Obama Economic Recovery Plan Starts to Take Shape in House--Important Gains; Some Disappointments

"How big must the economic recovery plan be to turn the economic crisis around? What approaches are most likely to create or save jobs and boost economic activity? For the first question, the answer seems to be “A lot bigger than we thought last year or last month.” Past proposals in the neighborhood of $100 - $200 billion have for months been seen as wholly inadequate. The House on January 15 released a plan totaling $825 billion over two years, with $550 billion in direct spending and $275 billion in tax cuts. Prominent economists such as Nobel prizewinner Paul Krugman have advised that an even bigger package is needed.

As to the second question, there is considerable agreement across the spectrum of economists that federal spending to put money quickly into the hands of low-income and jobless people, aid to states to prevent service and job cuts, and measures to save or create jobs through projects that can get off the ground quickly are effective ways to boost the economy. The House bill, the American Recovery and Reinvestment Act of 2009, emphasizes these approaches.

The Most Effective Boosts to the Economy
According to economist Mark Zandi of Moody’s Economy.Com, the single most effective economic recovery measure is an increase in food stamps. For every dollar provided for the Supplemental Food Assistance Program (SNAP, the new name for food stamps), $1.73 is generated in economic growth. The House bill includes a two-year increase of about $20 billion, allowing a temporary increase of benefits estimated at 13.6 percent. Advocates have sought a 20 percent temporary increase. An analysis provided by the Economic Policy Institute to the Coalition on Human Needs shows that about 185,000 jobs would be saved or created because people will be purchasing more food.

Zandi’s second most effective measure is an increase in Unemployment Insurance, with $1.64 in economic growth from each dollar of UI spending. The House bill continues through the end of 2009 the federal program providing 26 weeks of additional benefits to workers who exhaust their state unemployment checks. It also raises benefits by $25 per week, and provides funding to states if they choose to expand UI eligibility for disproportionately low-income unemployed such as those who are only able to seek part-time work or have earnings too recent to count in some states’ antiquated unemployment systems. At a cost of $39 billion over two years, the Economic Policy Institute estimates that the increased ability of UI recipients to purchase goods and services will save or create nearly 340,000 jobs.

Aid to states to prevent Medicaid, education, or other service cuts is also understood to be an effective way to boost the economy. Again using Zandi’s analysis, a dollar invested here expands the economy by $1.38. The House plan provides $87 billion over two years in an increased federal share of Medicaid costs, plus aid for education and other programs totaling $79 billion. Advocates have been seeking $100 billion towards Medicaid spending and will continue to work towards that level in the Senate. Among the education programs seeing increases: $13 billion in new funding for K-12 education for the disadvantaged (Title I) and another $13 billion to raise to 27 percent the federal share of special education funding through IDEA (Individuals with Disabilities Education Act). IDEA law set the federal share at 40 percent, but that level has never been appropriated. The 27 percent included here is the highest proportion yet achieved. The economic benefit of the state aid proposed in the House bill would translate into about 1.4 million jobs either saved or created over two years.

Delivering cash to low-income people through tax credits is another effective way to promote recovery. The House bill takes an important step forward by making the Child Tax Credit phase in starting with the first dollar of earnings, even if the family earns too little to owe federal income taxes. Under current law, families with earnings below $8,500 are ineligible for the Child Tax Credit. The benefits to poor families are significant – a family with two children and a parent working full time at the minimum wage (earning $14,500) receives $900 from the CTC now; if the House bill becomes law, their Credit rises to $2,000. In addition, the bill includes a new Making Work Pay credit proposed by President-Elect Obama; it too is available to low-income workers. There is also an increase in the Earned Income Tax Credit for families with three or more children (the EITC under current law is higher for two-child families than for those with one child, but does not rise for larger families).

The House bill includes many other important provisions that spur the economy by helping low-income people to be able to buy what they need. Advocates have noted some shortcomings as well. Among the biggest:

Nutrition: although the bill includes increases for SNAP, noted above, for afterschool meals ($726 million in the Child and Adult Care Food Program), for Senior Nutrition programs ($200 million), and for improvements to WIC’s information systems ($100 million), it does not include any increase for emergency food programs (TEFAP), for WIC food packages for children and pregnant women, or for the Commodity Supplemental Food Program (CSFP). Advocates had sought $450 million for one year of WIC funding, $30 million for CSFP (one year), and $330 million for two years’ funding for TEFAP. With emergency food facilities running out of food all around the country and unable to meet rising demand, the need for all these programs is very great.

