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News and Features: Features

The stimulus

Where did it go? What did we get?

BY: Jack Sullivan
Photographs By: J. Cappuccio
Issue: Spring 2012


 

State officials gave a green light to the $29.6m North Bank pedestrian bridge because it was shovel ready. The bridge, which
looks like a roller-coaster, runs underneath the Zakim Bridge and over a commuter rail line.

state officials promised to build a pedestrian bridge linking Charlestown and East Cam­bridge as part of environmental mitigation for the Big Dig, but what came back from the architect was more than a bridge. It was an architectural marvel, a series of steel rails that undulate along the sides of a 700-foot walkway, gently curving up and down and giving the impression of a roller coaster.

The bridge design and some ground and electrical work on the surrounding greenspace also came with a $29.6 million price tag, the equivalent of roughly $43,000 a foot. That was nearly a third of what it cost to build the much larger Leonard P. Zakim Bunker Hill Memorial Bridge, the world’s largest cable-stayed bridge and the Big Dig’s crown jewel. The Zakim not only looks distinctive but also carries 10 lanes of traffic.

Matt Amorello, who was chairman of Massa­chusetts Turnpike Authority from 2002 to 2006, which put him in charge of all Big Dig mitigation projects, vetoed the so-called North Bank pedestrian bridge in 2005. “It was way out of whack,” he says. “It was untenable at that price.”

But four years later, when the housing bubble burst and the national economy tanked in the worst recession in 80 years, the federal government rolled out an $840 billion economic stimulus package known as the American Recovery and Re­invest­ment Act (ARRA). The stimulus included at least $16.6 billion for Massa­chusetts over two years. As Patrick ad­min­istration and federal officials sifted through proposals for what to do with the money, the North Bank bridge surfaced once again.

The North Bank’s high cost remained a concern, but environmental officials, led by Energy and Environmental Affairs Secretary Ian Bowles, argued that building the bridge would fulfill a longstanding promise. It was also “shovel ready,” the two magic words that moved projects to the front of the stimulus queue.

Now, as the bridge is nearing completion, it’s as good a place as any to begin asking what we got with all that stimulus money. The bridge yielded 36 construction jobs and a very attractive pedestrian walkway that is un­likely to spur additional development or even see much use because it’s tucked out of the way under the Zakim bridge connecting two under­utilized parks. It fulfills a promise, but little more.

The overall impact of the stimulus in Massa­chusetts is harder to gauge. Slightly over half of the money was used to plug budget holes at the state and local level and sustain people going through tough times. The rest went for so-called brick-and-mortar projects, things like wastewater treatment facilities, wind turbines, parking garages, roads, and university research. The spending created jobs, but the re­porting is such that it’s difficult to say how many—certainly not enough to make a major dent in the unemployment rate.

Part of the problem was the design of the stimulus. It was envisioned as a shot of adrenaline directly into the heart of a national economy on life support. Rather than creating a new layer of bureaucracy, Congress purposely allocated the money to go through existing government programs to get it out the door faster. The driving mandate was to spend the money and to spend it fast.

Yet that approach meant only projects that were “shovel ready” were approved. There was no time for long-range planning or to assemble a package of truly transformative investments. There are many stimulus projects that will yield big payoffs in the form of private development, reduced energy consumption, and important research discoveries. But there are others, like the North Bank Bridge, that were sitting on a shelf gathering dust and happened to be in the right place at the right time when the stimulus money came along.

John Ballantine, an economics professor at Brandeis International Business School, says he believes the stimulus kept the bottom from falling out of the economy but “that argument is not a very strong argument when unemployment is 10 percent.” At the local level, he says, some of the stimulus investments were insufficient.

“The infrastructure needs in this state are very significant. I’ve seen the impact [of stimulus spending] but I drive all over the state and I do notice, gee, there are lots of roads and bridges in complete disrepair that could have been fixed,” he says.

Jeffrey Simon, a former real estate developer tapped by Gov. Deval Patrick to serve as the state’s stimulus overseer, says the federal money is still working its way through the local economy more than two years after it started flowing. It’s done some good, but he concedes the pressure to move quickly had an impact.

