$787 Billion Economic Recovery Package Clears Congress; Focuses On Long- Term Competitiveness, in Addition to Job Creation

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1 February 16, 2009 / Volume 9 / Issue 4 February 16 EDNow EDNow FAQs <td colspan="5" he Download this issue (PDF) $787 Billion Economic Recovery Package Clears Congress; Focuses On Long- Term Competitiveness, in Addition to Job Creation Congress passed the American Recovery and Reinvestment Act of 2009 the stimulus bill last Friday evening. President Obama is expected to sign the legislation into law at a ceremony in Denver on Tuesday. The bill will cost $787 billion over 10 years, according to Congressional Budget Office estimates, and is expected to create or save 3.5 million jobs over the next two years. The Act provides $311 million in spending appropriation and $476 million in tax provisions. Rather than concentrating exclusively on a short-term jolt to the economy, the recovery package also provides for longterm investments, as well as mitigating the negative impacts of the economic downtown. The lion s share of the funds will be delivered through existing programs; only a few new vehicles were created in the bill. Many programs will rely on existing formulas for distribution. The bill moved at light speed compared to the typical legislative process, as it passed Congress barely a month after the President delivered his speech on the stimulus package in early January. The investment priorities for the stimulus package are largely met in terms of infrastructure modernization; promoting clean, efficient energy; helping Americans hurt by the economy; supporting education and training; and transforming the economy through science and technology. Modernizing Infrastructure Infrastructure investment was a key focus of the recovery package, receiving approximately $114 billion across programs, or about one-third of available appropriations. The Department of Transportation will receive the largest departmental influx of funding from the bill nearly $50 billion meaning that it will be a major source of economic development projects. Within the DOT, the Federal Highway Administration received $27.5 billion for highway infrastructure investment. Funds will be distributed by existing formulas, with a portion of the funds within each state to be sub-allocated by population. Priority will be given to projects that can be completed within three years and are in economically distressed areas. In addition to highway infrastructure, the recovery package also invests $8.4 billion in public transit, promoting more sustainable development. Intercity rail received $10.5 billion, showing federal support for rail as a mode of transportation for the 21st century. Infrastructure investments also are allocated to: (1 of 7) [2/16/2009 2:38:28 PM]

2 1) Broadband development, which will receive a total of $7.2 billion, including $4.7 billion to the Broadband Technologies Opportunities Program, housed within the National Telecommunications and Information Administration in the Department of Commerce, to help underserved areas enhance their competitiveness and position these area for long-term growth 2) Electric grid modernization to boost the nation s power infrastructure, which will receive a $4.5 billion allocation through the Department of Energy 3) Housing development, including $2.25 billion through HOME and the low-income housing tax credit at the Department of Housing and Urban Development to restart stalled housing projects; $2 billion to redevelop abandoned and foreclosed properties; and $2.25 billion for energy retrofit investments, including $250 million to upgrade HUD-sponsored low-income housing to improve energy efficiency 4) Environmental clean-up, including $6 billion to clean-up former weapon productions and energy research sites, and $1.2 billion for the Environmental Protection Agency s clean-up programs, including Superfund Clean, Efficient Energy Energy was another big winner in the stimulus package, especially renewable energy and energy efficiency. The Department of Energy received over $30 billion, with $16.8 billion for the Energy Efficiency and Renewable Energy (EERE) Program, signaling the federal government s commitment to renewable energy investment. This includes the Energy Efficiency and Conservation Block Grant (EECBG), which received $3.2 billion; the Weatherization Assistance Program, which received $5 billion; and $2.5 billion for applied research, including biomass and geothermal projects. The new Innovative Technology Loan Guarantee Program received $6 billion. This program, which was designed to provide loans for projects focused on renewable energy, energy efficiency and pollution reduction, was legally enacted in 2005 but had problems getting off the ground due to lack of funding. The $6 billion allocated is expected to support $60 billion in loans. The recovery package also includes tax provisions designed to stimulate private spending and investment. Clean Renewable Energy Bonds (CREBs) received a $1.6 billion limit increase, and the related Qualified Energy Conservation Bonds received a $3.2 billion limit increase. CREBs are designed to finance certain renewable energy and clean coal facilities. Qualified Energy Conservation Bonds are to be used by state and local governments for energy improvement in public buildings and green community projects such as energy efficiency improvements in residential buildings. The legislative package did not shun traditional sources of energy: $3.4 billion was allocated for fossil energy research and development, including $800 million for clean coal. Science and Technology In terms of maintaining the long-term competitiveness of the U.S. economy, the recovery package allocated approximately $6 billion to research and science, which are core components of innovation. These dollars were allocated to NASA ($1 billion), National Science Foundation ($3 billion), DOE ($2 billion) and the national Oceanic and Atmospheric Association at the Department of Commerce ($830 million). (2 of 7) [2/16/2009 2:38:28 PM]

