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"Why, 17 Months After Passage of the Recovery Act, Aren’t all the Funds Out the Door?"

Ed DeSeve, Coordinator of Recovery Implementation, debunks criticism about Recovery Act funds not being spent quickly enough.

Nearly a year and a half after the Recovery Act’s enactment, virtually all of the funds have been allocated: how they will be spent has been identified, and they are at work providing relief, creating jobs, or funding projects underway or coming soon. So why do some critics still talk about billions in “unspent” Recovery Act funds? The answer lies in how the Recovery Act works.

Two-thirds of Recovery Act funds are in tax cuts and relief payments. These funds were designed to be spent over time, generally over a two year period. Recovery Act tax cuts show up in each paycheck, people on extended unemployment get their benefits weekly, and so on. In reports and on, the tax cuts and relief funds not yet paid out appear to be “unspent,” creating some confusion. But these tax cuts and relief checks are moving out as planned, on time, and on track. They aren’t “unspent” – people are expecting to get their tax cuts or their unemployment checks – they just haven’t been paid out yet.

The other one-third is the $265 billion for projects. When people talk about “unspent” Recovery Act funds, this is usually where they focus. But here too, the critics are missing the point. 

  • About $215 billion is under contract and agreement (“under contract”). For over 80% of the project funds, our Recovery Act team in Washington has done everything we need to do in order to allow work to begin – projects are approved, plans are final, contracts are signed. In this category, the vast majority of these projects are underway (some are even finished already). For example, all $27 billion in highway funds have been obligated and already, almost 40,000 miles of roadways are being improved. 
  • Another approximately $25 billion has been awarded, but isn’t under contract yet: In this category, covering about 10% of project funds, the recipients already know they are getting funding -- often after winning in a competitive application process -- but final legal contracts aren’t yet done.  This is often the case for parts of the Recovery Act designed to fuel long-term economic growth. High Speed Rail is an example: all $8 billion of these funds are awarded, meaning that states are working with freight railways and others, but until these plans are finalized, contracts aren’t signed. 
  • The final $25 billion is in the process of being awarded. One of the great things about the Recovery Act is that it is free from earmarks and many of its programs are competitive – meaning we pick the best projects to get funded. Picking good projects takes time, but even this is nearly complete. Take broadband as an example: approximately half of these funds have been already awarded, and the remainder will be within the next 60 days from applications that have already been received. Selections are still ongoing for our “Race to the Top” education reform funding, and for research grants at the National Institutes of Health. These funds are “unspent,” but all around America the businesses, researchers, and schools that have applied for this job-creating support are certainly expecting it to be there.

To summarize, of the $787 billion in the Recovery Act, about 94% is either in tax cuts, payments, or projects under contract. Of the remaining 6%, half has been awarded and contracts are being finalized -- and half is in the final stages of the award process. If you want to learn more about this breakdown and the specific programs it includes, check out this document (pdf) which provides more details.

What about reports that say that the amount “outlayed” is much smaller? “Outlays” measure when the government actually writes checks to recipients, and they do indeed move along more slowly. That, however, is as it should be: taxpayers should be pleased to know that we don’t write the checks on projects until the work is actually done (or until agreed upon progress goals are met).   That is why the pace of outlays is not the best measure of whether the Recovery Act is working: what taxpayers want to know is whether projects are moving forward, workers are being hired, and work is getting done. Projects under contract (“obligations”) measure that; “outlays” come later. That’s a good thing. And even by this measure, we are on track to hit the goal set when the Recovery Act passed: that 70% of the $787 billion in funds would be “outlayed” or provided in tax benefits by September 30, 2010.

The bottom line: the Recovery Act is on track to meet its goal of saving or creating 3.5 million jobs by the end of 2010 (a recent report said that it was in the range of 3 million jobs as of June 30th) – with funds moving out promptly, but carefully.

Ed DeSeve is Special Advisor to the President for Recovery Implementation