“Could we have done it differently? Should we have done it differently? The focus was in getting the funds out quickly,” Simon says. “We had to deal with the hand that was dealt to us. The vast majority [of projects] didn’t qualify because they weren’t ready to go and we had deadlines for awarding and completing. They’d come to us with a design and say,  ‘All we need is the permitting,’ and I’d say, ‘Well, that’s not shovel ready.’”

Where did the money go?

Before President Obama took office in 2009, Congress began working on a stimulus package. The idea reflected standard Keynesian economic theory: During a recession, private spending tends to dry up and government must step in with public spending to save jobs and revive the economy. Congress, at that point controlled by Demo­crats, hammered out a bill that placed an emphasis on tax incentives, state and local fiscal relief, and federal investments in transportation, infrastructure, energy efficiency, and scientific research. The stimulus bill passed the House 246-183 and the Senate by a margin of 60-38. No Republi­cans supported the measure in the House and only three backed it in the Senate. Obama signed the bill into law on February 17, 2009, less than a month after he took office.

At $787 billion, later revised upward to $840 billion, the stimulus is the largest since Franklin Roosevelt’s New Deal. Politicians and economists argued for and against the measure, but there was a consensus that the government needed to do something. The question was what.

Republicans and some economists wanted more tax breaks and less public works spending. US Rep. Eric Cantor of Virginia, the second-ranking House Republi­can, called the House stimulus bill “a spending bill beyond anyone’s imagination.” Yet many Democrats thought the package was too small and contained too many tax breaks. Paul Krugman, an economist and New York Times columnist, wrote after the bill’s passage that Obama didn’t ask for enough stimulus.

“We’re probably facing the worst slump since the Great Depression,” he wrote. “The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm.”

The act offered three major streams of money to Massachusetts residents: tax breaks ($4.1 billion), safety net and entitlement funds ($4.6 billion), and project money ($7.9 billion) doled out in the form of contracts, loans, and grants. Some of the money was distributed directly by the federal government and some was funneled through the state.

Nearly all workers received a tax break, called the Making Work Pay credit, which reduced federal tax payments by $400 for individuals and $800 for couples. In Massachusetts, the credit allowed workers to hang on to an extra $1.2 billion. There were also tax credits for students in college and payroll tax reductions.

One of the more high-profile programs was the first-time homebuyers tax credit of $8,000 to try to get the stagnant housing market moving once again. In Massa­chu­setts, about 29,000 people claimed the credit for a total of $232 million. Some of them borrowed from a state-bankrolled line of credit at the front end of the purchase to help with closing costs.

The $4.6 billion in safety net programs Massa­chu­­setts received was intended to help people through one of the toughest economic periods in the country’s history. The money flowed primarily through existing pipelines, including unemployment insurance, Social Security, Medicaid, and housing assistance. Medicaid, the health insurance program for the poor, received $3.4 billion. The $7.9 billion in contracts, loans, and grants—what many call “recovery funding”—is what most people think of when they think of the stimulus. Some 12,000 projects and programs were funded in Massachusetts.

Nationally, 40 percent of the contract funds went to education, but in Massachusetts the figure was only 25 percent. The money supported special education, bolstered student aid, and plugged budget holes in local school districts for items like health insurance. For instance, Massa­chusetts communities paid $42.3 million to Blue Cross Blue Shield of Massachusetts and $33.1 million to Harvard Pilgrim out of the stimulus funds. The state’s Group Insur­ance Commission, which oversees health insurance for state and some municipal workers, received $4.4 million.

Massachusetts received about $1.1 billion for transportation projects, including $374.7 million for the MBTA, $17.4 million for Massport, and $384.5 million for bridge construction.

There was $789.5 million for energy projects, including $125.1 million for weatherization of homes, an amount that was 25 times what the state spent the year before the stimulus money became available. There was $238.5 million for public safety, including $2.9 million for programs to reduce violence against women. There was $79 million for family services, much of it earmarked for programs such as child support enforcement, foster care and adoption services, and food stamps.

The area where Massachusetts led all states was in research and development and science. A whopping $2.1 billion—more than 27 percent of the state’s total contract funding—went to R&D. Moreover, that amount is more than 18 percent of the total $12.1 billion the federal government made available to all states for R&D and science.

Hundreds of millions of dollars were awarded to Massa­chusetts colleges, universities, and hospitals for energy, medical, and physics research, some with immediate re­turns, others with results that may not be seen for decades.