3 Helping Americans Hurt by the Economy The Make Work Pay tax credit provides a $400 refundable tax credit for individuals earning under $75,000, and an $800 refundable tax credit for joint filers earning under $150,000. The goal behind the tax credit is to encourage consumer spending to spur economic activity. The package also provides $21 billion for COBRA (to help laid-off workers retain their health insurance) and $400 million for unemployment insurance. The emergency unemployment compensation program (EUC08), which provides an additional 13 weeks of federally funded unemployment insurance to what states provide, was originally set to expire on March 31 of this year but is extended to December 31 in this legislation. The package also extends the maximum amount of time an unemployed worker can receive Trade Readjustment Assistance (TRA), which provides training and income assistance following the exhaustion of unemployment insurance. Training and Education The recovery package provides the Employment and Training Administration (ETA) with $3.95 billion for Workforce Investment Act Programs, including $2.95 billion in grants to states for training and employment services. The Department of Labor also received $1.25 billion for dislocated worker services and $750 million for competitive grants for worker training and placement in high-growth and emerging industry sectors. Within this amount, $500 million is allocated for jobs in renewable energy and energy efficiency. DOL received a total of $7.65 billion. That figure also includes $1.25 billion for youth employment programs and $250 million for the Office of Job Corps. The package provides $15.64 billion for Pell Grants, which aid students attending post-secondary school. In addition, a total of $53.6 billion is allocated for the State Fiscal Stabilization Fund for education to help states facing budget shortfalls. Economic Development Despite the size of the bill, economic developers will not find a wealth of economic development funds being distributed through the traditional economic development vehicles. For example, the package included $150 million for the Economic Development Administration, $1 billion for the Community Development Block Grant Program, $636 million for SBA loans, $150 million for the Rural Business Cooperative Services, $5 billion for the New Market Tax Credits in both 2008 and 2009, and $100 million for EPA s Brownfields Program. Therefore, economic recovery ultimately will be a function of tapping into the wider pool of resources and leveraging those, rather than looking exclusively to traditional economic development vehicles. For a more complete list of funding allocations to economic development programs, see the table below. In addition to funding, the bill also includes some regulatory changes for SBA loans and Industrial Development Bonds. The SBA Administrator is instructed to eliminate or reduce fees for the 7(a) loan program as much as possible through September 30, The bill also instructs the SBA to eliminate fees for the 504 loan program for the same time period, and provide reimbursements for development companies in lieu of fee collection. Furthermore, the legislation contains a provision allowing the SBA to guarantee up to 90 percent for 7(a) loans issued within one year of enactment. Other provisions include the authorization of an SBA Secondary Market Guarantee Authority to guarantee pools of first (3 of 7) [2/16/2009 2:38:28 PM]

4 lien 504 loans that are sold to third-party investors, as well as allowing the SBA to refinance community development loans. The SBA is given the authority to provide small businesses facing economic hardship with loans up to $35,000. The legislation also establishes a secondary market lending authority within the SBA and increases the surety bond maximum amount. The regulatory changes may make it easier for small business to gain access to capital and keep their operations functioning through the recession. Industrial development bonds are expanded in the recovery package to include the manufacturing of intangible as well as tangible property. This includes, for example, computer software and intellectual property associated bio-tech and pharmaceuticals. Ideally, the broadening of eligible projects will enable the IDBs to be more potent economic development instruments. Economic development did receive new financing tools Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds. A Recovery Zone is defined as an area having significant poverty, unemployment, home foreclosures or general distress, and includes empowerment zones and renewal communities. Areas that are economically distressed due to the Base Realignment and Closure (BRAC) process also are eligible. The limit on the Recovery Zone Economic Bonds is $10 billion, and the bond can be used for capital expenditures, public infrastructure or public facility construction, or for training and education programs. The limit on Recovery Zone Facility Bonds is $15 billion. The Recovery Zone bonds will be allocated among the states according to the decline in employment during The federal government has established a website, Recovery.gov, which is designed to allow for transparency and accountability in the stimulus package. Every grant and funding opportunity made available through the recovery package must be posted to the Recovery.gov website. In addition, a Recovery Act Accountability and Transparency Board within the Treasury Department will provide oversight for spending and implementation of the recovery package. As the President admits, the stimulus package is not perfect. All of the funds allocated in the economic recovery package are considered as an emergency supplemental, and do not impact the regular appropriations process. Programs or departments that were left out of the recovery package still have the opportunity to receive funding in fiscal 2009 appropriations, which Congress intends to address in an omnibus bill later this month. (4 of 7) [2/16/2009 2:38:28 PM]

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