend your hand to qualify for a federal check.

But the most important competition took place in November, and Obama's team lost. It's possible to change Washington, but Washington can change back too.