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The Myth of Idle Recovery Dollars

Debunking the Republican fantasy that there is a large amount of unspent Recovery Act money to be killed, and explaining what would happen if it were.

John Boehner wants a lot of people to lose their jobs.

We were awfully surprised to hear Rep. Boehner come out for killing jobs en masse in his own state and district by stopping the Recovery Act on last Sunday’s news shows. 

Though we’re sure he didn’t know it, the Congressman is advocating to kill the expansion of the Butler County Community Health Center and bring some of the twenty-five highway projects across the district to a grinding halt.  Across the state of Ohio, he said that approximately 4 million working families should get an unexpected cut in their paycheck as the Making Work Pay tax credit disappears, unemployed workers should go without unemployment benefits, and major Ohio road projects like the US-33 Nelsonville Bypass project and the Cleveland Innerbelt Modernization project should be stalled or stopped.  Oh, and some of the more than 100 clean energy Recovery projects employing workers across the state should be shut down.

That would be the direct consequence of his suggestion that we shut down the Recovery Act: “There's still about $400 billion or $500 billion of the stimulus plan that has not been spent. Why don't we stop it?”  Now if you have been following this blog, you know that the notion there is “$400 billion or $500 billion” in Recovery Act funding unspent couldn’t be further from the truth.  In fact, we’re right on track to hit the goal set when the Recovery Act passed: that 70% of the $787 billion in funds would be “outlaid” or provided in tax benefits by September 30, 2010. But you don’t have to take our word for it – independent fact-checker recently rated Rep. Boehner’s claim flat-out false.  As they noted:

[R]ight off the bat, Boehner's $400 billion to $500 billion figure is much too high.

But then they go on to say:

[W]e think it's misleading to refer to even that lower number as "unspent" stimulus, because much of the $292 billion has been obligated, even though it has not been paid out.

But here is where things get interesting.  We discussed a couple of weeks ago that Recovery Act dollars are put to work creating jobs and jump-starting projects long before they cross this final step of being “outlaid.”  First of all, two-thirds of the Recovery Act is tax cuts and relief payments which were largely designed to spend out gradually over time, generally over a two year period.  So that “unspent” money is things like the tax cuts owed to working families in their paychecks and the upcoming unemployment checks owed to those hit by a job loss. 

The other one-third of the Recovery Act is projects where the money largely isn’t paid out until work is underway or nearing completion.  If you were renovating your house, you wouldn’t pay for the whole thing up front – you would make progress payments as the key targets are being met and work is being completed.  And you would expect the government to do the same thing with your taxpayer dollars, right?  But an awful lot happens with the commitment of those dollars before anyone gets paid.  If the bank pre-approved you for a loan for your renovation, you would certainly start drafting up plans, lining up contractors and securing permits.  And then once the bank deposited that money in your account – just like when the government contracts with a Recovery Act awardee to give them a grant or loan – you would start hiring a contractor who would hire workers, buy materials and start the project.  Well, the same is true of Recovery Act projects – that “unspent” Recovery Act project money has already started tens of thousands of projects nationwide.

Big picture that means that 94 percent of the Recovery Act is either in tax cuts, payments, or projects under contract.  Of the remaining 6 percent, half has been awarded and contracts are being finalized - and half is in the final stages of the award process.  So when critics like Rep. Boehner talk about stopping the spending, they’re essentially talking about taking away middle class tax cuts, leaving unemployed workers unexpectedly high and dry without an unemployment check, halting road and bridge projects and leaving them unfinished, leaving contractors unpaid for the work they’ve already done and more.

So when it comes right down to, is Rep. Boehner really ready to tell Ohioans they’d be better off if we stopped the Recovery Act?

Jared Bernstein is Chief Economic Advisor to the Vice President