The University of Massachusetts Medical School in Worcester received a total of 129 direct grants and contracts, not including money funneled through the university system’s main administration for education. The money ranged from a $5,000 grant to participate in a study of an HIV vaccine used in children and pregnant women to $5.2 million to renovate the upper floors of the school’s medical center research wing.

Several Massachusetts institutions received grants worth a total of $4.5 million to study herpes simplex virus looking for the cause and cure. More than $250 million was earmarked for cancer research, with the Dana-Farber Cancer Institute alone receiving $44.9 million.

 
Stimulus money helped build a parking garage in Revere that should spur nearby development.

“We talk about building bridges and roads, and I got nothing against bridges and roads, but a principal investigator usually hires seven colleagues to work on a grant at very nice pay levels, like $60,000,” says Michael Collins, chancellor of the UMass Medical School in Worcester. “So if you look at the economic stimulative effect of research, not to mention the result of what the research will be, it’s extraordinary.”

Harvard University was one of the state’s biggest recipients of stimulus monies, receiving $236.8 million for a variety of research including medical, data, technology and scientific studies. Its school of public health launched scores of studies with $47.8 million in new-found money. Some of the research involved studying health issues overseas, such as a $367,000 grant for the PROMISE (Pro­moting Maternal & Infant Survival Everywhere) program. While the grant funded training for a researcher at Bay­state Medical Center in Springfield and data collection with a Lexington company to study AIDS in women and children, the study involved training and gathering data in countries where HIV rates are higher than here.

David Hunter, associate dean of academic affairs at the Harvard School of Public Health, says over the last few years, research funding from the National Institutes of Health has been flat, meaning with inflation, researchers have had to do more with less. He says if not for the stimulus money, numerous worthwhile and essential studies would not be undertaken, especially in Massa­chusetts, which thrives on research. He also wonders what will happen when stimulus money dries up.

“Absolutely the work wouldn’t have happened without the stimulus finds,” says Hunter. “There is a mix of very, very worthy projects that were not going to be funded otherwise, new projects that were only possible to do because of the ARRA infusion of funds…Some of the ARRA funds were to save jobs that were going to be eliminated and some were to create jobs in new areas. We are all very worried as ARRA winds down, there is no second stimulus, there is no replacement.”

Murky jobs picture

The stimulus was supposed to put America back to work, but its impact during the Great Recession didn’t live up to expectations. When the bill was being debated in Wash­ington, President Obama pointed to a graph showing the nation’s unemployment rate with and without the stimulus. The rate without the stimulus was projected to rise above 9 percent. With the stimulus, the rate was projected to not exceed 8 percent. But those projections turned out to be way off, with the unemployment rate hitting 10 percent in October 2009 and remaining above 8 percent as of February.

Massachusetts fared better. The state’s unemployment rate topped out at 8.7 percent in October 2009 and declined to 6.9 percent by January. At the stimulus’s peak in 2010, federal records indicate there were a little over 15,700 people in Massachusetts—less than one-half of 1 percent of the state’s workforce—whose paycheck came from stimulus funds. In the latest quarterly report, just 6,100 workers were receiving a stimulus-funded paycheck.

Of the $7.5 billion that flowed through Massachusetts agencies for distribution to projects and safety net programs, the state’s best guess is that 952 full-time equivalency positions were created and another 2,895 full-time equivalent positions retained, the vast majority in public education. Overall, state officials estimate a total of 10,000 people—full- and part-time—received a stimulus-funded paycheck with money that came through the state, whether it was for one hour or a 40-hour work week.

“The economists have all sorts of multipliers they use to measure secondary impact, jobs that are ancillary to those directly created or retained by stimulus, using multipliers that range from about 1.5 on the low end to 3.5 on the high end. We take the low end in our projections,” says Simon, the state’s stimulus czar. Asked to estimate how many jobs the stimulus retained or created in Massachu­setts, Simon says there is no clear answer. The stimulus was supposed to put America back to work, but its impact during the Great Recession didn't live up to expectations.Not all of the stimulus money flowing into Massa­chu­setts led to jobs here, in part because the money stopped here only briefly before heading on to another state. Nearly $800 million in stimulus funds credited to Massachusetts was spent elsewhere.

