When private spending plummeted in 2008, economists’ kneejerk response was to plug the gap with new government expenditures. Massive public spending not related to war had not been tried since the 1930’s. But the depth of the crisis, an abundance of willing constituent/recipients, and the imperatives of Ppresident Obama’s campaign promises moved the Congress to pass the American Recovery and Reinvestment Act of 2009 (ARRA). Hhow effective will this first peacetime experiment in Keynesian pump priming be? It’s too soon to say, but Connecticut’s experience to date illustrates the ARRA’s priorities, and can tell us something about the difference it has made in two big sectors, education and transportation.

Arthur W. Wright

English

Research Papers in Economics

10  THE CONNECTICUT ECONOMY  WINTER 2010
By ARTHUR W. WRIGHT
When private spending plummeted in 
2008, economists’ kneejerk response 
was to plug the gap with new govern-
ment  expenditures.    Massive  public 
spending not related to war had not 
been tried since the 1930’s.  But the 
depth  of  the  crisis,  an  abundance 
of  willing  constituent/recipients, 
and  the  imperatives  of  president 
Obama’s  campaign  promises  moved 
the  Congress  to  pass  the  American 
Recovery  and  Reinvestment  Act  of 
2009  (ARRA).      how  effective  will 
this  first  peacetime  experiment  in 
Keynesian pump priming be?  It’s too 
soon to say, but Connecticut’s experi-
ence  to  date  illustrates  the  ARRA’s 
priorities, and can tell us something 
about the difference it has made in 
two big sectors, education and trans-
portation.
ThE ARRA IN BRIEf
	 What	 has	 become	 known	 as	
“Obama’s	 stimulus	 bill”	 authorized	
federal	spending	of	$500	billion,	plus	
nearly	$300	more	in	tax	cuts,	over	the	
three	 federal	 fiscal	 years	 2009-2011.	 	
Referring	to	the	pie	chart	on	this	page,	
some	 30%	 ($150	 billion)	 of	 ARRA’s	
half-trillion	 dollars	 of	 spending	 will	
go	to	“health	care”.		The	next	largest	
bloc	of	funds,	18%	($90.9	billion),	is	
dedicated	to	“education,”	but	subtract-
ing	the	$87	billion	for	Medicaid—the	
joint	federal-state	health	insurance	pro-
gram	 for	 low-income	 people—from	
the	health-care	figure	leaves	education	
as	the	biggest	single	target	sector.	
	 One	 chunk	 of	 ARRA	 spending,	
$53.6	billion,	was	set	aside	for	the	so-
called	 State	 Fiscal	 Stabilization	 Fund	
(SFSF),	 administered	 by	 the	 U.S.	
Department	 of	 Education	 (DOEd).	 	
SFSF	dollars	will	go	to	states,	whose	
governors	must	then	allocate	them	to	
local	 school	 districts	 under	 a	 welter	
of	criteria	and	restrictions.		The	main	
purpose	of	the	SFSF	was	to	mitigate	
layoffs	of	school	employees	and	so	pro-
tect	public	education;	all	but	$5	billion	
(about	9%)	of	the	SFSF	will	serve	this	
basic	purpose.		DOEd	will	spend	the	
$5	billion	on	“Race	to	the	Top”	and	
“Investing	in	What	Works.”			
KINKS IN ThE pIpELINE
  The	“welter	of	criteria	and	restric-
tions”	cited	above	presents	an	interest-
ing	problem	in	public	policy.	On	its	
face,	 the	 SFSF	 gives	 state	 governors	
an	 incentive	 to	 reduce	 planned	 state	
appropriations	for	aid	to	local	school	
districts,	 to	 free	 up	 tight	 state	 funds	
for	 other	 purposes—in	 effect	 replac-
ing	 state	 taxpayer	 funds	 with	 fiscal	
stimulus	 dollars.	 	 In	 hopes	 of	 ward-
ing	 off	 temptation,	 the	 DOEd	 put	
language	in	the	ARRA	requiring	states	
to	spend	stimulus	money	on	improve-
ments	of	their	programs,	and	also	to	
meet	“maintenance	of	effort”	(MOE)	
