In Focus: The Recovery Act: Is the Best Yet to Come?
The Recovery Act has not resulted in the economic stimulus many expected, but major infrastructure projects could lend a boost in the coming years.
Henry Chou, Associate Vice President of Product Management, Onvia (March 2011)
With budget-cutting dominating the discussion at all levels of government, it almost seems like a decade ago - not just two years - that Congress passed the $787 billion American Recovery and Reinvestment Act (ARRA) as a lifeline to the U.S. economy.
If your company does business with the government, you're probably asking yourself whether a public sector revenue source that seemed so lucrative after the Recovery Act's passage has now mostly withered away.
The answer may surprise you: In the two years of Recovery Act spending, less than a third of the $275 billion in stimulus funds allocated to creating private-sector projects has actually reached the contractors and subcontractors that perform the work at the state and local levels. The majority of the money spent so far from the original $787 billion has gone to tax benefits and entitlements for those in need.
Onvia tracks government spending as the dollars travel from the Beltway to Main Street. According to our data, ARRA funds had supported contract awards for nearly 28,000 stimulus projects with a value of more than $77 billion as of mid-February. But many of the jobs created were temporary, public sector positions associated with these short-term investments - the so-called "shovel-ready" projects that intended to make
an immediate, significant dent in the nation's unemployment rate but failed to do so.
The good news is that not only are tens of billions of ARRA dollars still waiting to be spent, but much of the remaining funding will support the type of economically valuable infrastructure projects - high-speed rail, smart-grid electricity networks, expansion of broadband access - that create well-paying, long-term jobs in the private sector.
We expect state and local government agencies to finalize contracts for the majority
of these remaining Recovery Act funds over the next 12 months, with ARRA expenditures extending into 2016. Why the long spending outlook? Infrastructure projects take years to plan, design, deploy, and complete. But they're definitely worth the wait.
In the early stages, these projects require expertise from workers in fields such as design and engineering. While the quality of these jobs is usually high, their quantity can be quite low. But after an infrastructure project has broken ground, hiring and spending hit high gear as work crews are recruited and subcontracting agreements are put in place. These new jobs generally pay well and are needed for years, not just months, creating a valuable, long-term economic boost.
Once completed, the infrastructure project - whether it's an intercity rail line or a green energy plant - turns into a jobs machine by creating new markets for related industries and supplier companies.
Here's a key takeaway from the Recovery Act: The federal government has little ability to create high-quality private-sector jobs in the early years after money is allocated, but it definitely has the power to create long-term economic and jobs growth and to foster global competitiveness by making major infrastructure investments.
Window of Opportunity
Based on our data, it's clear that those who have dismissed the Recovery Act as a job-creator and an economic catalyst have spoken too soon.
But regardless of whether your company is looking to pursue remaining Recovery Act-related projects, consider this: Federal, state, and local governments now spend some $5.5 trillion a year. That's nearly half of U.S. Gross Domestic Product - a level not seen since World War II and a figure that dwarfs ARRA allocations.
Any budget-cutting that takes place on Capitol Hill and in the statehouses won't change the fact that Uncle Sam will be a prime source for private-sector revenue and growth for years to come.