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U.S. NEWS
FEBRUARY 17, 2010.Bulk of Stimulus Spending Yet to Come
Most Cash So Far Has Gone to Services, Government Jobs; Infrastructure Surge Unlikely to Put Big Dent in Unemployment
http://online.wsj.com/article/SB20001424052748704804204575069772167897834.html#mod=todays_us_page_one

By LOUISE RADNOFSKY
WASHINGTON—The Obama administration's economic-stimulus program has delivered about a third of its total $787 billion budget during its first year, much of that to maintain social services and government jobs and to provide tax cuts for workers. Now, the pace and direction of stimulus spending are about to change.

Infrastructure spending is set to step up in the second year of the stimulus program, which should mean more money flowing to private-sector employers. Still, economists say that won't likely have a big effect on the unemployment rate, which most say is likely to continue a slow decline as the broader economy recovers.

The shift could be significant politically, though, because Republicans have criticized the relative lack of private business hiring directly attributed to the stimulus.

The approach this week of the stimulus program's one-year anniversary sparked a fresh round of dueling partisan statements, as Democrats sought to credit the effort with averting a deeper recession and Republicans said the program deserved a failing grade. But in terms of spending, the stimulus is largely incomplete.

Most of the money allocated to specific projects hasn't been paid out yet, and there are still an additional $195 billion in tax cuts on the way.

Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year. But the bulk of the money proposed for projects like new rail lines and water projects—about $180 billion in all—is likely to be spent this year at the earliest. During year one of the stimulus, only about $20 billion of money was handed out for infrastructure projects.

"I think we'll see a lot more stimulus money get into actual contracts and actual hiring in 2010 than we did in 2009," said Kenneth Simonson, chief economist of the Associated General Contractors of America.

The ramped-up stimulus spending in 2010 will contribute 1.4 percentage points to gross domestic product growth this year, said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

But Mr. Bethune says that may not translate into significant improvement in the unemployment rate, a growing political threat for the administration and congressional Democrats.

Infrastructure spending "doesn't really have a big impact on net employment, simply because a lot of the activity is mechanized," he said. "We should be careful of how many jobs we expect to be created from that."

The "shovel ready" projects administration officials pointed to as a source of new jobs have taken months to get organized. Agencies have been holding competitions to decide which projects should get stimulus grants, vetting applications for grants for initiatives such as high-speed rail construction or electric-vehicle projects. In some cases, federal agencies have had to set up entirely new programs.

Many signature projects—including $20 billion for doctors to create electronic medical records, $4.5 billion for an energy Smart Grid and $7.2 billion for broadband networks—are still in their very early stages.

Vice President Joe Biden will announce his own projections of the stimulus plan's progress in a meeting with the president Wednesday. A senior administration official said ahead of the release of Mr. Biden's report that the increase in the pace of infrastructure projects was expected to cause stimulus spending to "shift more towards private sector job growth."

Spending by state and local governments has about the same effect as spending in the private sector, and not cutting a job has a similar macroeconomic impact to creating a new one, said Edward McKelvey, a senior economist at Goldman Sachs. "Most economists, if they're being economists rather than trying to make some sort of normative point about which way they'd like to see the money spent, would tend to recognize" that, he said.

The number of jobs linked to stimulus spending has been the subject of partisan dispute for much of the past year.

Recipients of stimulus money say they are currently funding the jobs of about 595,000 people. But the White House has also said that as many as two million jobs have been supported directly or indirectly by stimulus money.

Republicans have questioned those numbers and pointed to the rise in the unemployment rate since Mr. Obama took office to bolster their case that the stimulus has failed to deliver on the administration's promises.

Government data indicate that most of the jobs supported by stimulus spending belonged to public employees at the state and local level, including about 325,000 teachers and school staff.

Subsidizing those jobs avoided layoffs, or state and local tax increases that could have further undermined the economy. But they didn't result in substantial hiring of people who had lost private-sector jobs.

State officials already are warning that job cuts could be in the offing in 2011 once the stimulus money runs out.

Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis.

An additional $700 million was spent on administration, and about $47 billion has left Washington in transfer payments, such as $250 checks for Social Security recipients. Social spending totaling $70 billion is also in the pipeline already.