SCS Energy LLC in Concord, for example, received a $275 million grant from the Department of Energy for a $4 billion hydrogen energy project. But while the federal government credits the $275 million to the Massachusetts stimulus bottom line, making SCS the fourth-largest recipient of stimulus money in the state, the money is actually being spent in California, where the facility will provide the benefits and jobs.

Tiffany Rau, a spokeswoman for Hydrogen Energy Cali­fornia, the SCS project, says the award was originally made to BP and Rio Tinto, the proposed plant’s first owners, and was credited to Massachusetts after SCS bought it last fall.

There are other energy projects being developed around the country with money that flowed through Massachu­setts. First Wind, based in Boston, recently completed a 12-turbine project in Hawaii funded by a $117.3 million low-cost loan from the Energy Department. Five jobs were funded in Boston; an estimated 200 jobs are in Hawaii.

Quincy-based Myriant Technologies received $100 million in a grant and a contract from the Energy Depart­ment to build a demonstration facility in Louisiana to develop an alternative biochemical fuel using succinic acid, a sugar byproduct, as a clean energy source. The project is expected to create more than 150 jobs, five of them in Quincy, the rest out-of-state.

1366 Technologies Inc. in Lexington obtained a $143.2 million low-cost loan from the Treasury Department to develop thinner and cheaper photovoltaic wafers that will be used to power solar arrays. The company makes the unsubstantiated claim that the project will “spawn a multimillion-job domestic PV (photovoltaic) manufacturing and installation industry.” The initial design and development is occurring in Massachusetts, the company’s application says, but “Phase 2 and Phase 3 will be executed in another jurisdiction to be determined.”

While some stimulus money credited to Massachu­setts will be spent elsewhere, the opposite is also true. Some of the money directed to other states for research and health care spending ended up in Massachusetts. All told, it appears Massachusetts received roughly its fair share of stimulus funds. Federal officials tried to distribute the funds among states based on population. Massa­chusetts ranks 13th in population and 12th overall in recovery funding.

Hit or miss

Somerville Mayor Joseph Curtatone takes pride in the planned Assembly Row development in Assembly Square. With mixed-use housing, a planned Orange Line T stop, retail, restaurants, a movie theater and a major tenant in IKEA at the entry, the $350 million development will change the face of Somerville, he says. He says the projections are that there will be 18,000 construction jobs and another 23,000 permanent jobs “at full build-out.”

State stimulus czar Jeffrey Simon (left) and Somerville Mayor Joseph Curtatone,
at the main access road for the Assembly Row development.

None of it, he says, would have happened without the $14.9 million in stimulus money to build the main access road and put in utilities including water and sewer through the middle of the development.

“It meant everything,” says Curtatone. “The most valuable dollar in any real estate deal is the first dollar. This is one of those 100-year investments in the city of Somer­ville. It’s a perfect example of a public-private partnership and an investment that shows it’s not going to be all on the back of the developers.”

In Revere, the MBTA is building a $46 million parking garage using $22 million in stimulus money and a separate platform and pedestrian bridge financed by a $20 million grant from the federal Department of Trans­porta­tion. The 1,500-space garage will permit the redevelopment of nearby surface parking lots by a developer who is planning a $500 million waterfront project that will contain mixed housing, retail, and office space.

Paul Rupp, the CEO of Community Re­investment Asso­ciates and the liaison for Revere with the MBTA and the developer, says without the stimulus money the project would still be in the planning stages and perhaps in jeopardy.

“We would be still looking for MBTA money to design and then build,” says Rupp. “The stimulus came along at just the right time and it’s been fantastic, it made this project happen. It was something talked about for decades but when the money was there, we seized the day.”

But for every stimulus dollar that helps transform a community, there are other projects that come with some questions. The Internal Revenue Service processing center in Andover is undergoing an $83 million renovation with funds credited to the state’s overall stimulus spending pot. The project is expected to create more than 66 “full time equivalency” temporary jobs.

But tucked inside that contract is an expenditure of $450,000 for a two-piece work of art called Reforestation/ Fossil by Brooklyn, NY, artist Ellen Harvey. The work, approved by the government’s Art in Architecture program, will be a stone sculpture in the entry foyer with a large mirrored piece hanging on the wall. Massachusetts received $9.4 million in grants from the National Endowment for the Arts, awards that critics are sure to question as to their value in economic stimulus.