standards	on	budgeted	state	education	
spending.
	 Governor	 Rell	 (to	 her	 credit)	
sought	 to	 take	 maximum	 advantage	
of	 the	 SFSF	 funds	 by	 cutting	 nearly	
$270	million	from	budgeted	State	aid	
to	education	for	each	of	FY	2010	and	
2011—within	 DOEd	 requirements.	 	
Nevertheless,	 the	 agency’s	 Inspector	
General	singled	out	Connecticut,	along	
with	Massachusetts	and	Pennsylvania,	
for	 opprobrium	 in	 an	 “Alert	
Memorandum”	 dated	 September	 30,	
2009.	 Never	 mind	 that	 Connecticut	
and	the	other	two	states	were,	techni-
cally,	 within	 the	 scope	 of	 the	 ARRA	
and	SFSF	restrictions;	to	quote	from	
page	 2	 of	 the	 “Alert	 Memorandum,”	
“Although	[the	budget]	reduction	may	
be	 allowable	 under	 the	 law,	 it	 may	
adversely	 impact	 the	 achievement	 of	
the	 education	 reforms	 of	 the	 SFSF	
programs.”
	 A	 second	 public-policy	 issue	 in	
the	 ARRA,	 which	 underlines	 some	
criticisms	of	the	whole	stimulus	effort	
as	 wasteful,	 is	 oversight	 and	 compli-
ance	costs.		The	same	“welter”	meant	
to	 channel	 federal	 education	 aid	 in	
desired	 directions	 and	 to	 prevent	 it	
from	 cross-subsidizing	 non-education	
state	 programs,	 also	 requires	 burden-
some	oversight	by	federal	agencies,	and	
perhaps	 more	 burdensome	 efforts	 by	
local	schools	to	meet	the	requirements.	 	
For	examples	of	the	challenge	of	com-
plying	 with	 ARRA,	 check	 out	 the	
“Monthly	 Reporting	 Requirements”	
at	ct.gov/recovery/,	or	at	the	following	
website	of	the		Texas	Education	Agency:	
http://www.tea.state.tx.us/webinar.
aspx.		Let’s	not	forget,	of	course,	that	
both	oversight	and	compliance…create	
or	save	jobs.
Stimulate This!–But How?
Connecticut’s Experience with the Obama                           
Stimulus Provides Some Clues 
ARRA SPENDING NATIONWIDE
SOURCE: The Connecticut Economy, based on data from the 
State Office of Policy and Management (OPM).
Housing, Research,
and Other
(8%)
Energy
(12%)
Infrastructure
(16%)
Aid to Low-Income 
Workers
(16%)
Other Health Care
(12%)
Medicare
(17%)
Education
(18%)WINTER 2010  THE CONNECTICUT ECONOMY  11 
ThE ARRA IN CONNECTICUT
	 According	 to	 Governor	 Rell’s	
“recovery”	website,	the	total	stimulus	
funds	“committed”	to	Connecticut	as	
of	mid-November	2009	came	to	just	
over	$2.0	billion.		(Another	half	billion	
dollars	 have	 been	 “awarded”.)	 Some	
$1.2	billion	is	actually	in	the	pipeline	
and	 ready	 or	 scheduled	 to	 be	 spent	
under	 current	 authorizations.	 	 The	
governor’s	 website	 leads	 to	 a	 handy	
interactive	map	that	enables	one	to	find	
the	 total	 dollars	 allocated	 to	 each	 of	
the	169	municipalities	in	Connecticut,	
with	a	breakdown	into	the	major	sub-
categories.	 	 The	 database	 underlying	
that	 map	 is	 the	 source	 of	 the	 data	
shown	and	mapped	in	the	centerfold	
of	this	issue,	on	pp.	12-13.		(Note	the	
caveats	about	certain	details	in	“About	
the	Centerfold”	on	page	13.)
	 Reckoned	by	these	data,	prepared	
and	maintained	in	the	Office	of	Policy	
and	 Management,	 three-quarters	 of	
total	stimulus	funds	now	spent	or	on	
the	 skids	 for	 the	 Nutmeg	 State	 have	
gone		either	to	education	(39%)	or	to	
transportation	(36%).		See	the	second	
pie	chart.
	 Of	 the	 total	 education	 funds	 of	
$463	 million,	 nearly	 $331	 million	
(72%)	fall	under	the	SFSF	and	there-
fore	 represent	 money	 paid	 to	 local	
school	 districts	 around	 the	 state	 to	
sustain	 and	 improve	 their	 public	
school	 programs.	 	 A	 sizeable	 portion	
