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How Stimulus Fails; A case study of federal waste in Silver Spring, Maryland
Topic Started: Mar 15 2012, 07:21 AM (150 Views)
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http://reason.com/archives/2012/03/13/how-stimulus-fails

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Why didn’t Maryland’s $771 million in stimulus outlays for transit infrastructure have a bigger impact on the local economy? Partly because Gov. Martin O’Malley cut his own infrastructure budget more than enough to offset gains from the stimulus. Maryland’s Transportation Trust Fund generally pays for highway repairs by collecting a special gas tax and other user fees. After the stimulus money was made available, O’Malley raided the trust fund, diverting $861 million during the next three years to help balance the state budget, according to information provided by Maryland’s Department of Legislative Services. Even with the stimulus, state spending on transit infrastructure has seen a net decrease of $90 million since 2009.

That sort of scenario played out all across the country. Stimulus dollars were used to cover general expenses rather than activating idle resources.

Government Contracts

A particularly ineffective way to put idle resources back to work is to give money to big government contractors to do more of what they’re already doing. Yet that’s what happened in downtown Silver Spring.

Just three firms—Synergy Enterprises, Senior Service America, and Social & Scientific Systems—pulled down more than half of the $138 million in stimulus grants paid to 46 organizations in Silver Spring. While they were receiving a combined $71 million in stimulus, these companies were raking in another $702 million in other government contracts, according to USASpending.gov, a government website that comprehensively tracks federal spending. The stimulus money was simply a bit more of the same, not exactly a recipe for jolting the economy into action.


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Or consider Palladian Partners, a communications firm in Silver Spring that has received $98 million in government contracts during the last 12 years. The National Institutes of Health (NIH), Palladian’s biggest client, tacked $363,760 in stimulus dollars onto an existing contract, then followed that up with two more awards totaling $431,333. Palladian was to spend the money collecting and disseminating information about…how the NIH was spending stimulus money.

With the nearly $800,000 project now 80 percent complete, Palladian has built a website and published 29 original articles on it. The stimulus grant went to hire two new employees, neither of whom was unemployed before coming to Palladian. That’s no way to jump-start the economy.


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Green Jobs

The stimulus bill set aside $500 million for a program to train and recruit people for the new green economy. The program promised to place 80,000 people in so-called green jobs. The grant period is more than half over, and the program has placed only 8,000 people in jobs, according to a report by the Department of Labor’s inspector general.

In downtown Silver Spring, a union-backed organization called the International Transportation Learning Center received $5 million in stimulus dollars, partly to recruit thousands of new workers and train them in “green job” skills. But because transit workers already enjoy low unemployment and the new green jobs weren’t materializing, the group instead received permission to use the entire grant to teach new skills to workers who already have jobs.


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Weatherizing Homes

“We’re going to weatherize homes,” Obama said in an interview with CBS on February 4, 2009. “That immediately puts people back to work.…What would be a more effective stimulus package than that?”

According to Keynesian theory, stimulus funds must be spent quickly to be effective. By the president’s own account, one of the most “shovel-ready” programs in the package was supposed to be a $5 billion initiative to weatherize 590,000 homes around the country. But according to a February 2010 report by the Department of Energy’s inspector general, only 8 percent of the weatherization money was tapped in the program’s first year.

In Silver Spring, Gov. O’Malley held a press conference at the house of Sonja and Richard Lowery in June 2009. Theirs was the first home in Maryland to be weatherized with stimulus money. The program then nearly ground to a halt.

In the first year, Maryland weatherized just 279 homes, 4 percent of its goal. The main holdup was a concession to organized labor that “prevailing wage” rules apply to programs funded by stimulus dollars. That meant weatherization workers had to earn at least the average wage in their area for the work they were hired to do. Before workers could be paid, Maryland (and every other state) spent months conducting surveys to determine the average wages and benefits for workers weatherizing homes in every county. Today Maryland is racing to spend the remainder of its weatherization money before it has to forfeit what’s left in early 2012.
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