Economic Stimulus (Part III): Can the Recipients Handle It?

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Part III of a three-part series

In the next week or two, we will hear some very good news about the economy. Congress will pass a massive stimulus package that includes many investments that we should have made a long time ago.

Of most concern to many readers of this blog will be a rapid and unprecedented investment in a new energy economy that features greater efficiency, lower emissions and the spark to ignite a boom in renewable energy development.

If it takes a village to fix the economy – and it does – it took a crisis to unleash these investments. If the stimulus package works, it will be as though a capital dam has burst for states, localities, science labs, families, construction workers and many others.

Before it’s too late, we should make sure the gush of money results in the mix of short and long-term investments that the Obama administration intends.

The key question is whether the recipients of the funds have the capacity to manage the flow.

The $819 billion stimulus bill approved by the House on Jan. 28 contains several provisions to keep President Obama’s promise of unprecedented accountability and transparency – a big change from last year’s bailout money, which seems to have disappeared without a trace or appreciable public benefit.

Twenty of the House bill’s 647 pages are dedicated to accountability measures. There’s a new watchdog agency called the Accountability and Transparency Board. There is more funding for inspectors general, a new web site that will allow taxpayers to track the money, and new protection for whistleblowers. There’s even a provision that would have prevented the impeached and now ousted Illinois governor, Rod Blagojevich, from getting his hands on money going to his state.

To improve the chances that the money will be spent quickly and competently, much of it will be delivered through proven government programs that already have their own accountability safeguards.

But a good track record doesn’t mean a program is equipped to handle a sudden deluge of funds. Some of the programs that stand to gain were weakened by the Bush administration or are accustomed to much smaller sums.

For example, the House package contains $6.2 billion to weatherize the homes of lower-income families, an excellent objective. But that’s orders of magnitude above what states have recently requested. The National Governors Association (NGA) advocated funding of only $275 million for the federal Weatherization Assistance Program last year.

The NGA proposed $74 million for the State Energy Program (SEP) last year – the principal program the federal government has used to send money to state governments for renewable energy and energy efficiency programs. The states have used the money to create an impressive array of clean energy programs. The House stimulus bill allocates 46 times that amount – $3.4 billion – for SEP, plus billions of dollars more in state and local energy investments including block grants for state and local governments; grants and loans to improve the energy efficiency of schools, local governments and municipal utilities; and grants to help state and local governments buy alternative-fuel buses and trucks.

A key challenge in the stimulus package is how to make haste without making waste. In the interest of pumping adrenalin into the economy before it goes belly-up for good, the House package requires speed that’s uncharacteristic for government bureaucracy. Under a “use it or lose it” rule, recipients of the money have to send it back to the federal government if don’t spend half of it within one year, and all of it within two years.

Formula grants have to be awarded within 30 days of the stimulus bill’s passage. Grants awarded competitively must be out the door within 90 days. For infrastructure projects, the goal is to spend $100 billion on projects that can be started within six months.

The House bill says that unless otherwise stipulated, only one-half of one percent of each appropriation can be used for management and oversight. And, as I noted earlier, some of green programs that might manage the new federal money were crippled by the Bush administration.

A case in point is the six regional offices that used to oversee some of the big beneficiaries of the stimulus bill, including the State Energy Program and the Weatherization Assistance Program. The same offices operated many of DOE’s programs to get clean energy technologies into the economy. In fact, the regional offices were the federal government’s only field network dedicated to helping move clean energy technologies to market. The Bush Administration closed down the offices in 2006 – a very untimely loss of a critical federal capability.

So, the dangers in the deluge are:

  • that money will be poorly managed;
  • that recipients will rush to spend it to avoid losing it, even if it means funding less than optimal projects;
  • that we’ll build highways that are shovel ready, but which encourage more carbon pollution and gasoline consumption;
  • that the full potential of these investments will not be met;
  • and that the Democratic Congress and new president will be blamed for burdening our children with more bad debt.

Here are three suggestions:

1. Despite Republican protests against bigger government, it may be necessary to increase the ability of federal agencies to manage the money, even if that means temporarily hiring or reassigning federal employees. It may also mean that a higher percentage of the funds will have to be dedicated to oversight.

2. The Obama administration should huddle with the organizations slated to receive large infusions of stimulus dollars to gather their on-the-ground intelligence about how to spend the money quickly and well. They, too, have an interest in success.

Among them are the National Association of State Energy Officials, the U.S. Conference of Mayors and the National Association of State Community Services Programs. Do they need more funds for management? Should states be allowed to contract with for-profit businesses as well as non-profit agencies to weatherize low-income homes? Should more money be set aside for technical assistance and training for weatherization crews?

3. The Obama administration should promote “best practices” – the most successful ways that have been demonstrated to invest in clean energy in the past.

For example, states received a similar windfall of cash years ago as a result of fines against oil companies that overcharged for petroleum. Most states have spent all of that money. But the Texas State Office of Energy Conservation took a different route, creating a revolving loan program called LoneSTAR.

The program helps finance energy efficiency improvements to public buildings. It has been operating for 20 years as a self-replenishing pool of capital sustained as recipients pay back their loans from energy savings. Since its inception, the program has saved more than $250 million in energy costs for state agencies, schools and local governments and has become so popular that at last report, there was a backlog of nearly $30 million in retrofit projects waiting for loans. That’s a model worth replicating.

There is no lack of investment opportunities for the new energy economy. But we must make sure that everyone involved has the capacity, the resources and the time to do the job well.


See also:

Economic Stimulus (Part I): Only 16% Green?

Economic Stimulus (Part II): Show Me the Vision

Video: The Economic Wisdom of a Green Recovery

Simple Fix in Stimulus Plan Could Boost Impact of Billions of Dollars for Energy Efficiency

Investors Tell Congress: Go Green Now and Private Investment Will Follow

Invest in Green Energy for a Long-Term Stimulus