Is the stimulus working?
That’s the question being raised after Gov. M. Jodi Rell’s office released a report earlier this month that concluded American Recovery and Reinvestment Act dollars funneled to Connecticut this year have created or saved 6,110 jobs, including more than 5,000 school-related positions.
That number is a far cry from the 41,000 jobs the federal government predicted would be created or saved in the state, although only a small portion of the more than $3 billion Connecticut is expected to receive has been spent so far.
Regardless, some economists and state officials agree that the stimulus act is having some positive impact on Connecticut, but the idea that it is going to be a huge job creator may be fading.
“The word stimulus probably would have been the wrong term to use for this,” said Matthew Fritz, a spokesman for Rell, who has been tracking stimulus spending. “I think a lot of people had in their mind that everyone was going to have a job, and that there would be thousands of infrastructure projects created. But dollars for infrastructure projects weren’t as big as people thought they would be. The federal government utilized the recovery act largely to save local and state budgets.”
Of the $3.1 billion Connecticut is projected to receive in stimulus aid, $1.9 billion, or 61 percent, will go toward state fiscal relief. Infrastructure spending is expected to be only about 17 percent of the total spending package, or $521 million, according to preliminary funding estimates provided by the governor’s office.
Other areas getting large chunks of money include education, housing, energy and the environment, with each receiving more than $100 million in funding.
Through the end of September, state agencies have received about $1.1 billion in stimulus grants and spent about $968 million, but most of the money, or $912 million, has gone to help the state pay for government programs like Medicare, unemployment benefits and food stamps.
Peter Gioia, an economist with the Connecticut Business & Industry Association, said the $787 billion stimulus program is less of a blue print to grow the economy, and more of a “tourniquet for an economy that has been hemorrhaging.”
Of the 6,110 jobs reported to have been “created or saved” by stimulus spending so far this year, he predicts that more than 6,000 of them were not newly created.
“They’ve provided enough funding that allowed organizations and state agencies to retain existing workers,” Gioia said. “The stimulus has really been a safety net, not necessarily something that is going to be a great job creation program.”
Additionally, most of the jobs that were created or saved so far have been state or local government positions, like teachers.
Gioia said creating government jobs does not have as a big a multiplier effect on the economy as creating certain private-sector jobs, further inhibiting the stimulus packages overall economic impact.
Core private-sector industries in Connecticut like manufacturing, research and development, and finance make products or services and sell them around the world, bringing in millions of dollars in new revenue to the state, something government jobs cannot do.
“Jobs such as teachers are important to the community, but their economic effect in terms of their spending power and the like is much more muted than in these other areas,” Gioia said. “You don’t get as much bang for your buck.”
Although the job creation numbers may look small, especially when compared to the more than 80,000 jobs in Connecticut that have been lost to the recession, the stimulus is important, economists agreed.
Matthew Rafferty, an economics professor at Quinnipiac University, said the money benefits Connecticut by preventing state government from cutting services or raising taxes, which would potentially make a bad economic situation worse.
He said the stimulus is allowing states like Connecticut, which are soaked in red ink, to transfer their budget deficits to the federal government. That’s significant because constitutionally most states must balance their budgets and can’t perform deficit spending like the federal government can.
Also, saving teaching positions avoids the threat of municipalities raising property taxes instead, Rafferty said.
Economists also pointed out that the job numbers detailed by Rell’s office don’t reflect the indirect benefits from the money that has been pumped into the state’s economy.
State Rep. Demetrios Giannaros, a Democrat from Farmington who is also an economist, said that every time a dollar is spent in the economy, its value is multiplied by two.
He estimates that the state would have lost another 10,000 to 20,000 jobs if it weren’t for the stimulus aid.
“Every time we spend $1 in the economy, that dollar creates economic activity beyond the first dollar spent,” Giannaros explained. “If a person earning stimulus-related money goes out and buys a refrigerator, for example, then the person who produced the refrigerator will also benefit. If you look at it from a broader perspective the government spending and tax cuts that are part of the stimulus bill are having a much larger impact than what the job creation numbers are showing.”
Steven Lanza, an economist and executive editor of The Connecticut Economy, also noted that the stimulus, in conjunction with other government programs such Cash for Clunkers and the $8,000 homebuyer tax credit, helped U.S. GDP grow by 3.5 percent in the third quarter, the first time that happened in a year.
“Certainly, the stimulus is not offsetting everything that’s happening in the economy, but I think it’s helping to soften the blow from the recession to some extent,” said Lanza.
Fritz said the state is likely to see stimulus spending go up dramatically from now until the next jobs reporting date in January, as more infrastructure and weatherization projects get underway.
He also said the state needs to “pick up the pace to get money moving into the economy faster,” but that people need to realize that the federal government designed the stimulus as a three- year recovery act.
Economists said there is probably little the state could do to improve the effectiveness of stimulus money the state is receiving, because the federal government is laying out most of the rules on how it can be spent.
Some economists agreed, however, that the federal government should have designed the stimulus so that money could be spent more quickly, rather than prolonging it over a three-year period. It may also have been beneficial if the money was handed down to states in the form of block grants, allowing them to have more flexibility in how the money could be spent.
Gioia also suggested that less spending and more tax cuts would have been more effective, since “that would immediately put money in people’s and businesses hands.”
