When President Obama signed the $787 billion stimulus bill last February, the administration projected that the bill would create or save 3.5 million jobs by the end of next year, in part by quickly implementing “shovel-ready” infrastructure and energy projects. Unfortunately, the job market has thus far deteriorated further than economists had projected and proponents of the stimulus bill are now scrambling for explanations. But new data on the stimulus bill makes clear that many supposedly shovel-ready projects are still tied up in administrative red tape.

The administration recently announced that stimulus spending totaled $113 billion by the end of fiscal 2009 (which ended September 30). While this top-line number was consistent with what the Congressional Budget Office (CBO) projected when the bill passed, the composition of spending differs significantly from the original estimates. Transfer payments to states and individuals for unemployment insurance and education have far exceeded initial projections, while spending for construction and infrastructure projects, designed to fuel job creation, is far below the original plan. A closer look at the implementation of the stimulus bill reveals why it is not surprising that the bill has failed to meet its objective of stimulating the economy.

The Departments of Commerce, Defense, Energy, Homeland Security, Interior, and Transportation have spent less than 10 percent of their stimulus funds, far less than what was originally anticipated.

Federal departments and agencies tasked with spending money on infrastructure and construction have overwhelmingly failed to get the money out the door. The Departments of Commerce, Defense, Energy, Homeland Security, Interior, and Transportation have spent less than 10 percent of their stimulus funds, far less than what was originally anticipated. In the case of the Department of Energy, the stimulus bill provided $38.7 billion to promote energy efficiency and develop renewable energy sources, yet only $779 million, or 2 percent, of the money was spent by September 30, less than half of what was expected. The Department of Transportation, with its particular emphasis on shovel-ready projects, spent 8 percent of its stimulus funds—only three-fourths of what it was expected to have spent thus far. Other agencies have done far worse—National Institutes for Health and the National Science Foundation spent only 1 percent of their stimulus funds in the first seven months. At that rate, those agencies would take 58 years to exhaust their stimulus money.

Why is the money for these projects being spent so slowly? Spending on infrastructure and construction takes time because states must identify appropriate projects and then ensure that those projects meet all laws and requirements, including any required environmental impact studies prior to obligating funds. Once the money is committed, the state generally must select a contractor through a competitive bidding process before work can commence. This process can take years. The CBO, for example, originally estimated that some of the money provided for infrastructure in the American Recovery and Reinvestment Act would not be spent until 2019.  

The CBO originally estimated that some of the money provided in American Recovery and Reinvestment Act for infrastructure would not be spent until 2019.  

Meanwhile, spending for transfer programs, especially for unemployment insurance benefits, and new and existing federal education spending, is proceeding much faster than anticipated. States received $6.5 billion more than CBO estimated for education through the Department of Education’s new State Fiscal Stabilization Fund. Spending for student financial assistance at the Department of Education also outstripped CBO’s original estimate by about the same amount. Altogether, the Department of Education spent $20.6 billion by the end of fiscal 2009, $11.7 billion more than anticipated. The Department of Labor spent $27.5 billion, an amount that exceeded CBO’s original estimate by nearly $10 billion, because total unemployment benefits were substantially more than expected. The Department of Health and Human Services was the biggest spender by department, with nearly $33 billion in outlays, nearly all of it federal payments to the states to operate Medicaid, about the same amount as originally forecast.

With a promise to restart the economy by providing needed demand in a faltering economy, Congress delivered the stimulus bill to the president’s desk less than a month after his inauguration, a legislatively impressive feat. Unfortunately, as the hard evidence about the bill starts to accumulate, it is clear that the legislation has done little thus far to help get workers back to work. Looking forward with a goal of creating jobs, lawmakers need to reexamine the stimulus bill and ask if there is any reason to hope that it will perform better in the year ahead. With the federal deficit exploding, Congress needs to either find a way for the stimulus bill to create real economic results quickly and efficiently or maybe just pull the plug.

Alex Brill is a research fellow at the American Enterprise Institute and was formerly chief economist and senior advisor to the House Ways and Means Committee. Rachel Forward has worked for the Congressional Budget Office, Senate Budget Committee, and the House Ways and Means Committee.

FURTHER READING: Brill also wrote "A Fat Tax That's Hard to Swallow" on how your beverage might soon contain the cost of universal healthcare.

Image by Darren Wamboldt/Bergman Group.