GAO: ARRA Highway Spending Not Having the Impact It Could

This month’s Government Accountability Office update on the American Recovery and Reinvestment Act has 284 pages worth of fodder for both fans and foes of the legislation. But while it has been the speed with which states have spent Recovery Act highway dollars and the overall job creation numbers to date that have gotten most of the attention, it’s a couple of other findings in the report that should also prompt concern.

McClatchy Newspapers reported over the weekend that their analysis of the GAO report and other federal data shows that a number of states suffering from some of the nation’s  highest unemployment rates have been among those slowest to spend stimulus money intended for highway projects. California, for example, has yet to start on 41 percent of its highway projects despite having the nation’s third worst unemployment rate at 12.4 percent. The state has spent just 26 percent of its highway money, one of the lowest rates of those states studied by the GAO. The involvement of more levels of government in California is thought to have been partially responsible for the delay in spending.

Virginia has an even higher percentage of projects it hasn’t started—52 percent. Transportation officials there blame the state’s emphasis on projects expected to have a long-term impact and the collaborative process of choosing projects for causing the delay, McClatchy reported. But another reason may have been the state budget cuts of recent years in Virginia. While other states were able to put together a list of projects faster because they already had construction underway or about to get started, Virginia had fewer of these projects in the works because they previously lacked the funds to pay for them and so the projects had been cut from the state’s long-term spending plan. I wrote about that in my April CSG report “Shovel Ready or Not? State Stimulus Successes on the Road to Recovery,” which details why some states were more successful than others in not only spending money and starting projects but meeting other Recovery Act goals as well.

According to the White House, highway stimulus spending has produced about 92,000 jobs, far short of the Obama administration’s goal of creating or saving 150,000 jobs by the end of this year. Analysts believe highway building may have been oversold as a short-term jobs creator. But one Missouri transportation official told the Kansas City Star the stimulus has helped delay some layoffs in the construction industry and has enabled some companies to keep employees as well.

Of course it was also hoped that highway stimulus spending would have a long-term effect, years after actual construction is complete. But as the GAO report makes clear, assessing that impact may be difficult. While the GAO found that the U.S. Department of Transportation is planning to assess the Recovery Act’s impact, it has not yet committed to assessing its long-term benefits. DOT expects to be able to report on Recovery Act outputs such as the miles of road paved, bridges repaired and transit vehicles purchased. But longer-term outcomes such as reductions in travel time and congestion (which can have a significant economic impact) will be more challenging to measure.

Another issue of concern in the GAO report, as I alluded to in a blog post Friday, is that states have been slower to obligate regular Federal Highway Administration formula funds this fiscal year because they’ve been so busy trying to spend those Recovery Act highway dollars. That has raised questions about whether the Recovery Act money is having the full economic stimulative effect intended because it was supposed to be in addition to and on top of the highway money states already had available to spend.

“With the emphasis placed on the economic benefits to be gained, the obligation of Recovery Act funds and meeting the act’s statutory deadlines have taken priority,” the GAO report said.

GAO cited staffing shortages in states dealing with budget challenges for some of the slowness in obligating regular funding.  But the report also said uncertainty about future program funding levels and federal inaction on the next long-term reauthorization of federal programs clearly prompted many states to spend more cautiously as well. At the end of June, states had $19.7 billion remaining to be obligated, 63 percent more funds than they did at the same time for the three previous years.

“Because states did not spend regular federal highway formula funds at the same pace as in previous years, while also spending Recovery Act funds, the full economic benefits of Recovery Act funds are likely to be delayed,” GAO reported. “Specifically, if states had awarded contracts and begun expending those regular federal highway formula funds at the same rate as in previous years and in conjunction with spending Recovery Act funds, states would have experienced an earlier stimulus effect. Funding being obligated now for projects will need up to several months to award contracts and initiate construction, and the effect on the economy comes when construction is initiated and workers are employed.”

So while the number of jobs created so far in relation to the number originally predicted is an important statistic, it’s also important to consider that not only might we never see or know the kind of impact the Recovery Act could be having right now, we might not be able to gage its full future impact either. That’s bound to disappoint a lot of stimulus watchers around the country as well as the folks at state agencies who have worked so hard over the last year and a half to get those highway dollars out there and get those road projects done.