of	 the	 $331	 million	 is	 funding	 that	
(in	 the	 straitened	 circumstances	 of	
State	 budgets)	 would	 not	 otherwise	
have	been	available	to	school	admin-
istrators,	teachers	and	students.		The	
rest	 will	 allow	 Connecticut	 (within	
the	DOEd’s	rules)	to	transfer	precious	
State	 resources	 to	 other	 areas	 facing	
draconian	cuts	during	the	current	(and	
ongoing)	budget	crisis.	
	 The	remainder	of	the	committed	
stimulus	funds	targeted	at	education,	
$132	 million,	 will	 support	 specific	
programs	by	the	State	and	municipal	
governments.		Most	of	this	money	will	
likely	go	for	new	programs,	thus	rep-
resenting	a	net	addition	to	education	
resources	in	the	state.
	 Transportation	 funds	 under	 the	
ARRA	are,	as	one	might	expect,	distrib-
uted	less	“evenly”	across	Connecticut’s	
169	 municipalities	 than	 the	 educa-
tion	funds.		No	transportation	funds	
will	 be	 spent	 in	 thirty-eight	 towns	
(22.5%).		Five	big	“winners”	garnered	
allocations	ranging	from	$33.5	million	
(Fairfield)	 up	 to	 $105	 million	 (East	
Lyme);	in	between	are	Branford	($76	
million),	Trumbull	($39	million),	and	
New	Haven	($38	million).		Virtually	
all	 of	 this	 money	 is	 project-specific;	
the	interactive	map	at	the	Governor’s	
recovery	 website	 permits	 one	 to	 plot	
the	locations	of	the	biggest	projects.
	 Just	 under	 one-quarter	 of	 ARRA	
transportation	funding	in	Connecticut	
($100,777,546)	is	dedicated	to	“tran-
sit”,	related	mainly	to	the	Metro-North,	
Amtrak,	and	Shore	Line	East	rail	lines,	
plus	municipal	bus	service.		The	ten	
towns	 receiving	 amounts	 of	 7	 or	 8	
figures	trace	out	the	state’s	commuter	
rail	routes.		The	largest	single	sum,	$30	
million	to	New	Haven,	will	help	fund	
the	conflicted	repair	and	service	facility	
for	Metro-North,	planned	for	that	city	
for	many	years.
WATCh OUT fOR ThE CLIff
	 Obama’s	stimulus	bill	has	meant	a	
lot	to	Connecticut,	especially	in	educa-
tion	and	transportation,	both	impor-
tant	 sectors	 for	 long-run	 growth.	 	 A	
good	 deal	 of	 the	 federal	 money	 has	
preserved	 jobs	 otherwise	 threatened	
because	 of	 State	 cuts	 (teachers),	 or	
added	new	jobs	(construction,	compli-
ance	specialists).		If	the	Nutmeg	State	
is	any	guide,	no	wonder	that	the	Luv	
Guv	 (Sanford,	 R-SC)	 decided	 to	 eat	
crow	and	accept	some	stimulus	funds.
	 The	danger	here	is	that	the	ARRA	
extends	only	through	federal	FY	2011	
(October	31,	2011),	whereas	the	fore-
seeable	 deficits	 of	 Connecticut	 (and	
many	other	states)	extend	as	far	as	the	
eye	 can	 see,	 under	 current	 assump-
tions.		The	federal	DOEd	refers	to	this	
mismatch	as	the	“cliff”	problem	in	its	
warnings	 that	 states,	 insofar	 as	 pos-
sible,	should	try	to	spend	SFSF	funds	
on	 finite	 projects,	 not	 on	 programs	
that	will	entail	continuing	obligations.	 	
What	could	be	more	of	an	enduring	
obligation	than	aid	to	public	schools?	 	
The	implication	is	that,	year	after	next,	
Connecticut	had	better	be	ready	to	use	
its	own	resources	to	sustain	its	public	
education	 system.	 	 That	 will	 mean	
either	significantly	higher	taxes	or	sig-
nificantly	lower	spending	on	non-edu-
cation	activities,	or	(most	likely)	both.
ARRA SPENDING IN CT
SOURCE: The Connecticut Economy, based on data from OPM.
Other
(1%) Workforce
(2%)
Environment
(7%)
Housing
(8%)
Energy
(3%)
Transportation
(36%)
Education
(39%)
Health
(4%)

Stimulate This!–But How?

http://cteconomy.uconn.edu/articles/AW_W2010.pdf

Stimulate This!–But How?

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