Jobs: Advocates had hoped there would be provisions calling for a certain percentage of the jobs created through this bill to be targeted to low-income workers, jobless veterans, women, and minorities. Such targeting is not stated; nor is there specific additional funding for transitional jobs (advocates had sought $400 million) that would help low-skilled individuals prepare for employment. The bill includes well over $90 billion in renewable energy, infrastructure, and other areas where hiring will be needed, and overall estimates for jobs saved or created through this legislation range from 3.3 million to over 4 million. Low-income people will need help to compete for the new jobs in this mix. If the help if not provided in the final legislation, the new Administration will have to develop its own strategies for ensuring that low-income, low-skilled workers with very high unemployment rates benefit from the recovery plan.

Housing: Advocates had sought $5 billion a year for two years in the National Housing Trust Fund, which would provide for construction of affordable housing. The construction projects would create jobs as well as invest in housing. No funds were included for the Housing Trust Fund; nor were there increases in rental housing vouchers, badly needed now as rising joblessness and the wave of foreclosures is pushing more people into the rental housing market, often with little ability to pay security deposits.

Other important recovery provisions (two-year funding):

Supplemental Security Income (SSI, $4.2 billion): The House bill includes a one-time increase, equivalent to about one month’s benefits (approximately $450 for an individual), to help the poor elderly or people with disabilities receiving this income assistance.

Child Support Enforcement ($1 billion): Advocates had long sought this restoration of funds cut in the 2005 Deficit Reduction Act. Loss of state child support collection staff has begun in some places; the Congressional Budget Office had estimated that the cut would have resulted in children losing $1 billion a year in uncollected child support.

Temporary Assistance for Needy Families (TANF, $2.5 billion): This provision creates a new emergency fund available in FY 2009 and FY 2010 that states can tap if their caseloads rise. States will be paid 80 percent of increased costs for basic cash assistance, short-term aid, or for subsidized employment.

Early Childhood: The Child Care and Development Block Grant is increased by $2 billion, allowing an additional 300,000 children to receive care. Head Start is increased by $2.1 billion, allowing 110,000 additional children to be served.

Community-based Services:
Advocates and service providers had sought $2.5 billion to the Low Income Home Energy Assistance Program (LIHEAP) to be added to the $5.1 billion approved as part of the financial bailout bill, in response to rising need for home energy assistance. The House bill includes $1 billion. The bill also adds $1 billion for the Community Services Block Grant for community action agencies to distribute energy assistance, provide weatherization, and carry out many other services, and provides another $1 billion to the Community Development Block Grant, intended for fast distribution of infrastructure funding to local governments, and to help to prevent foreclosures. The Neighborhood Stabilization Program receives $4.19 billion in new funds, to prevent blight from vacant foreclosed properties by returning to the rental housing market, and $1.5 billion goes to the HOME program to renovate and construct housing as well as to provide housing financing in response to the current credit freeze. The bill addresses indications of rising homelessness with $1.5 billion in Emergency Shelter Grants, estimated to prevent 300,000 households from becoming homeless. There are many provisions to make public buildings energy efficient, including low-income housing. Home Weatherization for low/moderate income homeowners and renters is substantially increased, with $6.2 billion (the program is now funded at $227 million a year).

Education and Job Training: In addition to the K-12 education provisions listed above, the bill increases the maximum Pell Grant by $500 for college scholarships at a cost of $15.6 billion. Workforce Investment Act training programs receive an additional $4 billion, covering adults, dislocated workers, and youth (including $1.2 billion specifically for summer jobs for youth). There is also $500 million for Vocational Rehabilitation state grants and $500 million for Employment Services grants to states allow adequate staff to address growing need. Community Service Employment for Older Americans is increased by $120 million.

Health Care: To prevent people from losing their health insurance when they lose their jobs, the bill provides a 65 percent subsidy for the costs of continuing their group health plan under the COBRA law (under current law, the jobless person must pay the full cost). The subsidy to eligible individuals will last for one year; this provision costs $30.3 billion. In addition, the bill adds $8.6 billion for Medicaid to cover the full costs of providing Medicaid coverage for low-income individuals and their dependents who lose their jobs. Community Health Centers also receive $1.5 billion, of which $500 million is intended to serve the uninsured and the rest to be used to renovate clinics. The bill also extends through October 1, 2009 the moratoria previously imposed by Congress on restrictive regulations that the Bush Administration has attempted to implement in the Medicaid and Medicare programs."

Coalition on Human Needs
1120 Connecticut Ave. NW Suite 910 Washington, DC 20036
phone: (202) 223-2532 fax: (202) 223-2538 email: chn@chn.org