“I think that happens in just the nature of any construction project,” says Brandeis’ Ballantine. “Is this the most efficient utilitarian use of stimulus funds? Probably not, but we want aesthetic values in some of our public projects, like the Greenway. Yes, this [art] is a part of the economy, and yes, it is utilitarian versus aesthetics. Fifty years from now we’ll look at it and say ‘I can see why it is here,’ but right now we’re not sure why we did it that way.”

Some other projects, while they may be worthwhile, can cast doubts on just what taxpayer money was supposed to be used to stimulate. The Mashpee Wampanoag tribe received a $12.7 million low-cost loan from the federal government to build a tribal government and health center on the Cape, a construction project that is expected to create 10 full-time equivalency jobs. The stimulus loan comes as the tribe received a $16 million loan from investors and as it seeks a permit to build a $500 million casino in Taunton. Wampanoag officials did not return calls or emails for comment.

UMass Amherst won a $191,600 grant to train a Ph.D. student to go to Saskatchewan, Canada, to study the lower continental crust, one of the few places it can be reached. The grant application said the purpose was for “intellectual merit” and would enhance the school’s undergraduate mineralogy, geology, and petrology courses.

“In addition,” the grant application states, “the field work will provide an opportunity for outreach, through presentations and discussions, to a people who live in a very remote area, but whose livelihoods are generally based on the natural resources of the area.”

The town of Chatham was under pressure to build a new wastewater treatment facility and upgrade its limited and aging sewer system as many of the town’s older septic systems begin to fail. Robert Duncanson, the town’s director of health and environment who is overseeing the $52 million project, says it never would have happened without a $21 million low-cost loan and grant stimulus package from the federal Department of Agriculture.

Once completed, every homeowner will be required to hook up to the system whether they want to or not at a cost of $3,000 to $10,000 out of their own pocket. Duncan­son says it’s a small price to pay for fixing a potentially disastrous problem. “We were able to do it at less impact to the [local] taxpayer,” he says.

One thing the stimulus money appears not to have stimulated was fraud or scandal. Simon attributes that to the 85 people the state employed—paid for with $14.8 million in stimulus funds—to oversee and administer the flow of funds.

“I haven’t been to every single stimulus project, maybe 200 of them,” says Simon. “Most of the programs I’ve seen, I can’t even think of one that I’d put in the category of ‘this is a silly thing to do.’”

Differing definitions

Dartmouth College economist James Feyrer says many people are confused about stimulus spending. They think it should go for projects that will transform the economy or put vast numbers of people to work. But stimulus money is more like a firefighter spraying water on a burning house —there to keep it from burning down, not to add on an extra room off the back.

“Fiscal stimulus is something to get us out of a hole,” Feyrer says, adding that one of the goals of a stimulus is to reassure consumers and businesses about the future of the economy and make them feel it’s safe to resume their spending. “Stimulus will only be effective if somebody’s behavior is changed,” he says.

Given the nation’s slow economic recovery, the growing consensus appears to be that the stimulus did not convince enough people and businesses to change their behavior. It’s difficult to pinpoint why the stimulus didn’t turn around the economy faster. Was the stimulus poorly designed? Was it too small? Or was the Great Recession far more severe than most people expected?

In Massachusetts, public perceptions of the impact of the stimulus are mixed. A survey of the state’s residents in January by the MassINC Polling Group indicates 48 percent didn’t believe the stimulus improved roads, bridges, and other infrastructure in their area, while 45 percent say it has. Exactly half of those in the survey say the stimulus did not prevent the Massachusetts unemployment rate from getting worse, while 40 percent think it did. And 51 percent of respondents said the stimulus did not help the national economy recover, while 42 percent said it did.

Simon says most residents don’t realize the far-reaching nature of the stimulus. He tells stories of sitting with small groups of teachers, asking if they see the impact of stimulus in their communities. He says the answer is usually “not much.” He then tells them that everyone in the room was funded by the stimulus. The response, he says, is usually muted surprise, a reaction that tells him the state and federal governments didn’t do enough to sell the benefits of the stimulus.

“One of the things we didn’t do a good job of was letting people know where that benefit is coming from,” he says. “We frankly weren’t concerned with touting the program and I think that was a mistake, not letting people who were benefitting from the program know that they were benefitting. We didn’t put a note in everyone’s paycheck saying, ‘By the way, this is from stimulus money.’”

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